Since the author has chosen a non-standard license, I doubt government regulation would help (unless that regulation outlawed non-standard FLOSS licenses).
Probably would be better to reduce the information assymmetry. Maybe Github could have warning notifications for custom licenses, for example?
What's the next step, outlawing forks, since there are already enough projects?
And why do you see the very existence of the library with "no evil" clause as a market failure? Is that some people think that it's basic human right to be allowed to do evil? Doing evil, if we define evil as illegal, is already outlawed, so this one phrase is clearly redundant.
I said you, but it's not addressed to you, but to people that got so offended and turned up by this small "do no evil" purpose.
The market already decided, and that clause is there for a purpose. The author clearly didn't want people unsure if this piece of software will be used for good or evil to use it.
It's funny that people are ready to sign all kind of nonsense in commercial licenses, and this small clause makes so much pain to some "open source" developers.
If yes, then as much as you (the hacker/startup founder) might not care or have a second thought about licenses like this, you should keep in mind that your potential purchaser almost definitely will.
Also, just for the record, I'm actually a big fan of Crockford's "Do no evil" license. What bothers me is the number of people who don't pay any more attention to the licenses of the software on which they build entire companies than they do to the EULAs of the software they install. Casually agreeing to a EULA is not the same as disregarding an Open Source license.
But, you read the license, you decide if you are going to use it or not. That's it. If you are not sure, just don't use it. Use something else if available. Or build your own.
What I don't understand is the basis on which some people complain about the authors choice of the license, and feel offended by his license choice.
I suggest more information, such as "Be aware that this software is licensed under a custom license. Click here to view the license."
I don't think the author of the article suggests that evil should be allowed, but that it is very hard to define evil, and that this clause makes the license non-free software.
Also, to the point of regulation, the government is by no means the only vector by which it can be delivered. I think if you look through history, some of the most successful regulatory regimes have been separated from the traditional civil government.
Mandating a license (any license) but perhaps offering a selection to be automatically included would be a really good idea.
I wonder if you could actually put a license that gave permission to fork/clone but not actually to run/distribute outside github or otherwise use the code or derivatives thereof. I've not tried and wouldn't try to go against the spirit of Github in that way but it seems as if it might be permissible.