It was a dangerous year for innovation. Governments around the world became increasingly aware that digital technology could disrupt the political and economic status quo.

Lawmakers and lobbyists were calling for new laws to curb innovations that challenged traditional law enforcement and old ways of doing business. But the laws would have stifled innovation far beyond their intended goals. Technology industry leaders sounded the alarm, but their voices went largely unheard in the corridors of power.

But one proposal gave birth to an organized resistance. Top government officials tried to force industry to re-engineer key technologies to dramatically expand government intervention and oversight, allowing federal law enforcement agents to manipulate core innovations central to fast-growing but still immature new products and services.

A small group of entrepreneurs, activists, writers and lawyers banded together to rally the technology community in opposition. A surprising coalition of Republican and Democratic lawmakers emerged to support the freedom fighters, many considered otherwise too liberal or too conservative to have common cause. Together, they fought back the proposal and, perhaps, saved a generation of future technological innovation.

The year was 1993, and the fight was over technology called the Clipper Chip, which the National Security Agency tried to force cell phone manufacturers to include in all consumer phones. Clipper was a government-designed chipset with built-in encryption developed by the NSA. One of its features, however, was a “key escrow” that gave the government a permanent backdoor to decrypt any conversation.

It was a terrible, terrible idea.

And the organization that formed to fight the Clipper Chip was the Electronic Frontier Foundation. In the end, its creation was the only affect the Clipper Chip actually had.

A not so distant mirror
The more things change, the more they stay the same. Today, EFF is once again part of a new band of freedom fighters opposing a similar threat to the Internet: the Stop Online Piracy Act (SOPA) in the House and the Protect IP Act in the Senate. Leading technology companies, venture capitalists, entrepreneurs, start-up CEOs, and activists have all spoken out against the bills. Their opposition has rallied an impressive bipartisan group of innovation-friendly legislators to oppose the bills on all fronts. (See CNET’s full SOPA coverage, “ SOPA copyright bill draws fire .”)

EFF has been joined by other free speech groups including the ACLU, the Center for Democracy and Technology, and Public Knowledge. Free market think tanks including the Heritage Foundation, the Competitive Enterprise Institute, and TechFreedom have also expressed grave concerns about the proposed new laws. (Author’s disclosure: I am an adjunct fellow at TechFreedom.)

Last month, for example, the Heritage Foundation’s James Gattuso warned that SOPA’s provisions allowing court-ordered manipulation of search results would be “the first step down a classic slippery slope of government interference that has no clear stopping point.” Gattuso noted, as have many others, that SOPA would undermine Internet security by encouraging offshore DNS servers to circumvent court-ordered blocks.

Growing opposition to SOPA forced House Judiciary Committee Chairman Lamar Smith (R-Texas) to make significant changes to the bill before a markup session last month. But that wasn’t enough for Reps. Darrell Issa (R-Ca.), Zoe Lofgren (D-Ca.), Jared Polis (D-Colo.), Jason Chaffetz (R, Utah) and other committee members, who proposed more drastic surgery to the flawed bill during a marathon two-day session. Their amendments were voted down, but the effort kept the bill from moving out of committee for a planned floor vote.

Sen. Ron Wyden (D-Ore.) has placed a hold on Protect IP, which would require 60 votes to lift. Senate Majority Leader Harry Reid (D-Nev.) has promised such a vote, perhaps as early as January 24 ).

Congressional opposition has been backstopped by an outpouring of grassroots anger. Most notably, Tumblr, Firefox and Reddit used features of their own software to generate opposition to the bills, including a coordinated American Censorship Day blackout. During the SOPA hearing, Tumblr generated nearly 100,000 constituent calls to Congress .

After a campaign organized largely on Reddit, Web site registrar GoDaddy was forced to retract its long-standing and very public support for the bill by domain name owners who promised to move their business elsewhere. Late in December, the company announced it was “no longer supporting” SOPA or Protect IP.

The law of unintended consequences
The battle is far from won. But just as the Clipper Chip catalyzed the creation of EFF and other advocacy groups, the audacity of SOPA and Protect IP has reawakened a long-sleeping giant in Silicon Valley. Even if it never passes, the unintended result of the proposed legislation has been the creation of a new and energized opposition within the technology community.

That’s already a big shift. Technology entrepreneurs and their investors, for the most part, have tended to avoid Washington at all costs. “Entrepreneurs and VCs haven’t engaged because they haven’t needed to,” says David R. Johnson. Now a visiting professor at New York Law School, Johnson was an early board member of EFF. He served as EFF’s chairman during the crucial period when the organization, after some bruising battles on Capitol Hill, moved west to focus on litigation and advocacy. “They don’t see Washington as the market maker the way older industries do. So up until now evading D.C. has been a good thing.”

As the information economy has grown, however, lawmakers worldwide have become increasingly anxious about the perceived lawlessness of digital life. They’ve proposed a flurry of laws aimed at curbing criminal behavior and expanding electronic surveillance, or finding new ways to tax or otherwise regulate online interactions.

Most go nowhere. Some that pass, such as the 1996 Communications Decency Act, have failed in the courts. Many are poorly drafted, fueled by overblown concerns that are often mooted by technological change well before new laws can be implemented. All too often, entrenched industries struggling with technological change promote legislation aimed at crippling new competitors.

In every example, the risk of unintended consequences is severe. Information technology changes quickly, but laws do not. In the gaps that emerge, laws often achieve the opposite effect to what was intended.

Silicon Valley wakes up…for now?
So despite the good work of advocates including EFF, innocent entrepreneurs and investors increasingly find it difficult to bring new products and services to consumers because of new rules and regulations. Ever-earlier in the life cycle of a startup, company executives have to call in the lawyers. As Michael Mandel of the Progressive Policy Institute says (PDF) , “the accumulation of regulations has the potential to hamper innovative and growing sectors, in the same way that a big enough pile of small stones can dam up a stream.”

But SOPA and Protect IP are big enough rocks that Silicon Valley now seems poised to try to move them, if not simply blow them up.

For example, one new group, Engine Advocacy , has been galvanized by opposition to the two bills. At their first organizational meeting (really a party) last month, over 300 entrepreneurs and investors showed up. Co-founders Josh Mendelsohn and Mike McGeary are long-time entrepreneurs who currently work with Hattery Labs in San Francisco. Both have significant political experience.

Mendelsohn believes the time has come for small to medium-sized technology companies to get involved in shaping technology policy. “Up until now, it’s been the hacker mentality,” he said. “There’s a general sense in the tech community that I’ll ignore government because it’s irrelevant to me. But that’s changing. Technology and the innovation infrastructure are decreasing the cost of creating businesses that scale quickly. So the D.C. issues come in sooner.”

Even before SOPA, the two had long wondered “why there wasn’t a voice in government for startups.” They describe the group as a loose coalition of entrepreneurs, investors, and startup executives, whose goal is to educate Silicon Valley on the key regulatory issues that affect them, and then send their members to Washington to educate Congress.

Teaming up with Mike Masnick of Floor 64 and Techdirt (and a leading SOPA opponent), Engine Advocacy has already taken two groups of startup CEOs to meet with members of the Judiciary Committee and other key legislators. The response was encouraging. As actual job creators, Engine Advocacy’s organizers feel they had more credibility with lawmakers than typical lobbyists. According to Masnick, several elected officials made their first public statements against SOPA after meetings with his group.

The timing for such meetings couldn’t be better. With notable exceptions, most technology debates in Washington are dangerously lacking in engineering expertise regardless of the issue being discussed. At the House Judiciary Committee’s sole hearing on SOPA, only one witness opposed to the bill was allowed to testify–a lawyer for Google.

Yet Congressmen repeatedly prefaced their comments by admitting they didn’t understand even the basics of the domain name system, Internet addressing, search engines, social networks, ad networks or online payment processing–all of which would be significantly affected by the legislation. (The committee could start with this letter (PDF) from leading Internet engineers on the dangers of SOPA to cybersecurity and the domain name system.)

Critics have urged Chairman Smith to allow testimony from Internet engineers and others who understand how the Internet economy actually works, a plea repeated many times during last month’s markup sessions. As it became clearer that committee members didn’t understand key technical concepts, congress members on both sides of the issue acknowledged they needed to hear from engineers or, as they were frequently called at the hearing, “the nerds.” (The clip below gives just one example.)

Keeping the momentum on SOPA and beyond
The question now is whether the “nerds” will demand their rightful place at any future discussion of technology regulation, or whether Silicon Valley will ease back into its slumbers.

Establishing a permanent counterbalance to old economy interests won’t be easy. Engine Advocacy’s McGeary acknowledges that incumbent industries who want to reign in technological change are better organized and know every corridor and office on Capitol Hill by heart. So using social media and other technical advantages will be critical to even the odds. “We can’t line up soldiers on an open field,” McGeary said. “We need to be rangers and use the tools we have to fight a guerrilla war. The facts are on our side; not that that always wins.”

David Johnson, a hardened veteran of such policy fights, isn’t especially optimistic. “There’s a continued failure in Washington to have a good conversation with the technologists who could really help engineer approaches to dealing with bad actors. If the government would only listen long enough to realize that they would have to recognize the core values of the technical community in return.”

Asked what advice he had for new organizations forming to take on Washington’s most embedded interests, Johnson urges both an inside and an outside strategy. “They need to be vocal and engaged on the outside, with large numbers of people who are willing to express their concerns to Washington when appropriate.”

“But they should also work from inside,” Johnson said. “Engage with D.C. and make clear that you’re not just a source of campaign funds but also for crafting solutions. The way to win the war is to make a better case about how technology is enhancing the economy and generating jobs.”

If Silicon Valley follows that advice, the innovators may finally have a chance to educate lawmakers on the unintended consequences of micromanaging new technologies and emerging markets.

For starters, they can help Congress understand why there’s no pride in lawmakers who boast about their ignorance of industries they feel compelled to interfere with, especially when those industries are generating the brightest hope in the economy.

Or, at the very least, get lawmakers to stop referring to those leading the creation of an information-based economy as “nerds.”

[Cross posted at CNET ]