⚖️ AI Executive Order

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The New Executive Order and the Battle Over State AI Laws

President Trump recently signed an Executive Order (EO) titled "Ensuring a National Policy Framework for Artificial Intelligence," which aims to stop the proliferation of state-level AI regulations by asserting federal authority. The core argument underpinning the EO is that AI is fundamentally an issue of interstate commerce, requiring a single, "minimally burdensome" national standard to prevent a costly and confusing "patchwork" of 50 different state laws from stymying American innovation. To execute this, the EO directs the Department of Justice to form an AI Litigation Task Force within 30 days to legally challenge state laws deemed inconsistent with this federal policy. Furthermore, it tasks the Commerce Department with identifying "onerous" state AI laws within 90 days and even threatens to condition states' eligibility for federal funds, such as broadband grants, on their regulatory compliance. This aggressive move sets the stage for significant legal conflict, as states like California and Colorado, which have already passed major AI laws, are expected to defend their consumer protection authority in court.

The Unintended Cost of Regulatory Uncertainty for Emerging Companies

While the stated goal of the EO—creating a single, uniform national standard—is a long-term benefit for any company operating across state lines, the method chosen creates immediate and acute uncertainty, especially for startups. Existing state laws remain enforceable unless explicitly blocked by a court or preempted by Congress, meaning founders must now navigate an extended, multi-year period of legal ambiguity. Experts note that large tech companies have the capital to hire robust regulatory teams to "hedge their bets" and absorb the litigation risk. In contrast, startups, which typically do not develop complex, expensive regulatory governance programs until much later, are the most vulnerable. This ambiguity makes it harder to obtain risk-sensitive customers (like financial or healthcare firms), increases sales cycles, and drives up insurance costs. Far from eliminating the compliance burden, the EO has introduced a new layer of conflict, pitting state-specific mandates against an aggressive federal directive, all without a clear, replacement national framework yet in place.

Navigating the Legal Fog and Preparing for Preemption

For AI startup founders, the immediate action is not to disregard current or pending state regulations (e.g., in Colorado or New York) as they remain legally binding for now. Instead, you must assume a "dual compliance" posture while the legal battles unfold. First, conduct an immediate, thorough AI Governance Inventory of your products. Catalogue all AI tools, their function (especially in high-stakes areas like hiring, lending, or healthcare), the data used, and the relevant state jurisdictions. Second, invest in stronger internal documentation and risk assessment protocols now. Even if a federal standard emerges, solid documentation—including bias-testing protocols, data-retention plans, and clear vendor contracts—will be the foundation of any future compliance regime, whether state or federal. Finally, ensure your vendor contracts are flexible enough to allow for rapid pivots in compliance language. The perception of a "Wild West" regulatory environment can erode customer trust; by preemptively establishing rigorous, documented governance, you protect your business, accelerate sales to risk-averse customers, and position yourself favorably for whatever national framework eventually takes hold.

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