From The Introduction

In the late 1800s, as in the late 1900s, start-ups were running wild.

Railroad speculators, entrepreneurs, and financiers were busy laying redundant track from one end of North America to the other. By 1900, excess capacity had nearly bankrupted the transcontinental railroads. Operators were unable to charge rates that covered ongoing costs, let alone recover their investments. There simply wasn’t enough freight to meet the capacity.

Shippers knew it and forced the railroads to reduce rates to ruinous levels. To stay afloat, the railroads invented a unique form of discrimination. Most of the transcontinental tracks began in Chicago and ended on the West Coast but took different routes over the mountains. Shippers to and from Spokane, Washington, for example, could use only the Great Northern Railroad.

Knowing this, the railroad developed a rate system that charged shipments from Chicago to Spokane the fare from Chicago to the Pacific and then back to Spokane, even if the freight actually stopped in Spokane. These “back-haul” rates made shipping freight to and from the intermountain regions disastrously expensive. Spokane and other towns fought the system all the way to the U.S. Supreme Court.

The New Forces

The lawyer on the Great Northern case was Brooks Adams. The great-grandson of Revolutionary War leader John Adams, Brooks knew the inevitable result of unfair taxes, whether levied by a distant monarch or a faceless corporation. Reviewing the long history of economic revolutions,

Adams argued that legal systems systematically fail to take into account new technologies and their unique properties. Instead, they force-fit new problems into old law. With no clear precedent to determine “fair” rates of rail carriage, the courts had worked their way back to the Middle Ages and the rights of landowners to use the King’s Highway, giving far too much deference to the railroads in the process.

Adams demanded a more pragmatic solution: “There is no ancient and abstract principle of right and wrong,” he wrote in his brief to the Interstate Commerce Commission (ICC), “which can safely be deduced as a guide to regulate the relations of railways and monopolies among our people, because railways and monopolies are products of forces unknown in former times. The character of competition has changed, and the law must change to meet it, or collapse. Such is my general theory.”

Brooks Adams’s “general theory” continues to apply one hundred years later. Today, thanks to almost magical improvements in the capabilities and costs of information technology, each of us is developing a parallel existence. Simple information exchanges through e-mail have rapidly evolved into a virtual environment in which relationships are formed, business is conducted, and new information products and services are developed in large-scale group collaborations. We are now living not only our real lives but also a second, digital, life, where distance is irrelevant, time can be started and stopped, and property can be reproduced in an instant with almost no measurable cost.

Ten years after the start of the Internet revolution, however, the inability of rules optimized for an analog world to keep the peace in the digital age has paralyzed much of the legal system. Conflicts over information use, acutely visible in thousands of lawsuits brought by the music industry against its own customers, will soon be joined by nascent fights over privacy, digital civil liberties, technology standards, network control, information crime, and global commerce. As the distance between innovation and the law that regulates it has widened over the past decade, the most alarming result is the speed with which tensions between the two have increased.

These struggles are side effects of the Law of Disruption. First introduced in my earlier book Unleashing the Killer App, the Law of Disruption is a simple but unavoidable principle of modern life: technology changes exponentially, but social, economic, and legal systems change incrementally.

The technology we invent has the potential to change the world at an accelerating pace, but humans can no longer keep up. As the gap between the old world and the new gets wider, conflicts between social, economic, political, and legal systems honed in the age of steam engines and a generation raised on cell phones, iPods, and video games become more acute and more dangerous.

The battle between innovation and the law has reached its defining moment. Nothing can stop the chaos that will follow. Chaos, however, is necessary. The normal evolution of legal systems is slow and incremental.

But disruptive technologies, whether railroads or the Internet, ultimately demand dramatic transformation. In science, Thomas Kuhn referred to these breakdowns as “paradigm shifts.” In business, Joseph Schumpeter called them “creative destruction.” For both men, the process was identical. Bold new experiments, usually the work of young practitioners, directly challenge the core beliefs of the established order, forcing a difficult but critical period of reinvention, followed by another period of normal evolution.

In law, we just call it revolution—the replacement of one form of government with another.

The Internet revolution is now demanding rules that fit the realities of digital life, particularly the unique properties of information. As an economic good, information can be consumed simultaneously by everyone; in many cases, it becomes more valuable the more it is used. Next-generation media companies including YouTube, Facebook, Wikipedia, Six Apart, Scribd, My- Space, and Twitter exploit those features. They enable a growing community of users to produce, modify, and collaborate on a remarkable range of content.

While some of that content is their own, much of it is under the control of large corporations. No matter, say the users. Bits are bits. As content owners become increasingly desperate to protect their information assets, worlds are colliding. Digital life thrives on cooperation, recombination, and added value. Industrial-era laws, most visibly of copyright and patent, stand conspicuously in the way. It may not take much to overcome them. The Pew Internet and American Life project reports that 72 percent of Americans between ages 18 and 29 say “they do not care whether the music they download onto their computers is copyrighted or not.” In China, even the idea that information should be treated as a kind of property was unheard of until the late twentieth century. Laws that can’t be enforced are laws in name only. Game over.

This book is the story of these and dozens of similar struggles going on right now. It goes beyond the headlines to reveal the new forces, driven by technology, that will ultimately determine their outcome. For the most contentious features of digital life, I describe nine emerging principles that are shaping a new legal code. These nine principles—the laws of disruption— derive from the economic and environmental conditions of digital life. They are the change agents of the Law of Disruption, closing the gap between legal institutions of the past and those of the future. My goal is to help you learn to harness these principles, both for business and for personal gain. To that end, a “Fast-Forward” section at the end of each chapter offers guidance for policymakers, business leaders, and consumers hoping to avoid the pitfalls, smooth the transition, and exploit the opportunities of a fundamental transformation of law already in progress.