How The Internet Will Change The Rule Of Law

One of the most vexing problems of global trade is dealing with the conflicting national laws that govern the rights and obligations of buyers and sellers.

The manner in which these laws are enacted, the principles (or lack thereof) upon which they are based, the vigorousness with which they are enforced, and the ease with which aggrieved parties can seek redress all affect the quality and quantity of trade between nations. Efforts to harmonize the rule of law through multilateral political action has produced useful results. Never in history has the world been a more hospitable place for the international exchange of goods and services, and trade has blossomed accordingly.

But political harmonization is a slow and complex process, one in which trading partners with diverse economic, cultural or political systems incessantly jostle for advantage.

Can this process possibly keep up with the evolving needs of E-commerce? Witness the fruitless attempts to extend American concepts of copyright protect ion to developing countries. As the leading exporter of intellectual property, embodied in everything from music to software, how much has this failure cost us?

What if there were a way to take the process out of the realm of politics? A way in which the only parties involved in the establishment of rights and obligations were the buyers and sellers themselves? A way that does not rely on judicial intervention to interpret rights or the police power of the state to enforce them? A way in which laws, along with their enforcement, could be designed into the products or transactions themselves?

A utopian dream? It will arrive sooner than you think, at least for any product or service that can be embodied in a string of digital bits. Watch as an industry is born for the sole purpose of creating intrinsic, self-enforcing, private law.

Intrinsic law is law embodied in software, inextricably woven into digital products such that violation of precisely defined rights, permissions or obligations (for examp le, payment of commissions or royalties) automatically renders the product indecipherable. Intrinsic law can also be designed into more extensive multiparty distributed systems that include escrow repositories, third-party guarantors, permissioning systems, trust agencies, rights clearinghouses and independent run-time verifiers.

The basic tools of intrinsic law are maturing--offspring of the revolution in cryptography. Digital wrappers, authentication certificates, DigiCash, metering systems, digital wallets and microtransaction payment schemes are among the developments to watch.

As these tools spill into the market, integrated business models are beginning to emerge that grasp the significance of this radical shift in the creation of law.

The philosophy of intrinsic law remains in its infancy. Few can imagine law without lawyers. But think about the impact on commerce of laws that are not vague and capricious but are algorithmically defined and enforced with certainty, anywhere and everywhere. Imagine laws in which mobs of uninvolved third parties have no say, have no power and have to mind their own business.

How so? Intrinsic laws are never subject to the whims of unbridled majoritarianism. Only purchasers have a vote. Competing systems face the judgment of the marketplace, not the chicanery of lobbyists and politicians. And intrinsic laws are inherently global, going anywhere the product goes--a Trojan horse bearing justice.

What better way to export capitalism? Public policy advocates seemed to have missed this one as they are too busy doing what public policy advocates do, which is to engage in a symbiotic dance with politicians. The industry, meanwhile, will soon be able to say: "Thanks, we don't need your protection. We've invented a way to take care of ourselves."

Bill Frezza is a general partner at Adams Capital Management. The opinions expressed here are his own. He can be reached at frezza@alum.MIT.EDU or techweb.cmp.com/nc/frezza/frezza.html.