Tech industry clashes with California Privacy Agency over AI, data rules

A procession of business and technology organizations warned the California Privacy Protection Agency of economic consequences and legal action if it moves forward with its latest round of regulations on privacy and artificial intelligence.

The meeting came as California lawmakers introduced a new round of bills to rein in artificial intelligence and social media -- and as the industry finds itself more at odds with the state where it was born.

Wednesday's public comment hearing was scheduled after several groups complained they were unable to participate in a Jan. 14 hearing because of the Los Angeles County wildfires. But many commenters said they had been providing their feedback for months -- and have been ignored.

"Over the last 18 months, we have testified numerous times on a handful of concerns on repeat, for example, that the regulations are insufficiently risk based and part from established global privacy frameworks and standards," Ronak Daylami, an attorney and policy advocate for the California Chamber of Commerce, told the agency's board. "The regulations go far beyond the agency's express statutory authority and beyond the scope of privacy regulations."

Voters created the agency, the first dedicated online privacy regulator in the country, in 2020 when they passed Proposition 24. In the years since, the agency has enacted multiple rounds of rules, and lawmakers have expanded its power.

The latest regulations released for public comment in November would set standards and parameters for cybersecurity audits, automatic decision-making technology and insurance companies. Multiple commentors said that if passed as is, the regulations would be challenged in court.

"Our greatest concern with these draft regulations lies in the automated decision-making tools section," Anton Van Seventer counsel for privacy and data policy with the Software Information Industry Association, told the agency. "At the same time, while our focus is on ADMT, there are substantive issues around scope and legality, and we hope these will not be ignored by the agency."

Several people also spoke in favor of the new rules and urged the agency to go further.

"The CPPA [California Privacy Protection Act] was designed to ensure that people in California have the tools necessary to advocate for their rights in the 21st century data-driven economy, and the board must use this rule making process to inform the intent of the law and balance the industry's immense power," said Tim Newman, senior vice president of labor programs at TechEquity, a non-profit which works to raise awareness of economic inequalities caused by the technology industry.

Newman added, "The arguments we've heard in public hearings from industry representing some of the richest and most powerful corporations in the world are part of a larger effort to block common sense frameworks to protect Californians."

State lawmakers, meanwhile, show little sign of backing off from regulating the industry. On Thursday, Assemblymember Rebecca Bauer-Kahan (D-Orinda) introduced the Leading Ethical AI Development (LEAD) for Kids bill. AB 1064 aims to strengthen privacy protections and bar the use of "emotionally manipulative AI chatbots" on children, among other provisions. It would also create another oversight entity, the LEAD for Kids Standards Board within the Government Operations Agency, to implement the law.

"Tech companies have prioritized rapid development over safety, leaving children exposed to untested and potentially dangerous AI applications," said Bauer-Kahan in a news release.

An attorney who has worked on both environmental and technology cases, Bauer-Kahan has been one of the most active lawmakers working to regulate the technology industry. Last year she introduced AB 2877, a bill that would have barred AI models training on data generated from anyone under 16. It died in a Senate fiscal committee amid fierce opposition from the California Chamber and the technology industry.

Silicon Valley was once thought of as one of the most reliable fundraising environments for Democrats -- at least for moderate, probusiness ones. But among the many political transformations achieved by President Donald Trump was bringing several key industry figures within his movement, including Elon Musk, Peter Thiel and Marc Andreessen.

Meanwhile, regulatory challenges to the growing power of the industry are now largely coming from two sources, California and Europe. A coalition of technology companies led by Meta Platforms, Inc. has been lobbying to roll back the Artificial Intelligence Act passed last year by the European Union. Vice President J.D. Vance, who formerly worked for a Thiel venture capital fund, used a recent trip to Europe to lash out at what he called the European Union's "onerous" technology regulation.

This suggests current federal leaders are unlikely to produce consequential regulation of social media or artificial intelligence. People speaking both for and against California's latest regulations appear to agree the debate in Sacramento has taken on a new significance. Several speakers warned the state could pay a financial price if the industry opts to move away to avoid regulation.

TechEquity's Newman urged regulators not to back down.

"We see these same tactics played out in the Legislature and we are watching them at their most extreme at the federal level, as agencies are responsible for protecting consumers, labor and discrimination rules are gutted and dismantled," he said. "The industry playbook is clear."