Singularity Law

Fifth Epoch (2001-20??)

The dot com bust had an enormous impact on the computer industry, as well as those lawyers who serviced that industry. Funding for start-ups disappeared, initial public offerings dried up, and a large percentage of the Internet industry found itself struggling to survive. Lawyers found themselves working more on bankruptcies, mergers and acquisitions and restructurings than helping new business ventures get off the ground. While there had been periods of time in the first four epochs where economic downturns and retrenchment had occurred, nothing compared to the dot com bust.

The enormous growth in the Internet industry had attracted a new generation of lawyers. By 2001, the majority of computer lawyers had been in practice for less than 10 years, and had never experienced an economic downturn. They were ill-prepared to deal with this catastrophic change of circumstances. It was a period of reflection, where everyone in the industry had to take stock. One of the most important steps was to go back to fundamentals. What makes for a successful company? What is the attorney’s role in making a company successful? (More after the jump.)

The Internet and the business models underlying the Internet have changed radically since 2001. Despite the doom and gloom predictions from those who saw the Internet as a passing fad, the Internet and its multitude of uses has grown substantially in the last five years, often in ways that no one could have predicted. Since 2001, use of the Internet, as well as the information available online has doubled and in some cases more than tripled. At the same time, there has been a shift in many facets of online businesses. The resulting business model has been dubbed “Web 2.0.”¹

“Web 2.0 is an attitude not a technology. It’s about enabling and encouraging participations through open applications and services. By open I mean technically open with appropriate APIs but also, more importantly, socially open, with rights granted to use the content in new and exciting contexts.”²

One of the characteristics of Web 2.0 is collaboration between websites and users to create and enhance the content of those sites.³ This has led to new business models based upon “social networking,” where a website is not a static database containing content vetted by the website owner, but is designed to allow users to develop the content of the website collaboratively. And with new business models come new legal issues.

Beyond the growth of the Internet, a series of events during the first half of the “aught” decade have substantially rewritten the legal rules under which IT lawyers operate. The first such event was 9/11. In addition to the human tragedy, which must never be minimized, those companies resident in the twin towers suffered serious disruptions to their businesses due not only to the loss of key people, but the destruction of their computer systems and the historical data stored on those systems. More than one company did not have proper backup or a disaster recovery plan. Many of those companies failed as a result. Their stories were widely reported in the press, and many corporate executives took heed.

It is not possible to track the growth in outsourcing directly to the events of 9/11, but that tragedy provided the impetus for many companies to make the move. Many transactional attorneys heard from their clients, who wanted an audit of their current contracts to insure that their data was being properly safeguarded against loss or destruction.

A second event, which can perhaps be viewed as a corollary of the first, is the War on Terrorism. 9/11 resulted in passage of the Patriot Act of 2001, and a series of subsequent laws, aimed at making it easier to track terrorists online. Never mind that civil libertarians decried these laws as undermining basic constitutional rights, these laws and accompanying regulations have rewritten large swaths of IT law – from issues of evidence, to constitutional rights, to privacy.

A third event that contributed to the emergence of this latest epoch was the financial manipulations uncovered in the wake of the financial failures of Enron, Tyco and others. While corporate fraud had always been with us, the breadth and scope of these frauds were unprecedented. And they could not have been carried out without the use of sophisticated computer systems. These debacles led to the passage of the Sarbanes-Oxley Act, which places significant burdens on corporations to ensure that their computer systems are secure – or face the consequences. This Act, along with passage of HIPAA, Gramm-Leach-Bliley and other federal and state laws have placed an enormous burden on companies to ensure that the data stored on their systems is secure.

And that has lead to the fourth development that is propelling the Fifth Epoch – the wholesale, global assault on privacy. Criminals are using the Internet to get access to personal information – usually without the victim even being aware that it is happening. Companies whose computer systems have been compromised are facing lawsuits, FTC actions, and a growing number of state laws that require them to notify their customers of any security breaches.

Last, but certainly not least, U.S. companies seem to be addicted to outsourcing. Although outsourcing of computer services has been taking place for decades, the decrease in telecommunications, costs, the increase in highly educated individuals in countries like India and China, and the ubiquitous nature of the Internet, have allowed companies to send increasing amounts of IT and business services to low-cost service providers. The legal issues involved in outsourcing are growing quickly.

© 2007 Michael D. Scott. All rights reserved.

Previous: “The History of Computer/IT Law” Fourth Epoch (1993-2001).

1. The term “Web 2.0” was coined by a conference organizer to describe the subject matter of their post-dot com crash business conference. However, the term has caught on, with over 9.5 million citations on Google. [↩]
2. Ian Davis, Talis, Web 2.0 and All That, July 4, 2005. [↩]
3. As noted in Wikipedia, Web 2.0 is “[a] social phenomenon referring to an approach to creating and distributing Web content itself, characterized by open communication, decentralization of authority, freedom to share and re-use, and ‘the market as a conversation.’” [↩]