How Law Made Silicon Valley

Article excerpt

ABSTRACT

Explanations for the success of Silicon Valley focus on the confluence of capital and education. In this Article, I put forward a new explanation, one that better elucidates the rise of Silicon Valley as a global trader. Just as nineteenth-century American judges altered the common law in order to subsidize industrial development, American judges and legislators altered the law at the turn of the Millennium to promote the development of Internet enterprise. Europe and Asia, by contrast, imposed strict intermediary liability regimes, inflexible intellectual property rules, and strong privacy constraints, impeding local Internet entrepreneurs. This study challenges the conventional wisdom that holds that strong intellectual property rights undergird innovation. While American law favored both commerce and speech enabled by this new medium, European and Asian jurisdictions attended more to the risks to intellectual property rights holders and, to a lesser extent, ordinary individuals. Innovations that might be celebrated in the United States could lead to imprisonment in Japan. I show how American companies leveraged their liberal home base to become global leaders in cyberspace. I argue that nations seeking to incubate their own Silicon Valley must focus on freeing speech, and so must the United States, if it hopes not to break this new industry.

INTRODUCTION1

Nearly every company set up in a garage in Silicon Valley hopes to take over the world. There is reason for such optimism. Again and again, Silicon Valley firms have become the world's leading providers of Internet services. How did Silicon Valley become the world's leading supplier of Internet services?

Popular explanations for Silicon Valley's recent success revolve around two features. First, Silicon Valley bestrides the great academic centers of Stanford University and the University of California, Berkeley, and sits near the artistic and intellectual hub of San Francisco. Second, the center of venture capital in the United States also happens to be in Menlo Park, California, allowing both industries to profit from each other in a symbiotic relationship. But education and money coincide in other parts of the United States as well. Why did those parts not prosper in the manner of Silicon Valley? More fundamentally, did not the Internet make geography irrelevant? Scholars answer that Silicon Valley's advantage lies in the economies of agglomeration.2 Ronald Gilson argued that California's advantage was its labor law, which he believes encourages "knowledge spillovers" and agglomeration economies by facilitating employee mobility.3 While these standard accounts do much to explain the dynamism of Silicon Valley relative to other parts of the United States, they do not explain the relative absence of such Internet innovation hubs outside the United States, or the success of Silicon Valley enterprises across the world.4

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.5 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. …