I. The
Evolution of the 'Sharing' Economy
"The mind, once stretched by a new idea, never returns to its
original dimensions.” - Ralph Waldo Emerson
In June 1999, a file sharing service called
Napster arrived on the scene and forever changed the music industry. The MP3
format allowed for decent musical quality in a small file format and peer to
peer ("P2P") technology
made it easily shareable. It was a quantum leap over then existing ways in
which music was shared and sounded the death knell for the coveted cassettes with
fuzzy recordings that had been passed around schools and college till then. The
new technology spread quickly through word of mouth.
The bells were tolling but not everyone heard
them. The music industry ought to have migrated to this new standard or at
least realised that the rules of the game had changed, and offered reasonably
competitive alternatives. It did not do so.[1]
To quote the authors of a remarkably prescient paper written in 1998[2]:
"The
explosive growth of the PC and the Internet penetration to non-professional
users changed the status quo of this industry. The advances in speed in the
communications infrastructure have made information more accessible and created
some of the most compelling strategic decision points. Some of these decisions
will eventually restructure the value chain and reconfigure the way value is
created across a broad spectrum of industries.
One
of the implications of this restructuring is the disintermediation of
information industries (we should probably say re-intermediation). The Internet
provides an inexpensive and immediate way to distribute information goods and
to create new ways of adding value to the final consumer."
Years of litigation later, both the music and
the film industry are still struggling to come to terms with this brave new
world.[3]
Mainstream alternatives which embrace the new paradigm have emerged in the form
of Apple iTunes[4]
and Netflix[5].
There is a pattern here which operates across
industries. A new idea/technology emerges and spreads by word of
mouth/Internet. It starts out as being illegal or unregulated. A large section
of the population adopts the standard, diminishing the popularity of the older/other
standard. It scales up to the point where it starts impacting the mainstream,
and is noticed by established players and subjected to regulation. This has
been true of Sony's VCR which was billed as the end of the movie theatre[6]
and this is what is happening with respect to Whatsapp in India, with
established players like Airtel seeking to charge separately for it.[7]
It may be judicially declared illegal as happened in the case of Grokster[8],
and Napster[9].
At the time of this writing the cashless ride sharing cab service Uber which
uses an app to allow non commercially licensed drivers and passengers to be
matched, has been declared illegal or is facing action to determine its
legality in a number of countries including Germany[10],
South Korea[11]
and India[12].
It is also facing a host of lawsuits in
the US by various cities such as San
Francisco[13],
Los Angeles, and Portland[14].
All of these actions seek to regulate
both Uber and the drivers who operate within its unique model.
The march of technology therefore either
prompts established players to come up with similar, 'legal' models[15]
or displaces/disrupts them or prompts new 'legal' startups (Itunes, Youtube,
8tracks.com).
II. The Benefits of
the 'Sharing Economy'
I use the term 'sharing economy' in this paper as an umbrella term to refer to
all business models with an emphasis on decentralized, peer to peer service
provision such as Uber, Lyft (ridesharing), Airbnb (holiday rentals),
Spinlister (vacation cycle rentals), and Venmo (digital wallet transfers
between friends).
Such models typically bring otherwise dormant
economic assets into the stream of commerce. These may be seats in cars already
on the road, or rooms in houses already built and otherwise vacant. They also
allow the workforce greater flexibility in defining its own hours and
working environment- Uber/Lyft drivers are free to choose how many hours of the
day to work[16],
and anecdotally many of them use the
spare time during the day to supplement their income and are happy to do so on
their own terms. Similarly, Airbnbers are free to choose when to let their
rooms out. Sharing economy models arguably offer greater
consumer choice and robust alternatives to top down setups. There are economic
arguments to show that an aggregation of individual contractors/entities is
more efficient and robust than a top down centralised system[17].
Though this is probably a question best left to
sociologists, being an active participant in a business as opposed to a passive
consumer possibly also leads to a greater sense of agency and freedom, besides
catering to an increasing distrust of centralised monolithic power structures. Witness the La
Louve food cooperative in the 18th arrondisement in Paris where " every customer has to work at the cooperative for three hours each
month. This reduces the shop’s labour costs, and in turn, enables it to reduce
the price of healthy, high-quality products by 20-40%."[18] There seems
to be a broader movement where people are trying to redefine the retail logic by
consuming 'better' and from people 'like us'. The philosophical question of why
we feel the need to redefine the space where an exchange is made is a
fascinating one, but also one better left to disciplines other than the law.
The sharing economy may be a philosophical or behaviour response ("tired of going through
normal channels, more solidarity"), an economic one (demand is not served like in
terms of taxi supply, rental supply, etc) or a regulatory gap response (the
laws and regulation create gaps where this sharing economy is
developing). [19] Irrespective
of motivations, the need for deft handed regulation is evident as opposed to ham
handed assertions of power.[20]
At the same time, governments should be in a position to ensure that the new
sharing economy does not have the effect of triggering a race to the bottom
with regard to prices that ends up hurting the most economically vulnerable
sections of society.[21]
III. Regulation
If a new technology or idea results in a
paradigm shift, we need to ask if it is reasonable to apply existing legal
structures to it. It may be ok to continue to define internet communications as
'telegraphs" under the Indian Telegraph Act, 1885 but is it ok to turn
millions of casual downloaders/streamers into serious copyright infringers or
to turn casual landlords into hoteliers or Uber drivers into commercial
carriers?
Given the benefits of the sharing economy,
government policy should possibly 'discriminate' and be more discerning when it
come to regulating such entities and their participants. 3 levels of regulation may be advisable- the
first for causal/occasional ("Level
1") participants. The threshold
can be determined similar to how the government determines whether one is a
'trader' or a mere casual 'investor' in the stock market and levies tax at a
differential rate[22]-
frequency and nature of activity, amount
of money earned etc.[23]
The second tier would be for full time
participants ("Level 2"),
and the third for the 'parent'/hub entity ("Level 3'). Divergent standards of care are not unknown to the law-
in tort the duty of care owed to a business invitee v. a licensee v. a
trespasser is different. Similarly the
principle of strict liability imposes differential liability based on the
nature of activity and its hazardous nature.
Basic safety norms (including background
checks) should apply to all 3 categories. Some variety of capped strict civil
liability for the hub entity may be appropriate for cases such as the Uber
Delhi Rape if it can be shown that the hub entity failed in its obligations or
as a failsafe when the Level 1 participant lacks the economic resources to
cover its default (the unlivable rental on Airbnb). Criminal sanctions would be
inappropriate unless egregious and willful negligence or indifference to the
life and property of others is demonstrated.
Norms can apply to Level 1 when they enter the
stream of commerce until the time they exit. This would mean that while they
would not be required to obtain a cab or hotel license, they could still be
subjected to the norms governing such licenses. Courts make similar
determinations when judging whether something occurred "in the
scope/course of employment" already. Liability is determined differently
depending on the nature of the activity. Level 2 participants should be treated
on par with other commercial players. Legislation could also regulate minimum
pay and work standards at Level 3 to ensure downstream compliance.
There is some evidence that governments are already gravitating towards
such models. The California legislature has passed Assembly Bill No. 2293 ("AB
2293")[24]
seeking to 'Balance Consumer Protection and Responsible Innovation"[25]
with respect to ride share providers which it terms 'transportation network
companies' or TNCs. Commencing July 1, 2015, AB 2293 separates
personal insurance from TNC insurance and mandates that TNC insurance will
operate for individual drivers from the time that they receive a ride request
until drop off. While TNC insurance may be either the participating driver's
("level 1/2 regulation) or the TNCs itself, the TNC is made liable as a
failsafe (Level 3 regulation) under Clauses 5433 (e) and (f)[26].
The Indian Central
government also recently announced that it would not seek to ban ride sharing
apps outright but would instead create new models of regulation in recognition
of the benefits of the sharing economy.[27] Such a model may also be appropriate for
liability standard determination with respect to a news sharing economy like
Twitter. Speakers who breach press reporting norms such as non identification
of sexual harassment[28] or
rape victims could be held liable under such standards, while enjoying the full protection of free speech
constitutional guarantees when tweeting about the other mundane epiphanies that
seem to account for the majority of traffic on that platform.[29]
Context would be key for such regulation.
The sharing economy addresses a gap in the
market and has both economic and liberalist reasons to recommend it. To reap
its benefits governments need to come up with balanced responses that ensure
that those rather than trying to put the genie back inside the bottle.
- Chetan Gupta
[1] http://www.npr.org/blogs/therecord/2011/03/09/134391895/the-legacy-of-the-cd-innovation-that-ate-itself?ft=1&f=100
[2] http://www-inst.eecs.berkeley.edu/~eecsba1/sp98/reports/eecsba1e/project2/report.html#WhatisMP3
[3] http://gizmodo.com/the-pirate-bay-is-back-1682968040
[4] http://allthingsd.com/20130325/itunes-not-exactly-break-even-anymore/
[5] http://www.buzzfeed.com/peterlauria/netflix-caps-flawless-year-by-adding-another-23-million-subs#.qsavzGzXv
[6] Sony Corp. v. Universal City Studios ,
464 U.S. 417 (1984), available at
https://supreme.justia.com/cases/federal/us/464/417/case.html#445.
[7] http://www.huffingtonpost.in/2015/03/30/trai-ott-consultation-pap_n_6966696.html.
This has sparked off a massive debate on net neutrality in India as well with
the Telecom Regulatory Authority of India ("TRAI") floating a a white paper which would legitimize
charging extra for such services besides subjecting them to an extra layer of
regulation. Details can be found at http://www.trai.gov.in/WriteReadData/WhatsNew/Documents/OTT-CP-27032015.pdf
[8] MGM v. Grokster, 545 U.S. 913 (2005), available at http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&navby=case&vol=000&invol=04-480
[9] A&M
Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001), available at https://law.resource.org/pub/us/case/reporter/F3/239/239.F3d.1004.00-16403.00-16401.html
[10] http://www.bbc.com/news/technology-31942997
[11] http://www.theverge.com/2015/3/18/8240601/south-korea-uber-charged-30-people-ceo-kalanick
[12] http://gadgets.ndtv.com/apps/news/government-mulls-pan-india-ban-of-uber-ola-and-taxiforsure-apps-678203
[13] http://www.bizjournals.com/sanfrancisco/blog/2015/03/uber-driver-safety-court-ab24-nazarian-taxi.html
[14] http://www.kgw.com/story/money/business/2015/04/06/task-force-uber-can-re-start-in-portland-with-conditions/25376969/
[15] http://www.huffingtonpost.ca/2015/03/11/beck-taxi-app-uber-toronto_n_6847552.html
[16] http://www.budgetsaresexy.com/2014/09/lyft-uber-driver-hustle/
[17] A central
argument in Nassim Nicholas Taleb's 'Antifragile' (Random
House, 2012), though he applies the idea principally to city states vs.
nations.
[18] http://www.wave-innovation.com/en/la-louve.html. La Louve was
inspired by a cooperative that was founded in Brooklyn, New York, 20 years ago:
the Park Slope Food Coop, now 16,000 members strong, which runs a supermarket
of 1,000 square meters, open 8.00 a.m. to 10.00 p.m., 365 days a year.
[19] The authors would like to thank Ivan Rossignol for suggesting this
tripartite response theory, and offering valuable comments on this paper.
[20] The French police have raided offices and seized cellphones and
documents. http://www.theverge.com/2015/3/18/8240685/uber-france-office-raided-police-uberpop.
Australian police have attempted to use decoy customers- http://www.abc.net.au/news/2015-01-14/uberx-outsmarts-taxi-inspectors-by-blocking-mobile-phones/6016940
[21]http://www.slate.com/articles/news_and_politics/politics/2015/01/the_upper_middle_class_is_ruining_all_that_is_great_about_america.2.html " We often hear about how awesome it is that Uber
is making taxi service cheaper and more accessible for ordinary consumers but
how sad it is that they are making life harder for working-class drivers who
drive traditional cabs. Notice that upper-middle-class credentialed
professionals like dentists, lawyers, and doctors rarely get Uber’d to the same
degree. Even when innovative services try to do things like, say, offer a free alternative to expensive insurance brokers,
state and local governments will often step in to say, “Oh, no you
don’t.”
[22] Traders are taxed on stock traded as business income
while for investors profits are taxed at a far lower rate as capital gains.
[23] This distinction is not unique to India and the US uses it as well-
http://www.forbes.com/sites/anthonynitti/2013/08/29/the-tax-aspects-of-day-trading-do-your-purchases-and-sales-of-stock-make-you-a-trader-or-investor/
[24] http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140AB2293
[25] http://insurancenewsnet.com/oarticle/2014/08/29/california-legislature-approves-ab-2293-bill-balances-consumer-protection-and-r-a-549662.html#.VUmUDvmqpBc.
[26] " 5433 (e) In every instance where
transportation network company insurance maintained by a participating driver
to fulfill the insurance obligations of this section has lapsed or ceased to
exist, the transportation network company shall provide the coverage required
by this section beginning with the first dollar of a claim.
(f) This
article shall not limit the liability of a transportation network company
arising out of an automobile accident involving a participating driver in any
action for damages against a transportation network company for an amount above
the required insurance coverage."
[27] http://economictimes.indiatimes.com/news/politics-and-nation/green-signal-for-uber-ola-as-centre-rules-out-app-ban-services-to-be-regulated-under-motor-vehicles-act/articleshow/46856675.cms
[28] See for
e.g. the recent identification on Twitter of the lady allegedly harassed by an
AAP leader.
[29] Best burger
ever!
