(Update: Shane Greenstein writes an excellent close analysis of this question too, here)
The first thought is that it was the California cluster. Avi says no, the initial Google breakthrough was the search algorithm, which anyone could have done. The second generation Google is uses artificial intelligence which needs the right copyright environment (much more on this and how Google might or might not have destroyed newspapers is from Shane Greenstein's wonderful post on Google here).
This gets us to Hargreaves, http://www.ipo.gov.uk/ipreview-finalreport.pdf. As he points out points out, we don’t have the right copyright IP enviroment in Europe.
The key bits in Hargreaves are in Chapter 5, especially 5.2. they are these.
Copyright Exceptions5.5 Copyright exceptions are designed to allow uses of content that offer benefits deemed either more important than those delivered by the core aims of copyright and/or benefits that do not significantly detract from those aims. The copyright exceptions for educational purposes and for research are intended to promote knowledge, skills and innovation in the economy, without unduly undermining the incentive for educational and academic publishers to create the works that students, teachers and researchers need.
5.6 EU law confines copyright exceptions to a closed list of categories, such as criticism, news reporting, research, or archiving. Almost all are restricted to non-commercial uses. Individual EU countries may implement exceptions within these categories to a greater or lesser degree, but there is no flexibility to create exceptions in new areas. The UK does not currently exploit all the exceptions available. Most notably, we do not have exceptions for private copying or for parody and the exception for archiving falls well short of current needs. Previous attempts to modernise this framework in the UK have not succeeded.
5.9 The US has a more flexible approach to copyright exceptions. It includes the concept of “Fair Use”, a defence in the US copyright framework which builds on certain general principles through case law to develop permitted uses of copyright works. Fair Use serves a number of purposes in the US, fixing what might otherwise be imbalances in the copyright system.
5.10 Under the European approach to exceptions, new kinds of copying which have become possible due to advancing digital technology are automatically unlawful. They require agreement of rights holders if they fall outside the pre-established and closed list of categories for permissible exceptions. Even copying which falls within one of the permissible areas at EU level can still require new action by national legislatures to create or develop the exception to meet new needs. The risk in this situation is twofold:
•Hargreaves quotes an example:
“Research scientists, including medical researchers, are today being hampered from using computerised search and analysis techniques on data and text because copyright law can forbid or restrict such usage. “
(Another example is the restriction on parody: Newport State of Mind being a wonderful example)A second and also significant problem is confusion in the law
“is difficult for anyone to understand why it is legal to lend a friend a book, but not a digital music file. The picture is confused by the way some online content is now sold with permissions to format shift (iTunes tracks) or to “lend” files (Amazon ebooks) at no extra cost. This puts the law into confusion and disrepute. It is not a tenable state of affairs.
“Commercially it leaves rights holders with an unsatisfactory choice between having rights they cannot or do not enforce, or seeking to preserve legal entitlement to payment for acts of private use and reuse, which ordinary consumers regard as part of normal use. This alienates customers and puts the state in a position where it is invited to “choose sides” between rights holders and citizens. Effective enforcement of the law, in these circumstances, can become impossible.”
5.12 By contrast the US approach enables judges to take a view as to whether emerging activities in relation to copyright works should legitimately fall within the scope of copyright protection or not. Fair Use provides a legal mechanism that can rule a new technology or application of technology (like shifting music from a CD to a personal computer) as legitimate and not needing to be regulated…
viFair Use offers a zone for trial and error, for bolder risk taking, with the courts providing a backstop to adjudicate objections from rights holders if innovators have trespassed too far upon their rights. (my italics)
5.22 …In the US, Fair Use has successfully fulfilled this role in a small number of cases which have been extremely important for the development of consumer technologies, notably those relating to reverse engineering,ixixhome video recording, and internet search caching and thumbnail images.
Finally, he answers the question on the card:
5.17 Does this mean, as is sometimes implied, that if only the UK could adopt Fair Use, East London would quickly become a rival to Silicon Valley? The answer to this is: certainly not. We were told repeatedly in our American interviews, that the success of high technology companies in Silicon Valley owes more to attitudes to business risk and investor culture, not to mention other complex issues of economic geography, than it does to the shape of IP law. In practice, it is difficult to distinguish between the importance of different elements in successful industrial clusters of the Silicon Valley type. This does not mean that IP issues are unimportant for the success of innovative, high technology businesses. The Review’s judgment is that they are of growing importance and that they merit serious attention from the UK Government.
In the end Hargreaves doesn't go for Fair Use, since its very complicated with respect to EU law
5.24 We therefore recommend below that the Government should press at EU level for the introduction of an exception allowing uses of a work enabled by technology which do not directly trade on the underlying creative and expressive purpose of the work (this has been referred to as “non-consumptive” use5).
The last sentance, written in Februrary 2012 was too optimistic. There did seem to have been some agreement in Summer 2012, but Italy and Spain have not agreed and progress has been held up at the European Parliament, with Parliamentairns saying the leaders had changed the agreement (BBC News, 3 July 2012, http://www.bbc.co.uk/news/world-europe-18694030).