Law, as Much as Tech, Made Silicon Valley

A Techwise Conversation with Anupam Chander, author of “How Law Made Silicon Valley”

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Steven Cherry: Hi, this is Steven Cherry for IEEE Spectrum’s “Techwise Conversations.”

Boston has its Route 128, New York has Silicon Alley, North Carolina has its Research Triangle, Oregon has its Silicon Forest, but there’s only one Silicon Valley. France, the U.K., Singapore, Russia, Israel, India, Ireland, and even Iran have all dreamt of creating their own.

No one has done it yet. Why is it so hard? We know what made the Valley what it is: great universities and the talent that springs from them, venture capital, open land, and a Fry’s electronics store and a Whole Foods market down the road. What’s hard about that?

My guest today looks instead to California’s laws and culture as key to the continued success of Silicon Valley in the Internet Age.

Unsurprisingly, he’s a lawyer himself. Anupam Chander is the author of an upcoming research paper, “How Law Made Silicon Valley.” He’s a graduate of Harvard College and Yale Law School, and he’s a professor at the University of California, Davis, School of Law. He joins us by phone from there.

Anupam, welcome to the podcast.

Anupam Chander: Thank you , it’s a pleasure to be here.

Steven Cherry: You’re not the first scholar to point to the law, but what people point to specifically is California’s laws about compete clauses. You cite some other things instead.

Anupam Chander: Right. So, the typical explanation that involves the law focuses on the fact that in California, a clause in their contract, in their employment contract, that says you won’t compete if you leave this current employer, is not enforceable. That is, California allows you to leave and take your knowledge with you and then apply that knowledge in other contexts, more liberally than does Massachusetts, where there’s obviously a good collection of raw talent and lots of money. And so that has been one of the claims that law has been relevant and important to the development of Silicon Valley. What that claim doesn’t do is try to figure out how Silicon Valley developed when other places outside this country faced similarly advantageous conditions. London has obviously lots of great universities in the vicinity and also lots of money. It’s, you know, one of the world’s financial centers, if not the world financial center. And so why did not London develop kind of similar Internet expertise and entrepreneurship? My suggestion is that law was crucial to this in different ways than just the noncompete.

Steven Cherry: Yeah, so specifically you look at copyright and tort law, for example.

Anupam Chander: Right. So in the 1990s, Congress was faced with calls for regulating the Internet. The copyright industries were quite worried about the fact that now that you could connect computers to each other and you could—that allowed you then to disseminate works across the world at the touch of a button, and so that meant that anything produced in Hollywood could be shared across the world very quickly and cheaply. And so what they did was, they devised—they wanted Congress to enact statutes to protect them in this new digital age. And we saw then the Digital Millennium Copyright Act. Now the statutes did provide very substantial protections for copyright holders. At the same time, the Internet industry and the communications industry was worried that they might be held liable because they might be providing tools that others would use for copyright infringement. And so they agreed ultimately with the copyright industry upon a set of rules, rules for the road, that would allow them to provide tools that would be used for lots of useful things but allowed them not to be held liable for copyright use, infringing uses of those tools, as long as they responded to notice and takedown requests. That is, if they were notified that they were hosting copyrighted material without the permission of the copyright holder, then they would then expeditiously take down that material. With that agreement in place, these—this industry could now thrive. And so essentially what they found was you could have the rise of this new Web 2.0 sets of enterprises, whose kind of focus, whose raison d’être, is to offer platforms to others to use and to share.

Steven Cherry: So you know, basically we don’t—we never blamed the phone company if two people plotted a crime using telephones, and we would treat Internet service providers and other intermediaries the same way.

Anupam Chander: Exactly. Now, these intermediaries were far more involved than the telephone company, in the sense that they could do a variety of things that might—they might have advertising associated with the particular—not with that particular item, but with the service they’re providing. They might do things that were very different than the dumb-pipe kind of approach of the telephone companies. But that’s exactly the point. The point is that any new communications technology on the Internet was the most significant of these inventions, allowed people to use those tools in ways that would infringe other people’s rights, including especially copyright. And so the providers of those tools could be held liable for all the nefarious uses of those tools. And Congress, in a bit of kind of perceptive lawyering, created immunities for those providers of those tools.

Steven Cherry: You also look at privacy protections and how that works in the United States.

Anupam Chander: Exactly. So there was very substantial calls for privacy protection in the 1990s. Calls that suggested, basically, no one’s going to use the Internet if they are worried about their privacy. Calls for new statutes that would protect us from the exploitation of our private information and claims that our private information was our personal property and therefore should be regulated like personal property. You—if you took my private information, then you were essentially committing a theft from me. Now of course, there are many people who still feel this today, that these corporations are exploiting our private information in ways that we find unsavory and unjust. But the fact that the Congress did not actively legislate new broad-gauge protections that protected privacy against these corporate entrepreneurs meant that these entrepreneurs had a freer hand. Now, that’s a very substantial sacrifice that Congress made of our privacy, but at the same time it really gave a fillip to these new enterprises. That is, what you saw essentially was two moves. One, a move to clear liability concerns from the minds of entrepreneurs, and the second, to allow them to exploit our private information in ways that maximized their profit. And so you got these two moves that created the ecosystem for the business model of Web 2.0. And that of course is, you provide a platform, others do what they will to build on that platform, creating wondrous new systems—Pinterest being the latest one, for example. And at the same time allowing those companies to offer those services for free by relying upon the advertising that they can generate because of the low privacy protections available to the individual users.

Steven Cherry: In Europe and Asia, they really went the other way on both of these issues: the intermediary liability and privacy.

Anupam Chander: Right. [That’s] why we don’t see these kind of Silicon Valley enterprises taking root across the world in the same way as we’ve seen in the United States. What we see elsewhere are stronger intellectual property rights for IP holders. So, greater duties placed upon the intermediaries to police their system, so that the providers of these systems, these Web 2.0 systems, are more concerned about being held liable for the infringing behavior transpiring through their systems. So both for a copyright infringement and a trademark infringement. At the same time, we see greater concerns for privacy. Especially in Europe, a very elaborate set of privacy protections that really say that no one can do automated processing of personal information about someone else without asking permission of that person.

Steven Cherry: You also give an example of [South] Korea, which is one of—maybe the most wired country on earth. Tell us about Google’s experience in Korea.

Anupam Chander: Well, one of the last parts of my paper asks this question: Well, if you have liberal laws in the United States and strict constraints elsewhere, then you should really see the rise of Web 2.0 in the United States—and that and no further. That is, these corporations should be stopped at the borders of the United States, foiled by the same laws that hampered European and Asian enterprises. In fact, of course, you see these companies becoming world titans, right? Facebook having now 850 million people, roughly, on its service across the world. And that’s because other countries have not applied their laws as strongly on American enterprises as they applied it at home. That’s a very odd result in international trade. That is, in international trade, we normally think of countries being hostile to foreign traders and preferring local entrepreneurs. In this case, we see the opposite. We see indulgence of foreign providers, and in this case in particular, indulgence of American providers. Here’s my example, here’s one example I offer in the paper: Consider Google’s experience in Korea. So in Korea, there is a requirement that—there has been a requirement, it’s under review right now—there has been a requirement that basically you have to identify any comment or blog post that you make on the Internet with your national ID number so that you can—so that creates a sense of responsibility of, for your Web activities. Sensible if you’re really concerned about, you know, promoting very decent speech in cyberspace, but not healthy for the most robust debate, which requires more anonymous speech to be possible as well. Now, Google has—took the position that this was an infringement on the notion of free speech, that you should be able to speak without having to identify yourself as a speaker. Korea decided to implement this policy with respect to YouTube’s Korean offering. And so Google said—Google, which owns YouTube of course—said, well, yes. We will no longer now allow for people to do—to post comments on Google’s YouTube Korean site. At the same time, they told Korean users, all you need to do is adjust the country setting at the top of the page to something outside Korea, and you’ll then be able to write in Korean and put your comments there, without this national ID. Now, you might have expected the Korean authorities to complain, to protest that Google suggested a way to Koreans to do an end run around the Korean law. But instead the Korean authorities said, “We have no control over what happens over Google outside Korea, and so therefore we understand that this is going to be possible.” So essentially this showed a kind of—the constraints that the Internet provides on enforceability on a particular state’s orders meant that an American enterprise could offer a service in Korea that a Korean enterprise couldn’t offer to Koreans.

Steven Cherry: Ironically, Google now has a real names policy for Google+, as does Facebook for its service.

Anupam Chander: Right, yes, it’s kind of inconsistent, though, as you know, they’ve modified that policy somewhat—or I don’t know if they’ve officially modified it; they’ve said that they are modifying it, and Facebook has announced a modification to its real names policy as well. But you’re absolutely right that the real names policy that they instituted with respect to the Google+ network was inconsistent with their earlier statements in Korea about the importance of anonymous speech.

Steven Cherry: And if they really held to it, it might impede further innovation. I’m curious about also the so-called SOPA, the Stop Online Piracy Act legislation that’s working its way through Congress in various forms.

Anupam Chander: So my paper is titled “How Law Made the Internet.” The power to make often implies the power to break. And in fact, if Congress can make the Internet, make Silicon Valley, it can also break Silicon Valley. And so Congress could do things that would make it so difficult to operate a network, an enterprise, that it’s no longer profitable to do so. And this was the worry with respect to the Stop Online Piracy Act.

Steven Cherry: There’s apparently some pretty big precedent for all of this. You write in your paper that 19th-century American judges altered the common law in order to subsidize industrial development. What did you mean by that?

Anupam Chander: So there’s a claim by a Harvard Law professor named Morton Horwitz that we saw a transformation in American law that bent the law towards the new entrepreneurs, the new industrialists of the 19th century—that bent tort law and property law in their favor. Railroads and use of eminent domain for railroads, for example. And so we’ve seen—this is a controversial claim within legal historians. There are others who challenge that and say no, that kind of proentrepreneurial spirit animated the law even in earlier centuries, and that other motivations were involved in the various changes that happened in the law in the 19th century. But my suggestion is that we can imagine that law might well reconfigure itself to encourage new kinds of entrepreneurship, and the entrepreneurship of this new generation—at least this last, you know, these last 20 years—has been focused heavily on the rise of the Internet. And of course we might see kinds of similar kinds of, you know, entrepreneurship with respect to genetic technology and other technologies to come. But this is a kind of response of the law to these changes in society.

Steven Cherry: Anupam, it’s a fascinating paper. When and where is it going to be published?

Anupam Chander: It—that’s a good question. It’s still unknown where it’s going to be published. I’ve just started circulating a draft, and I’m still working out the kinks and making it more bulletproof. It will be published sometime this year. And we’ll see where the venue will be. It will certainly be available anywhere on the Internet.

Steven Cherry: Very good. Well, thanks for joining us today.

Anupam Chander: Thank you so much.

Steven Cherry: We’ve been speaking with UC Davis professor of law Anupam Chander about what it is in Silicon Valley’s DNA that makes it a unique environment for innovation. For IEEE Spectrum’s “Techwise Conversations,” I’m Steven Cherry.

Announcer: “Techwise Conversations” is sponsored by National Instruments.

This interview was recorded 22 February 2012.
Segment producer: Barbara Finkelstein; audio engineer: Francesco Ferorelli

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