Law, technology development and learning – the case of Silicon Valley

All too often we view innovation and technology development as Athena-like — springing from the head of Zeus (in this case the inventor/engineer/entrepreneur). However, scholars (such as Nobel-laureate Douglas North) remind us that economic activity (and invention/innovation is economic activity) takes place in the context of institutions. One of those important institutions is the law. That case is made forcefully in Anupam Chander’s piece in the Emory Law Review, “How Law Made Silicon Valley”:

The story of Silicon Valley is not only a story of brilliant programmers in their garages, but also a legal environment specifically shaped to accommodate their creations.

Chander argues that free speech and the First Amendment, not IP protection, is what makes up that accommodating legal environment:

Law played a far more significant role in Silicon Valley’s rise and its global success than has been previously understood. It enabled the rise of
Silicon Valley while simultaneously disabling the rise of competitors across the world. In this Article, I will argue that Silicon Valley’s success in the
Internet era has been due to key substantive reforms to American copyright and tort law that dramatically reduced the risks faced by Silicon Valley’s new
breed of global traders. Specifically, legal innovations in the 1990s that reduced liability concerns for Internet intermediaries, coupled with low privacy
protections, created a legal ecosystem that proved fertile for the new enterprises of what came to be known as Web 2.0. I will argue that this
solicitude was not accidental–but rather a kind of cobbled industrial policy favoring Internet entrepreneurs. In a companion paper, Uyên Lê and I show
that these aspects of copyright and tort law were not driven by commercial considerations alone, but were undergirded in large part by a constitutional
commitment to free speech. As we argue there, a First Amendment-infused legal culture that prizes speech offered an ideal environment in which to build
the speech platforms that make up Web 2.0.
[Note: Companion paper is “Free Speech”]
. . .
This Article upends the conventional wisdom, which sees strong intellectual property protections as the key to innovation–what the World Intellectual Property Organization calls a “power tool” for growth. Understanding the reasons for Silicon Valley’s global success is of more than historical interest. Governments across the world, from Chile to Kenya to Russia, seek to incubate the next Silicon Valley. My review suggests that overly rigid intellectual property laws can prove a major hurdle to Internet innovations, which rely fundamentally on empowering individuals to share with each other. This study helps make clear what is at stake in debates over new laws such as the Stop Online Piracy Act (SOPA) and its relatives, highlighting the effect of these laws on Silicon Valley’s capacity for innovation.

It is important to note that this argument builds upon the work of Ronald Gilson and Annalee Saxenian in the 1990’s on the differences between Silicon Valley and Route 128 (Boston) concerning non-compete agreements: they are illegal in California but legal and utilized in Massachusetts. The argument is that such agreements stifle to flow of information among companies (via the interchange of workers) and inhibit entrepreneurship (new start-ups). The argument also grows out of analysis of copyright cases (such as those of Pam Samuelson), especially of the landmark 1984 Sony v. Universal VCR case.
It should also be noted that article is a comparison of the legal environment in the U.S. versus Europe and Asia, including on privacy. Given the recent EU ruling on “the right to be forgotten,” it will be interesting to see how these national differences play out with respect to the future development of the technology.
This legal argument fits with the economic argument I discussed in a previous posting on the learning economy. As I pointed out, there is a strong case to be made (as Nobel-laureate Joseph Stiglitz does) that the key factor for prosperity is the ability of an economy/society to continually learn. Thus, the most important question to ask of any proposed policy is “does this facilitate or inhibit broad economic and societal learning?”
Chander’s argument makes the case for asking the same question in the courts.


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