A recent legal settlement shows that there's one thing big tech companies are more scared of than government lawsuits: competition from startups.

A coalition of companies including Google, Microsoft, Yahoo, and Facebook reached a settlement on Monday with the Obama administration, allowing those companies to disclose more about government requests for customer information.

That doesn't mean you'll be happy about it. To get their deal, the tech giants seem to have thrown startups under the bus. Inexplicably, the agreement forbids any companies less than two years old from making similar disclosures about government requests for a period of two years.

Thanks to multiple news reports, many consumers are generally aware that the government has been asking tech companies for access to customer data. But the companies were forbidden to release any details about what the government had requested, why, or when. Some, notably Facebook, complained that the gag order made it hard for them to reassure customers that their personal data was safe, and they sued for the ability to tell customers more about what was going on.

This suit seemed like an instance where defense of the companies' business models happily overlapped with legitimate and growing concerns about individual privacy. The settlement shows that this lawsuit was all about business models and had very little to do guarding anyone's privacy. It would be one thing if the settlement completely ignored the interests of any company that didn't participate in the suit. But why include a provision specifically barring startups from disclosing this information?

The irony, of course, is that both Google and Facebook are still run by their founders. If this suit had happened 15 years ago, you can imagine how enraged Sergey Brin, Larry Page, or Mark Zuckerberg would have been by a clause forbidding young companies from giving their customers the same information about data requests as big companies could provide. My guess is they would have cried foul, claiming the settlement showed that there was no level playing field for small companies in America. Brin and Page Page might even have been moved to coin a slogan such as "Do No Evil," to show that they intended to do better.


Unlike an actual court case decided by a judge or jury, the settlement establishes no legal precedent. So if startups want similar freedoms to communicate with their customers, they're going to have to sue to get them.

It's hard to see how a new company, zealously guarding its balance sheet and watching its burn rate, is going to decide it's time to bring suit against the federal government in Foreign Intelligence Service Court. Until one does, or an advocacy group decides to take up the cause, it's easy to see how customers will think that established companies such as Facebook or Yahoo are more trustworthy than a newer competitor. That's great for the Microsofts of the world. It's lousy for startups--and it shows just far removed Facebook and Google are from the startup mentality they claim to embody.