Towards a Legal Theory of Digital Ecosystems

Abstract

This article undertakes a legal conceptualization of digital ecosystems, analyzing their formation, functioning, and regulatory implications in context. Our approach is informed by a comparative analysis of digital ecosystems across sectors and geographies. We reject the dominant narrative in regulatory debates in the digital economy – a ‘natural order rhetoric’ that assumes the superiority of private ordering (such as contractual governance designed by keystone firms of the digital economy) over instituted processes (such as regulation). Instead, we add nuance to its nascent but still underdeveloped critique, a ‘power rhetoric.’ At the heart of these competing framings are contrasting visions of the role of law in instituting novel modes of economic organization. The ‘natural order rhetoric’ understands the private governance of ecosystems as ‘given,’ rather than the product of a deliberate corporate strategy of keystone firms to gain rents, and hence argues for regulatory restraint. The intellectual traditions behind this argument are unable to identify the essence of ecosystems as a novel mode of organization. We juxtapose it to an alternative framing: A ‘power rhetoric’ which is attuned to the manifestations of private power and means of control, both formal and informal, legal and technological, and that highlights the influence of central actors within these ecosystems which require regulatory intervention. However, the ‘power rhetoric’ has the right intuitions but remains reductionist and inflexible in its perception of the role of private governance regimes that are necessary for digital ecosystems to function and produce social value. We advocate for a third way, a broader framework premised on facilitating institutional change that may be socially satisfactory according to the circumstances and combines the capabilities of both public and private governance. Our conceptual inspiration comes from typologies of governance in (primarily industrial) Global Value Chains (GVCs) which we adjust to the context of digital ecosystems. Through a series of case-studies of existing ecosystems, we test the resulting typology and illustrate the role of concrete legal mechanisms, contractual terms, and technological governance in creating and maintaining significant power imbalances in ecosystems, with keystone firms capturing disproportionate surplus value from collective innovation efforts and creating “externalities” at the societal level. We survey recent regulatory and antitrust law interventions in the EU, UK, and US, and evaluate their engagement with systemic risks connected to the rise of certain ecosystems. We conclude that an approach of progressive institutional reform—cognizant of the political economy of technology regulation and grounded in an understanding of ecosystems as complex adaptive social systems is necessary to reflect a broader set of values in digital capitalism.

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