Disruptive Internet Innovation and Communications Law

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Disruptive Internet Innovation and Communications Law
M. Christopher Riley Introduction The Internet has become a central platform for communications and culture worldwide. In the process, innovation on the Internet has led to tremendous economic, social, and democratic benefits that could not have been predicted in advance.1 Disruptive technologies, in particular, shape the Internet and produce a vast portion of its value. Disruptive innovation occurs when new products or service supplant existing businesses and business models through new and different technologies or processes.2 The result is a transformation of markets to the benefit of the innovator and the harm of the incumbent. For many reasons, including frequent change in technology and the high value of new Internet and digital goods compared to their relatively low creation and distribution costs, disruptive innovation is particularly effective on the Internet, and its benefits, harms, and transformative effects are increased.3 Because disruptive innovation has such a transformative effect on markets, it produces significant tensions with existing businesses, whose financial positions – or even identities – are put at risk by the new products or services. To defend their business models and revenue streams, embattled incumbents have strong incentives to take whatever steps they can within the law to stifle the development and use of disruptive technologies. Furthermore, because the layers that comprise the Internet create numerous technological points of intersection, incumbents have uniquely powerful means to restrict would-be innovators – and some are beginning to deploy these means. As the services, devices, applications, and networks that comprise the Internet evolve, many are shifting away from the Internet’s open roots towards a closed system, in which a company with power at one layer can control the behavior of its horizontal and vertical peers.4 1

See, e.g., Christopher Riley, The Need for Software Innovation Policy, 5 J. ON TELECOMM. & HIGH TECH. L. 589, 592-93 (describing the subsequent technological benefits that came about as a result of peer-to-peer networks, even though they were originally developed for a very different purpose). 2 This paper seeks to apply and extend the analysis of disruptive innovation by Christensen, who originated the term. CLAYTON CHRISTENSEN, THE INNOVATOR’S DILEMMA: WHEN NEW TECHNOLOGIES CAUSE GREAT FIRMS TO FAIL (1997). Christensen characterizes disruptive innovations as either “low-end disruption,” new products that offer a subset of features of mainstream products and carve out a substantial yet low profit portion of the original market, or “new market disruption,” products that fit a new or emerging market segment that isn’t fully satisfied by existing goods. Technology and the Internet create the possibility for a similar but different form of disruptive goods – goods that create, and then satisfy, market needs that did not previously exist, without needing to carve out a position from current markets by accepting lower revenues or margins. New disruptive Internet products and services are not necessarily straightforward nor low-cost as in Christensen’s model, but they reshape markets and user expectations in a similar way. At the same time, they are often difficult or impossible for established businesses to replicate for a variety of reasons, including that they may be highly dependent on network effects and a first-mover advantage; they may be protected by patents or other legal rights; or their operations may undermine a successful business model of the existing company, and the company may not wish to jeopardize its current revenues. 3 See Raymond Shih Ray Ku, The Creative Destruction of Copyright: Napster and the New Economics of Digital Technology, 69 U. CHI. L. REV. 263 (2002). 4 See TIM WU, THE MASTER SWITCH, at 255-56 (observing that “media and communications conglomerates” gave “a very different vision”...
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