On Innovation, Entrepreneurialism, and Law: A Conversation with Peter Thiel and Mark A. Lemley

Peter Thiel ’92 (BA ’89, BS ’89)

Much has already been written about Peter Thiel. In the world of startup dreams and pay-dirt tales, he is one of Silicon Valley’s most storied entrepreneurs—portrayed in books, videos, a legion of print and Web profiles, and in the feature film The Social Network. But for Thiel, it’s not just about the money. His is a more complex story, in which vision and purpose meld—his philosophical views inseparable from his entrepreneurial, investment, and philanthropic activities.

After graduating from Stanford Law in 1992, Thiel tried the traditional legal career, clerking for Judge James L. Edmondson and then joining the New York practice of Sullivan & Cromwell LLP. It didn’t fit, and he left Sullivan before a year was up to join Credit Suisse as a derivatives trader. But something exciting was happening back in California. So he returned to Silicon Valley in 1996 and started his own investment fund. His timing was perfect—not only did he catch the tech wave but he helped to make it happen. He predicted the value of secure online payments to Internet commerce and co-founded PayPal in 1998. And the rest is, really, Silicon Valley history—with Thiel going from one success to the next. He launched Clarium Capital, an investment management firm, and the Founders Fund, an early-stage venture capital group. His lead investment in Facebook helped to ignite the second tech boom in social media and to land him a place on the Forbes billionaire list before he reached his 40th birthday.

But he is a somewhat unlikely “mover and shaker” in the venture capital world, seemingly more motivated by the potential of technology to change the human condition than by the quick hit. Founder of The Stanford Review and the anointed head of the “PayPal Mafia,” he’s just as apt to invest in a cool robotics development as in establishing new countries at sea or showing how technology can extend and improve life. A high school valedictorian and chess champion at San Mateo High, Thiel came to Stanford to study philosophy. And at his core, he is just that—a philosopher.

“Is there something analogous to starting a company and starting a country?” This was one of several questions put up for discussion by Thiel in his Sovereignty, Globalization, and Technological Change course, offered at Stanford Law over the winter quarter. The room was packed with students, puzzling to come up with the right answer. Thiel referred to a speech by President Lincoln about the desire that we as humans have for new starts, new beginnings—and how everyone who came after America’s Founding Fathers would look back enviously, knowing that the country would not repeat that founding moment.

In much the way that routes to immortality multiply with advances in technology, so too can opportunities to start new things. Thiel saw that clearly—and he has already secured a place in history.

Mark A. Lemley (BA ’88) William H. Neukom Professor of Law at Stanford Law School

When Mark Lemley was named by the Daily Journal one of the “Top 100 California Lawyers,” the publication called him a “tech guru,” gushing, “The two words that come to mind are ‘brilliant’ and ‘prolific.’ ”

A quick run through the many honors bestowed upon him confirms the accolades. A leading expert on patent, trade
secret, antitrust, and constitutional law matters, he has been named to virtually every “best of” list in the profession at least once—often multiple times—by publications such as California Lawyer, The National Law Journal, The American Lawyer, Best Lawyers, and the Daily Journal. In 2007 he was named the Young Global Leader by the Davos World Economic Forum, and in 2009 he received the State Bar of California’s inaugural IP Vanguard Award.

While firmly grounded in Silicon Valley and the tech world, his reach is national and global. Lemley’s works—including some seven books and more than 112 articles—have been reprinted throughout the world and translated into Chinese, Japanese, Korean, Spanish, Danish, and Italian. He is a founding partner of Durie Tangri LLP where he has represented clients such as Comcast, Genentech, Google, Grokster, Impax, Intel, Netflix, Palm and TiVo in 75 cases over the course of a nearly two-decade career. His expertise is sought both inside and outside of the Stanford Law School classroom. He has taught intellectual property law to federal and state judges at numerous Federal Judicial Center and ABA programs and has testified on multiple occasions before Congress, the California Legislature, the Federal Trade Commission, and the Antitrust Modernization Commission. He has also filed numerous amicus briefs before the U.S. Supreme Court, the California Supreme Court, and the U.S. Court of Appeals for the Federal Circuit.

A popular teacher and faculty advisor, he is also the director of the Stanford Program in Law, Science and Technology, and the director of Stanford’s LLM Program in Law, Science and Technology.


Illustration of Legal Matters with Peter Thiel, depicting a collective brainstorming process
Illustration by Leif Parsons

Lemley: Walk me through how you get from coming here to study philosophy to going into innovation. That’s not a traditional career path to innovation.

Thiel: It would be somewhat misleading to say that the whole thing was meticulously planned from the time I was 8 years old. The basic trajectory was Stanford undergrad to Stanford Law School. I went straight through so I graduated from Stanford Law in ’92, when I was 24. I clerked for a year and then worked in New York. Then I came back to California to start a business and basically do something other than the professional legal track. I thought it would be interesting to use some of those legal skills on the other side of the table, so I shifted to finance and then into becoming more of an entrepreneur in the late ’90s. And I was very fortunate to come back to Silicon Valley because it was probably the best time and place in the history of the world to be an entrepreneur.

Why do you think that was?
California was the last part of the frontier—you couldn’t go any farther west. So there’s something about the geography—that this is a place where we collected the dreamers and visionaries.

This is true on the tech side in Northern California and on the entertainment industry side in Southern California. The Silicon Valley ecosystem, by chance more than design, had many advantages for innovators. And there are idiosyncratic legal things like the nondisclosure agreements that tend to be very hard to enforce in California, so people end up learning a lot from what other people are doing. There is also something about Stanford University that’s somehow very significant and I didn’t fully appreciate that when I was here. It is a less tracked place than the East Coast universities. That’s a feature of its relative youth—Stanford could not differentiate itself if it simply did the same things as Harvard, Yale, and Princeton. So it all came together in just the right way. Path dependence took over; once it’s working, it works. So in the U.S. if you want to go into politics, you go to D.C., and if you want to do finance, you go to New York, and if you want to become a movie star, you go to L.A., and if you want to do tech, you should be in Silicon Valley.

It is kind of ironic how much “local” matters, given that a lot of the technologies over the last two decades have been about the “death of distance.”
Well it’s possible the death of distance has been greatly exaggerated. But setting that aside, if you think of it like a search problem—trying to find the next great tech company—a problem you have as an entrepreneur, an investor, a venture capitalist, or even as a prospective employee—then probably a pretty good way to narrow that search is to say there’s about a 50 percent chance it will be within a 20-mile radius of this building.

Right. You know that if you are the employee or if you are a venture capitalist that this is the place to come to look for those people.
It’s also true that a lot of it comes down to how people work with other people—these enterprises tend not to be purely solitary efforts. They are fundamentally very networked. It’s not top down centralized but it’s also not decentralized in a purely atomistic way. And so this network effect puts a steep premium on geography.

Talk to me about how that intersects with globalization. I think there is a felt sense that more and more of commerce, of capital, and maybe of innovation is showing up not just in the United States but abroad. Of course people have been coming to Silicon Valley from all over the world, but are we going to see Silicon Valley recede in relative importance as places like China or India take off as innovation centers and not just technology centers?
I am actually somewhat skeptical about that happening in the near future. I think of globalization and technology as two very different things. Globalization is about taking things that work and copying them so you are taking the best things in the world and just doing more of the best and scaling it. Technology at its core is about taking the best things and trying to make them qualitatively better. So you can think of globalization as horizontal or extensive and technology as vertical or intensive. The incentives are such that in much of the developing world, where the reality is people are still just desperately poor, the low-hanging fruit is to do things that are extensive in nature. For China and India, the vast bulk of it is catching up to the developed world—19th century plumbing and 20th century railroads. Maybe there are some things they can leapfrog and go straight to cell phones, but most of the focus for them is on just catching up. I think that’s where the incentives are.

Even in the Internet space, a lot of the business models in China have been simply copied from the U.S. So the first knock off of Facebook in China was simply duplicated—its look and feel, right down to “a Mark Zuckerberg production.” And then there was a copy of the copy, which was the same thing, and there was a copy of the copy of the copy, which was started by the first company to compete with the second that was copying it. The smart strategy in China, even if you are a computer-oriented entrepreneur, is to just copy things that are working. The incentives are actually not to start new things. Venture capitalists that have been focusing on that part have done quite well. I am much more skeptical about the real intensive innovations. I suspect those will happen in the developed world.

And yet in the last two years there have been more patent applications filed in China than in the United States. Is that an indication of greater innovation or maybe that China has just chosen to imitate the legal business model of the United States?
It’s extremely difficult to calibrate the value of different types of patents and, certainly from the perspective of someone who has been sued by various people who had patents of dubious merit, one suspects that there is something that has gone quite badly wrong with the patent office generally.

What do you think the role of intellectual property law is in promoting, or maybe interfering with, innovation?
There is a familiar argument that treating intellectual property like physical property stimulates the creation of more intellectual property. But any legal regime to enforce that involves hundreds of really arbitrary decisions, which can stimulate legal innovations rather than technological innovations. You have a system that’s easy to game. The Internet has seen tremendous innovation, much of which has not involved IP law. Biotech over the last 20 years has been the opposite: immense resources on IP law and much less innovation. Look at where people as venture capitalists, entrepreneurs, have done well—it has been the Internet, whereas biotech has been something of a wasteland. And so there is at least a question about whether the regime we have is the best one. But it’s a multidimensional problem and there may have been a lot of other things going on.

Another factor of the difference between those two areas is the role of government regulation. Presumably there is a lot more regulation of pharmaceutical and biotechnology products than, traditionally at least, of the Internet.
Yes. You take something like a Zynga product, an addictive Facebook game. If you had to go to the FDA and do a trial to see if it is destructive to people’s brain capabilities and then do another trial to look at whether it actually does any good, you would never create anything. So we do have this mental model of computers as being somehow in need of much less regulation than humans. Energy is very heavily regulated, and there has been disturbingly little progress in reducing our dependency on oil. Just look at the State of the Union speeches since 1974 when Nixon said we would get rid of all foreign oil dependency by 1980. And the subject has come up in most State of the Union speeches since then but progress has been distressingly slow. So I am sympathetic to the idea that the impact of heavy regulation of technology has been underappreciated, because people generally don’t understand the benefits of technologies that have not been developed.

Do you think that’s going to change as the nature of computer technology changes, as we move from a kind of Internet or communication facilitation technology into robotics or things where the computers interact with other aspects of our life? Are we going to see more pressure for regulation?
We might. We had this thing last week with Watson the computer winning a Jeopardy! game. Yet it doesn’t ring alarm bells in the same way in which, say, embryonic stem cell research does. And the idea that computers might replace people, it’s vaguely disturbing. It’s an interesting footnote, but we don’t have a computational ethics commission set up by the president to explore it. People just don’t seem to have much of an intuition for this as a subject to worry about.

And should we? Is this something we should worry about? Or perhaps celebrate?
It would seem like it’s important. If you think about the question of China and the U.S., are they fundamentally complementary through trade and division of labor or are they rivals? This is an important question—to figure out how to make the relationship more of the former and less of the latter. It seems to me that far more people in the U.S. are likely to lose their jobs or have their jobs be replaced by computers than by Chinese. And so I would think the question of how computers work in ways that are positive to our society is a more important question than how to manage trade relations with China. On the other hand, as a libertarian, I suspect the government will get it wrong and so it may be that we’re better off that people haven’t figured that out.

There does seem to be some evidence, though, that suggests that innovation often occurs in spaces that aren’t heavily regulated at the moment.
I agree. As we discussed, compare drugs with computers. There is also this question about whether technology is a giant trap that humanity has built for itself and we will build all these machines that will eventually destroy us all; whether the Amish had it right, that it all started to go wrong with the development of the steam engine in the late 18th century or something like that. My view is that what technology and globalization have in common is that we have gone too far to turn back. So globalization has good aspects and bad aspects but there is no good future in a world in which we abandon globalization. And I think similarly there is no good future in which we do not try to push technology faster and harder.

What about government investment in technology? People sometimes lament the absence of major investments in fundamental research that the government used to make for things like the space race. Are we losing something by just relying on the private sector to do this?
There has been a decent amount of government investment over a number of decades. There’s a question whether it’s been effective. Nixon declared war on cancer in 1971, 40 years ago. We spent something on the order of $100 billion on cancer research over that period. And there certainly has been some progress, but it has been much, much less than people reasonably were hoping for in the early ’70s. So it’s a very tricky question—whether problems are hard and therefore require more money or whether there is something about the channel that’s broken and therefore the government should be spending less money on it. That’s the debate. I think it works best if you have a specific plan. If there is a role for government in pushing technology or innovation, it probably works best when it’s a coordinating role around a specific plan. But that’s not what people in our government believe. Nobody on the right believes it, but even on the left they don’t.

Take the energy problem. If you said there was a specific energy technology we had to develop and deploy—nuclear reactors everywhere or all cars running on electricity with batteries at all gas stations and so on—if you focused on a single specific plan, I think that’s the kind of thing the government could do best. If you are in government and you are agnostic, then you say, well, we don’t actually know what’s going to work and we are going to try a lot of different things—that’s likely to work unusually badly. The paradox on the innovation side with the Obama administration is that it believes in spending but not planning. I think it should either believe in the government and have a specific plan and try to implement that plan or it should get out of the way. But the administration is sort of stuck in this in-between zone, which is where it’s very different from the focused Sputnik realm, for example.

What’s interesting about that idea is that it’s motivated by the best of intentions: trying to get the same sorts of benefits we get out of the private sector. We don’t know what the right way to cure cancer is so let’s invest in a bunch of interesting research and see what works.
Although in the context of a specific company, it tends to be one well-defined thing. When people present a business plan to me and say “we have this idea and we have five different ways we can make money with it” versus “we have this idea and we have this one specific way that is going to make money,” the second is much better than the first. When you say there are lots of things we could do, that suggests you don’t really know what you are going to do. And when people say that the energy future will involve many different types of energy, I think that’s actually symptomatic of people having no idea. In the past it has typically been one dominant type of energy that’s replaced another—coal replaced wood and oil replaced coal. I would add that—with projects like the space program or the Manhattan Project—these were not projects that crowd-sourced innovation. We are now somehow in this zone where people believe in efficient markets. And there’s a version of this with technology. But I am very skeptical that it actually works even though that’s the dominant mode.

So let’s think about how that might affect the role of universities in research and innovation. One of the reasons the government is hesitant to pick only one project is that there is only one government, at least in the United States, investing here and so it’s trying to be technology agnostic and not pick sides. But a bunch of different universities do topflight research. So should universities be in the business of doing what the federal government did 30, 40, 50 years ago and pick some particular piece of research and invest heavily in it?
The sort of somewhat lazy agnosticisms about what is going to work is not just a problem in government, it’s a problem on the venture capital side, and probably also on the university side where you have this very complicated political climate that people generally don’t seem to have enough conviction to override.

You recently launched a fellowship program designed to get young people into the business world. How did that come about and how does it play into all this?
What motivated our program was realizing that many talented entrepreneurs had stopped out of college—they took some time off, started companies, and then never went back. The idea was to see if we could identify 20 people and sponsor them for two years—a sustained enough period that they could work on something and see what would happen. We launched this “20 under 20” Thiel Fellowship through my foundation in September of last year and we are in the process of reviewing the first round of applicants. The number and quality of applicants was overwhelming. The strongest candidates came from all kinds of backgrounds: prestigious colleges, community colleges, high school, homeschooling, and graduate school. They’re really impressive people. We hope to announce the grants soon, and all we ask of them is that they work hard on innovation.

In a sense this is an alternative to the traditional venture capital model. Is venture capital broken?
I think something has gone very strangely wrong with venture capital. People have not really made any money in it for 11 or 12 years. And you have all sorts of complicated debates about what’s happening, maybe there aren’t enough innovations, etc. As a venture capitalist I am somewhat biased to the idea that it’s not an irreducibly broken problem but people have not been willing to fund more innovative breakthroughs—they only want to fund “sure” things. But those turn out to be lower return things that ultimately don’t add up.

It’s remarkable to me how often venture capitalists are extraordinarily risk averse.
It’s like the government or universities in that it’s best not to have too strong an opinion. The problem with that is you end up waiting for something to work. It’s hard to know precisely how to fix it. What I am trying to do with Founders Fund, my venture firm, is to tilt it a bit more in the direction of committing to companies that take a few more years to build, that are somewhat longer term, but that if they work will be more valuable. So I am skewing it a little bit more that way, although hopefully not so far as to get to a point where there is no feedback mechanism on reality.

And are you optimistic about the future?
I think the optimism-pessimism question comes down to the technology. I do think there has been less technological progress outside of certain areas like computers and the Internet over the last 20 to 25 years. So I think something has gone a bit wrong with the tech story. If you look at what people in 1968 thought the future was going to be like, it was going to have permanent lunar bases and flying cars. But the present has fallen significantly short of people’s expectations. So that’s a deep problem. I am somewhat more hopeful about the next 40 years because people are starting to see that something has gone wrong. And so questions about technology and the future are starting to reemerge as important topics. A lot of the very intense debates in the U.S. at this point are about our society in 20 years and what to do to make our country better off in 20 years. The debate is still not focused as much on technology as I would like it to be, but we were having that debate—whereas 10 or 15 years ago, it was just assumed it would get better and there was no need to even have a debate about the future.

The idea of the future was a very important idea in the ’50s and ’60s—a classic era of science fiction. As we stopped thinking about the future, it stopped happening as much. The literary version of this is to look at the way science fiction as a genre has collapsed. But as a result of the economic crisis of the last few years, we are coming back to thinking very seriously about the future and it is becoming a more important topic of the discussion.

One of the things I love about reading science fiction, especially historical science fiction, is that it’s an excellent window into what people thought the future was going to be. And so part of the answer might be not so much that we are not thinking about the future as that we have moved it in different directions, right? The 1940s, ’50s, ’60s vision is very hardware, space, externally focused. The more recent stuff you read in science fiction is either more life alteration-focused or computer technology-based.
In the 1960s, it was not just space but also ideas like planting forests in the deserts and radically different architecture. But it has since become focused on much smaller things. So I think you are right that we have settled on small things instead of big things—and in particular on computers, and some aspects of biotechnology, but mostly it has been driven by the computer information age. The question now is whether it has to go back to the connection between information technology and the real world. And these are things like robotics, self-driving cars, a sort of smart grid, applying information technology to all sorts of other areas. So it has been a largely self-contained bubble and it has created a lot of value within the bubble but not that much outside of it. And I think maybe the next few decades will involve some combination of bringing computer technology back to bear on problems that were explored less over the last 40 years.

Is that where we ought to be looking? To the external world and not just internal communications?
Broadly speaking, yes. There may still be a lot that happens internally so it’s not obvious to me that the Internet is near the end of the innovation period. But I think it is a more mature industry than people realize; the really great gains from here on I would expect would be in applying information technology to everything else.

Now to Stanford Law School—what did you learn that helped you in the real world, given that you didn’t go into law practice, except briefly?
Clearly, the set of skills you have as a lawyer—there is a way in which it’s the closest educational analogue for becoming an entrepreneur. It’s interdisciplinary; you learn about a lot of different fields and you try to figure out how they intersect. And there is an aspect of law that’s not actually specialized; that is, in some sense, what you need as an entrepreneur. And there are many specific skills that overlap—for example, you take complex amounts of information and try to figure out how to distill them. I think the biggest difference is probably that a lot of people who are entrepreneurs tend to be willing to take more risk than people who are lawyers. But in terms of the actual skill set, I think the overlap is much greater than people estimate. I’m not sure that you can teach entrepreneurship directly though; I am deeply skeptical about that. But indirectly you can acquire skills that may help. So from my end I do think it was an extremely valuable few years. There are many ways to become an entrepreneur; even people who went to law school should consider it as an option. SL

2 Responses to On Innovation, Entrepreneurialism, and Law: A Conversation with Peter Thiel and Mark A. Lemley
  1. This article gave a sense of perspective. As a soon-to-be Stanford graduate and prospective law student, there is something profoundly uncertain involved in planning for the future at this time of my life. The voice of someone who has pursued a legal education and then had success in bringing that education “on the other side of the table” is both inspiring and personally relevant. I particularly appreciated Mr. Thiel’s recognition that the skills acquired in law school are interdisciplinary in nature, that they can be put to use throughout widely varying fields rather than directing students towards narrow or inflexible career destinations.

  2. I enjoyed reading this interview. When I was a student at Stanford Law School in the late 1990s, I was fascinated by the new world that was unfolding in Silicon Valley and touching the rest of the world. Someone advised me to get a job, even “sweeping the floor,” at a venture capital outfit near Stanford. I looked into it. Then, a Stanford Law School alumnus came back to school and told us about his work in venture capital. He said that of his three degrees (law, business, and engineeering), the law degree was the least useful. I got the impression that only people with a technical background in computers or engineering could succeed in venture capital. I was discouraged. I had dreams of start-ups making a better world, but I feared I did not have the skills to work in that field. Peter Thiel’s interview is refreshing because he clearly did not have a technical background. He studied philosophy! In other words, he loved wisdom. Yet, he succeeded more than the average venture capitalist with a technical background who reviews business plans (i.e., other people’s dreams) and decides whether to make an investment. I think Peter’s example is a useful lesson for current students. They should pursue their dreams and interests, like Peter did, and not get discouraged by their lack of technical skills. In the interview, Peter is even a bit vague about how his law school skills helped his career in venture capital. I suspect there is not much of a correlation between substantive legal knowledge and venture capital. My impression is that a smart mind, dedication, and the ability to dream are the most important skill sets for success, in law or venture capital. As for me, I decided that sitting in an air conditioned venture capital office and reviewing business plans was not the best fit for my personality or background in theology and liberal arts. However, I knew that I believed in justice. So, I decided to work for social justice through class action lawsuits. I also work in human rights. Since I live in the Hague, I’m encouraging the European Commission to adopt class actions for all 27 Member States to bring greater access to justice to Europeans who suffer from consumer misrepresentations, fraud, and other misconduct. For any students who might be reading, I hope they pursue their dreams without being discouraged if they do not fit any preconceived molds. Just look at Peter.

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