Friday, March 27, 2015

The Innovation State: "No Country" for Old Rules, only Experimental Ones?

Guest Blogger

Sofia Ranchordás

For the Innovation Law Beyond IP 2 conference, March 28-29 at Yale Law School

We love the word innovation. We pronounce it endlessly and, very often, meaninglessly. It seems like everything can be qualified as an innovation these days, and hence escape the legal control and the heavy hand of the state. Law and innovation are often presented in the popular media---and a portion of the literature---as two realities that shouldn’t mix. While innovation is an intangible, evolving, and trial-and-error process, law is made of stable and predictable rules.

Regulators seem to aim at a form of legal certainty which is not compatible with the inherent uncertainty that characterizes innovation. Therefore, whenever law tries to regulate innovative products and services, it often ends up stifling innovation by applying rigid and obsolete rules that constrain the freedom of innovators. As I have explained in my previous work on sharing economy, we have witnessed this problem with the prohibition of Uber in Europe, where the ‘old rules’ designed for taxi regulation have been used to prohibit this innovative form of peer-to-peer economy.

However, is this tension between law and innovation truly due to the inherent uncertainty of innovation, or to the normative uncertainty that confronts regulators? In other words, in many cases, clinical trials and ex ante evaluations may already provide regulators with sufficient information as to the potential risks and benefits of an innovation, but this may still not say much about the rules to be enacted in a concrete case, or the timing of such rules.

At the Innovation Law Beyond IP 2 conference, I am presenting a paper arguing that the heart of the matter is not whether the State should be ‘in’ or ‘out’ of the innovation game, but rather how and when it should be involved. I contend that in dubio as to the most adequate rules (and not the risks to public health or safety), regulators should experiment pro innovation. Following my previous work on temporary and experimental legislation, I explore the complex nature of the innovation process and argue that an experimentalist approach to innovation implies using an array of temporary instruments that allow regulators to adjust the timing of their rules. I propose the use of three instruments:
  1. sunset clauses
  2. sunrise clauses
  3. experimental regulations
Disruptive innovation, for example, tends to evolve rapidly and destructively. As a result, not only will law lag behind, but it also can very easily become obsolete. In these cases, I suggest the use of sunset clauses, which determine the termination of legal dispositions that are no longer necessary (“a regulation expires unless…”).

At other times, law wants to be the first mover, trying to predict and regulate innovations before they reach the market (think about different types of robots and driverless cars). Here regulators want innovators to take into account their concerns, perhaps not now, but once technology is ready for them. A sunrise clause, which delays the effects of a legal disposition to a later date provided that certain conditions are verified might be helpful here (“a regulation enters into effect if…”).

Both sunset clauses and commencement or sunrise rules are traditional instruments in common law that have been largely overlooked in the past decade in the United States. The same goes for the third instrument: experimental regulations. When regulators are uncertain about the most effective regulatory approach because they lack information about its effects, experimenting with new rules, rather than “putting the whole nation at risk,” might be a better alternative. Apart from randomization of policies and ex ante trials of rules in quasi-laboratories, I suggest the enactment of experimental regulations, not just in the context of states-as-laboratories, but also at federal level. This is seldom done for a number of reasons, but evidence from unitary countries shows that it is possible. The real world is not a lab and there will be many limitations to the validity of the knowledge produced in these experiments. However, as I have argued in recent work, as long as these experiments are implemented and evaluated in an objective way, some facts will be better than none.

In conclusion, my paper attempts to bring law and innovation together by rethinking their relationship and focusing on the element of timing. Some say that law and innovation are not meant to be together: law is slow, innovation is fast; law loves commitments, innovation loves freedom; law is made to last forever, innovation believes in trial and error. In response, I say: let them experiment, sunset and sunrise their relationship, try, try again, and fail better. At the end of the day, we all know that opposites attract.

Sofia Ranchordás is a Resident Fellow at the Yale Law School Information Society Project, and Assistant Professor in the Department of Public Law, Jurisprudence and Legal History at Tilburg Law School. She can be reached at sofia.ranchordas at yale. edu.


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