SCOTUS Is Rewriting the Rules for Startups

In a pair of decisions that, at first glance, look confined to telecom regulation and copyright law, the Supreme Court may be laying the groundwork for a fundamental shift in how emerging companies are regulated—and how venture capital prices risk. For startups, that shift could be significant.

On one side is the Court’s decision in Cox Communications, Inc. v. Sony Music Entertainment. Justice Thomas supplied the unanimous opinion, providing that an internet service provider is not liable for its users’ copyright infringement unless it intentionally induces or encourages that infringement. On the other is a pending case addressing whether the Federal Communications Commission (FCC) can impose monetary penalties through its own administrative process without a jury trial. Taken together—alongside last term’s decision in SEC v. Jarkesy—these cases suggest that the Court is looking to steadily narrow mechanisms used to police corporate conduct.

The Duty to Police

In Cox Communications, the Court was asked when, if ever, is a platform responsible for the unlawful conduct of its users. The case arose after record labels sued Cox, an internet service provider, alleging that it should be liable for widespread copyright infringement committed by its subscribers. A jury agreed and awarded roughly $1 billion in statutory damages. But the Supreme Court reversed, holding that liability requires more than knowledge of infringement or failure to act; it requires intent to facilitate or induce unlawful conduct.

That distinction is significant considering that modern startups are built on user activity. If mere knowledge of wrongdoing were enough to trigger liability, these companies would face legal risk from day one. Every platform would effectively be forced to act as a private regulator, aggressively monitoring, filtering, and terminating users at scale. This was the model that Google, Microsoft, and Amazon argued against in a brief filed in support of Cox. The Court ultimately agreed and rejected that model.

By requiring intent or inducement, the decision draws a clear line by providing that infrastructure is not the same as participating in wrongdoing. For venture-backed companies, this preserves the core playbook of building and scaling without needing to perfectly police user behavior at the outset.

From Agencies to Juries

While Cox limits private liability, the still pending FCC v. AT&T (a consolidation of two FCC cases that will be argued on April 21), could limit government enforcement power. There, the Court is being asked whether the FCC can assess monetary fines through its internal administrative process, or whether the Constitution requires those penalties to be imposed by a federal court with a jury. The challenge draws heavily on Jarkesy, decided last term, where the Court held that certain agency-imposed civil penalties violate the Seventh Amendment’s jury trial guarantee.

If the Court extends Jarkesy’s reasoning to the FCC, the consequences would reach far beyond telecommunications. Many federal agencies rely on similar in-house enforcement mechanisms. These processes are typically faster, more predictable, and less resource-intensive than federal litigation. They also give agencies significant leverage in settlement negotiations.

A ruling against the FCC would disrupt that system. Agencies would be forced to bring more cases in federal court, where defendants can demand juries, engage in broader discovery, and prolong proceedings. Enforcement would likely be slower, more expensive, and less frequent. For startups, that shift cuts both ways. On one hand, it reduces the immediacy and predictability of regulatory penalties. On the other hand, it raises the stakes. Instead of negotiating with an agency, companies may face full-scale litigation with the Department of Justice.

A Structural Shift in Risk

Viewed together, these cases point to a deeper structural change: Cox makes it harder for private plaintiffs to hold companies liable for user misconduct, the FCC case could make it harder for regulators to impose penalties, and Jarkesy already signaled skepticism toward administrative adjudication more broadly. The takeaway effect is a legal environment in which both primary enforcement channels—private lawsuits and administrative actions—are becoming more constrained.

That matters for venture capitalists because legal risk is central to how investments are evaluated. Traditionally, regulators and plaintiffs have served as a backstop against aggressive business models. If those constraints weaken, investors may become more willing to fund companies operating in grey areas. For example, sectors like artificial intelligence and digital infrastructure are industries where legal boundaries are still evolving, and where early regulatory pressure can dictate growth. From a startup’s point of view, using the process of litigation may be seen as an opportunity to gain leverage in these grey zones.

At the same time, however, the nature of risk becomes less predictable. Agency enforcement, for all its downsides, often produces relatively streamlined outcomes. Litigation, by contrast, introduces uncertainty. Juries are less predictable, timelines are longer, and damages can be higher. In other words, the shift is not necessarily from “high risk” to “low risk,” but from structured risk to uncertain risk. Regardless, it is clear these decisions about curtailing administrative power are not isolated. 

The Wider Conclusion

While none of these cases explicitly target startups, the marks of a broader judicial trend are unmistakable. The Court is expressing skepticism toward expansive theories of liability and concentrated administrative power. It is, step by step, reshaping how the government and private actors can regulate corporate behavior. 

For emerging companies, the result may be a window of opportunity. Less immediate enforcement pressure and narrower liability standards create space to innovate, iterate, and scale. For venture capital, it opens the door to riskier, more ambitious bets. The tradeoff is uncertainty. A world with fewer guardrails results in fewer predictable outcomes.

*The views expressed in this article do not represent the views of Santa Clara University.