The a16z Show - a16z Podcast: Innovation and Regulation -- What Happens When Policy Lags Behind Technology?

Episode Date: July 22, 2015

Regulation always lags behind technology, but by 80-plus years?! U.S. Representatives Fred Upton and Greg Walden -- of the Energy and Commerce Committee including the subcommittee on Communications and Technology that oversees almost every technology -- join this segment of the a16z podcast to discuss what government can do to help (or hurt) innovation. We discuss the Telecommunications Act, originally passed in 1934 and revised in 1996 (before the internet, computing, and especially mobile became ubiquitous!); the conversion from analog to digital; what constitutes medical devices (is an iPad a medical device?) -- as well as healthcare and the 21st Century Cures Act, with its implications for patients, healthcare professionals, and researchers looking for the next breakthrough in medicine. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that the content here is for informational purposes only; should NOT be taken as legal, business, tax, or investment advice or be used to evaluate any investment or security; and is not directed at any investors or potential investors in any a16z fund. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to the A16Z podcast. I'm Michael Copeland. Regulation always lags technology, but by 80-plus years. In this episode of the pod, Sonal and I sit down with U.S. representatives Fred Upton and Greg Walden to discuss the Telecommunications Act, originally passed in 1934 and revised in 1996. And we also talk about what government can do to help or hurt innovation. Both men sit on the Energy and Commerce Committee. Upton is the overall chairman and Walden chairs the subcommittee on communications and technology. In this segment of the pod, we also dig into health care and the 21st Century Cures Act, which the House recently passed in a rare bipartisan vote.

What are the implications of the act for patients, healthcare professionals, and researchers looking for the next breakthrough in medicine? Chairman Upton, Chairman Walden, welcome to the A16Z podcast. Maybe we can start by you guys giving us a quick summary of what you owe. oversee in the Energy and Commerce Committee? First of all, you've got to call us Fred and Greg. Oh, Greg. Yeah, we're members of Congress.

We serve on the Energy and Commerce Committee. We're from, Greg's from Oregon. I'm from Michigan. But the Energy and Commerce Committee, of which I'm the chairman of the overall committee, really has jurisdiction over lots of things. We'd like to say two words, the world. But includes telecommunications, commerce, manufacturing, trade, health care, environment, and energy. So it's pretty much the world.

Yeah, it's actually pretty much all the areas are started with Sinovaden for sure. So we definitely care about that. And I know our audience really cares about that as well. Well, one of the things I think that's most interesting is that you have been in government for a long time. And it's actually kind of funny because if you think about the fact that the Telecommunications Act was passed in 1996 and it only mentions the word Internet six times. Is that true, by the way? Does it only mention the Internet six times? It may be, but what you have to realize is it actually was passed in 1934.

and amended in 1996 and not changed much thereafter. My dad got his ham radio license in 1934. And so, I mean, there's a lot that's changed. And what we try to do is figure out how to get legacy regulations out of the way of innovation. So tell us a little bit more about how that's evolved for you. We have mobile phones now, like computers we carry around in our pockets every day. Remember, the spectrum is owned by the taxpayer. And it used to be that that analog spectrum was taken up almost entirely with the broadcasters.

And in fact, we had the foresight then to change things to digital. Right. You love that conversion. I did. It was actually the Upton bill way back then. And the broadcasters, I got to say, they were tooth and nail fighting it for many years. They never thought it was going to happen. We had, you know, it was bipartisan at the end of the day for sure.

But that then allowed the digital broadcasting, which is today, so it's, you know, much better picture and all the different things that we want. but it also then freed up that space so that we can have the iPhones. And then we came back just a few years ago and expanded on that by putting in place the first reverse and forward auction of Spectrum the world's ever seen. Now it hasn't happened yet. It's going to happen next year, probably in the first quarter of 2016. But it's designed to even squeeze more efficiency out of the really valuable beachfront

spectrum we call it, the kind that we use for our devices. And it could generate literally $35 to $70 billion for taxpayers. We already had a little shot at this with some government spectrum. We were able to get cleared in what's called AWS3. And that spectrum, the green ice shade folks in Washington said would never sell, the government would never clear, and there's no revenue potential. It sold this year for $41.9 billion. It will fully pay for an interoperable broadband public safety network now.

That came out of the 9-11 Commission. And it had never been in that. Yeah, as we remember that our first responders were not able to communicate with each other. And that was the number one recommendation by the 9-11 commission back then on what we ought to do. And we did it. That spectrum's been cleared. We made money. And it pays for these things, too, through the result.

So there's a way for a win for taxpayers, a way for innovation, a way to deal with the country's problems as we go forward. I think that's great. But what's challenging now is that in both of those cases, you're able to be a little bit more proactive. because you could see what was coming. I mean, obviously from analog, digital was coming, and you were able to stay, get ahead of that and really help free things up. But we're in a space right now

where technology innovation is happening really fast and where the laws don't necessarily keep up. And so how do you sort of navigate that? And what are some of your thoughts for how that might affect the policy space? I think the first thing is we come out to places like Silicon Valley and try and get a head start on what's coming, see into the future by talking to the innovators

the entrepreneurs and see what they're running into and what we can then go change. Does it change your approach when you talked about the last 10, 14 years and how you guys anticipated digital and made way for innovation? Do you have to do that in a different way now, given how innovation is happening and given how people, you know, your constituents, everyone out there, are using technology in different ways?

Well, one of our sort of basic themes is let's get the regulators out of the way because what happened, this has all happened really from the private sector. I mean, you talk to the big companies, the AT&Ts, the Verizon, you took to, you know, obviously the Googles. I mean, look at the tens of thousands of jobs that have been created, the technological skills, the manufacturing jobs that have all happened without, you know, without the burden of regulation. And their message is sort of like that old, you know, dates me a little bit here, but the old Fram oil filter commercial. She'll pay me now or pay me later to get the regulators out of the way. Get out of the way.

Let us do our job. And that's what our approach has tried to be. You think about Airbnb. If they had to live by all the laws like they were a hotel, I mean, that doesn't make any sense. Or Lyft or Uber having to, you know, be under the regulatory confines of the old taxi laws, we would never have this competition innovation coming to consumers. And that's what it's really all about. And so there are lots of these issues.

That's why I worry a little bit about where the FCC is going, trying now to regulate the Internet as if it were the old telephone company. And it's so bad. And old being the old hard line back in the 30s. Which is where they're taking it. We can prevent the abuse. We have draft legislation prevent any abuse of the companies. But that's not what they're doing.

And they can go clear to an old section of communications law called 222, where they have to treat your IP address as if it were a phone number. Now you're going to get all the constraints of the old phone monopoly regulatory environment of Washington on top of the Internet, really? I don't think that's going to help on innovation. So we're trying to stop bad regulation, try and move forward, create more spectrum availability, unlicensed, licensed, you know, expand out. You think of what's happening with Wi-Fi. You think about what's happening in the unlicensed space. we've made room for all of that to flourish.

What do you think about some of Google's moves in fiber and what they're doing sort of doing some kind of regulatory arbitrage across different cities and figuring out which cities to go to first? Like what are some of your thoughts on what's happening there? Well, they've identified a real need. And Google's got a terrific name. They've got great workforce.

And I mean, you look at all the different tools, new and innovative things that they've, you know, that's on their description. every block, they're moving forward and they're doing it without, you know, without regulation. That's what America's all about. I think it's great news. Competition's good. Now, I represent a very rural district in Oregon.

So you do have some issues that come up about who's going to serve a very remote rural area in America where there isn't necessarily a business model. So you do have to, you know, there's part of this. We've had a universal service fund. There's a reason we got power and phone out into remote parts of our country because we as a country said everybody needs to be connected. So we want competition as much as possible. We also can't forget and leave behind some of these segments of our population who can easily be cut off from the digital age if we don't also plan. How do we make sure they don't get lost in this?

Right. So sort of finding a balance between those two things. I think that seems exactly right. And I think it was you, Greg, who said regulators get paid to regulate. They like to regulate. What do entrepreneurs here in the valley? And that's who you're sort of speaking to on this podcast, what do they need to be mindful of as they're out there with their ideas and building their companies? You know, I think every once in a while you've got to pop your head up out of your company. And I was in small business for 21 years, the radio business. And so, you know, you're working every day. You're trying to keep the microphones wired in the transmitter running and sell advertising. Every once in a while you've got to pop up and go, is there somebody trying to shut me

down. And indeed, when you look at some of the requirements, the Affordable Care Act, as they relate to medical devices and what is a medical device and what isn't. We actually did a hearing on my subcommittee to force the FDA, the regulator in this case, to tell us, is an iPad a medical device? Because it was uncertain. Is a computer a medical device? Or it was uncertain? Because if it is, then it gets taxed. And I fear that we are having regulation coming on top of innovation. And it will, as Mark Andreessen said, you know, the dog that never barks. There will be things that never happen because innovators will pop their head up and go, I'm not going down that path. I'll go somewhere else.

We can't afford. Especially if they have a dog in the fight. Exactly. We can't afford to lose that innovation, that incredible intellectual capacity that can apply to approve human life because we've got some silly regulation out there. Now we want safety. And nobody's talking about that. And so I think it really is important for policymakers like Fred Upton and Greg Walden

to hear from innovators who say, hey, by the way, I could do this, but I'm afraid of that. And then it's up to us to go, is that a reality that needs to exist any longer? Or was that important in 1934 and not in 2015? That's a great point. So keep your heads down, build your business, build your company. But pop up every once in a while, look around like a periscope and say, uh-oh, incoming. Well, I think it's also important to have everyone think differently about what those medical devices are. Like that question you say is super interesting, like what constitutes a medical device?

And we have obvious examples. I mean, actually, they're not that obvious. iPad, et cetera. But when you think about software eating the world, I mean, one of the things that you think about is that some of those hardware devices are actually much more about the software. And a perfect example is jawbone and the Fitbit that you're wearing on your wrist. I mean, that's sort of a case where how do you regulate software? Is that even a question? Well, I think part of it is if that device is regulating the beat of my heart, yeah, I want a little more regulation there. But if it's Fred Upton's Fitbit or,

jawbone or whatever your fuel. The number of steps today already. You know, that's not, that's not controlling the flow of his insulin or regulating the beat of his heart. And so I think, I think we can come to a pretty clear line. I think that's an interesting point,

but I think we do have to also think about the fact that a lot of the times, the innovations come from unexpected corners. It might not have set out to say, I'm going to solve, you know, heart disease. But if you have a digital therapeutic, that is doing something in a non-toxic way to help change behavior or

prevent disease. and it's being regulated the way you regulate a pacemaker, there is something to think about there. When we say software is eating the world, it's completely changing how we think about the regulations as well, although it sounds like from what you're saying that the policies and the principles still apply. Markets also change it.

Markets. Market forces. And by the way, there are always underlying laws about fraud. They're underlying law, you know. So if you have a device you fraudulently marketed, that law is still there. It still applies, exactly. privacy, same kind of thing. Exactly. If they don't work, the consumer's not going to buy it. That's actually probably one could argue the biggest law of all, because as you say, if the market is what's driving that, and if people are upset, like, people are going to pay probably more attention to that. If you think about the speed of light, that's the speed of evaluation now in today's Internet community. Because people go, I just got a bad meal. I'm never going back over there. This device is a rip off. Or this is really good.

although most word of mouth advertising is negative, you know, how you got ripped off or something. So I think there's the ultimate consumer pushback with the Internet community that helps govern bad behavior. Do you say that you took an Uber or Lyft from the airport last night? And I think that makes me, you know, a smile because if you had a bad ride, have you, haven't you ever called an 800 number to report a bad ride or none of us have? No. But you can do an instant app rating. It's sort of like, okay, well, we can.

can kind of move on from there. The world's changed for the good. Speaking on that note of the world changing for good, let's actually talk really quickly about where you were able to pass the 21st century Cures Act, which is a really important move for biomedical innovation. And we don't want to talk about the politics and nor do we even have the time to talk about it. But the fact that it was something that you guys did in a very bipartisan way and were able to pull this off is pretty incredible. But what we really want to know about is why does it matter?

I mean, because you actually put as part of that, you earmarked an innovation fund. Well, this was a huge bill. As you said, it passed in mid-July now by a very strong bipartisan vote. We're waiting for action in the Senate. We're hoping that that happens soon. But, you know, every family is impacted by disease. I look at my wife. She's got lupus.

My mom's a cancer survivor. My dad's got diabetes. My uncle lived across the street. Parkinson passed away. I'm no different than anybody else. We all have these diseases that just ravage every single family. So this is a way, this is a bipartisan bill where we really listen to all the different health stakeholders out there. From the pharmaceutical industry to the disease patient groups to the health researchers, our universities, the administration, very important, the Food and Drug Administration, the NIH.

What can they tell us to what we can write legislatively to expedite the approval of drugs, and devices, worked with the venture capitalists to make sure, you know, last five or six years, by a 50% margin, they've invested overseas instead of here. And, of course, when that happens, the approvals, they're faster overseas they've been. And, of course, then those products, when they're approved overseas, that's where they get manufactured as well. So this is really a win-win. We're going to, and in addition to that.

So, sorry, just interrupt you for a second. So you're actually saying there's a U.S. competition angle here. Yeah, absolutely there is. but we also included an additional almost $2 billion a year for the NIH, which is, you know, there's not a new drug out there that didn't have NIH research. So work with our universities, our Stanford's, our MIT's and others to streamline the trials, to work with folks. At the end of the day, we're going to get those approvals faster.

That means they'll be cheaper to the patients. But to use the Internet, to use the tools that we have so that we can, can identify with the genome model and everything else, we can target what specific breast cancer you might have or a L, I mean, cystic fibrosis, I mean, all those different things, we are going to find the cure much faster than ever before. And it would be a great win for all of us. Fred, you mentioned there's some urgency to get it passed. Why is that? The money for the NIH begins fiscal year 16. So every day the Senate doesn't act and we don't get a bill to the president means that the money that the NIH can count on to approve those

research grants gets slowed down more. And just to back up, I mean, it's the 21st century cures bill. You guys are anticipating the future of health care. And what are some of the characteristics really that are built into this? Well, we streamline the approval process. We allow universities to talk to each other. We look at, involve the patient groups. So patients are, you know, someone, someone,

with a disease cancer. They want, they may now want their personal information. You know, it's Greta Jones, but they might say, I want to be used. Here's my genome model. You know, what works for me? Hopefully it's going to work for somebody else and use that, you know, use your cells to combat some of these diseases. I mean, it's, the promise is terrific. Congressman Fred Epton and Congressman Greg Weldon, and thank you guys so much for coming.