Regulations: Stifling Innovation or Forcing Companies to Better Communicate and Innovate?

Topics: Corporate Legal, Government, Government Regulation, Regulation & Compliance, Risk Management


MENLO PARK, Calif. — Almost three-quarters of chief legal officers asked in a recent survey by the Association of Corporate Counsel (ACC) identified regulatory concerns as a top issue keeping them up at night. Little surprise then that the push and pull between regulation and the freedom to innovate was a major theme echoed throughout DLA Piper’s recent Global Technology Summit.

The two-day summit featured sessions designed to educate startups and venture fund capitalists, while offering legal officers forums discussing many of the same topics but geared more towards in-house legal counsel. While some panelists lamented a fragmented US approach to regulation of certain technologies, others noted how it had improved companies’ handling of data and even the communication between departments.

Bart Stephens, cofounder of Blockchain Capital, blamed regulatory uncertainty around blockchain technology and cryptocurrencies for the drop-off in market performance in 2018. He hearkened back to Pres. Bill Clinton’s hands-off approach to regulating the internet in the 1990s, specifically when Clinton advocated allowing Silicon Valley to “do its thing”, even keeping the IRS from imposing taxes on internet sales transactions for a time. This approach led to open internet and net neutrality as well, allowing entrepreneurs and capital investors to come together to create today’s internet technology giants, Stephens suggested, adding that this dynamic also saw the United States rise to dominate the internet globally.

Entrepreneurs freed up from burdensome regulation often develop new ways to use technology that were never envisioned.

But with cryptocurrency and blockchain innovators currently navigating nine different federal regulatory agencies, plus some state regulators and state attorneys general, Stephens said the US is essentially “off-shoring” innovation to other countries. “When you issue hundreds of subpoenas to startup exchanges, retail investors, and token issuers, that’s going to freeze capital formation,” said Stephens. “The burden for regulation is not to hamper innovation on one side while protecting consumers and investors on the other side.”

Indeed, entrepreneurs freed up from burdensome regulation often develop new ways to use technology that were never envisioned, Stephens noted. The original creators of blockchain conceived it as a peer-to-peer payment system, and the internet itself was originally thought of by the Department of Defense as a great way to communicate in the event of nuclear attack. “You just don’t know where other entrepreneurs are going to take your technology,” he said.

The Cost of Over-Regulation

Kara Swisher, author and reporter for Recode, warned that the US’s conflicting and scattered state and federal regulatory approach has led to a slower rollout of new technologies, such as self-driving vehicles. China, Singapore, and Europe often have been much more aggressive about clearing regulatory hurdles around new technologies and taking a highly unified, strategic, and streamlined approach toward oversight.

Swisher noted that the US is falling behind the rest of the world in turning out computer programmers and experts in science, technology, engineering, and mathematics (STEM). “Most of [Washington,] DC right now is focused on tariffs and plastic toys while China is winning in robotics and AI.”

The US government doesn’t currently have a science advisor, a chief technologist, or the kinds of folks in place to develop a national science plan. The country needs to find a “smarter regulatory pattern” for anticipating and handling these new technologies, Swisher said, warning of the real ramifications of allowing the next era of technology to be determined by the Chinese government.

Other panelists, however, did cite instances where regulation led to benefits for corporations and innovators. For example, the advent of General Data Protection Regulation (GDPR) had resulted in more transparency for companies regarding where their data sits and how it flows in and out, explained Reggie Davis, general counsel and chief legal officer of DocuSign. “Increased knowledge about companies’ data coupled hand in hand with privacy advances are positioning companies for greater digital transformation,” said Davis.

Informatica Chief Privacy Officer and General Counsel Katherine Haar noted that a company’s legal, IT & compliance teams have had to spend more quality time together than ever before to understand data as a strategic asset and how to best protect it.

DLA principal Rena Mears also believes GDPR has forced large companies to communicate more frequently across their own internal silos of different departments, which is often a challenge.

“Even before GDPR, companies didn’t always know where their data was or the processes by which it moves,” Mears explained. “Now companies have to communicate horizontally across the enterprise, and they’re learning more about what processes touch each other.”