The Home-Sharing Industry Attempts to Fight Off Regulators

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The outcome of a lawsuit filed by Airbnb may define the regulatory limits of the sharing economy.

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The federal courts will soon weigh in on whether online sharing platforms are understood as networks for third-party advertisements, or as retailers that provide services to their users. The outcome may define the regulatory limits on the booming sharing economy.

Airbnb, an online marketplace that allows people to list and rent out their homes, is suing the City of San Francisco—the home of the company’s headquarters—for the city’s recently passed legislation on short-term renting and the home-sharing industry. In June, the Board of Supervisors of San Francisco passed legislation that will require rental websites like Airbnb to post only rental listings that are registered with the city or face daily fines of up to $1,000. Rather than comply with the new legislation, Airbnb sued in federal court to halt their implementation.

Airbnb’s suit rests on an argument that it is a passive host for its users’ activities, given that it does not restrict the content posted on its platform. Airbnb claims that the registration requirements violate the Communications Decency Act, which protects the computer service provider from liability for anything posted on its forums. Similarly, Airbnb claims that the legislation violates the Stored Communications Act, which protects user information stored on platforms from being accessed without legal process.

Airbnb claims it worked with the city for years to ensure fair rules for home-sharing but that the Board of Supervisors “hastily crafted” this rule that harms those who depend on Airbnb. But the President of the San Francisco Board of Supervisors, London Breed, said that the legislation is needed to implement a “stronger system… that goes after people who have entire units off the market [for short-term rentals].”

In response to the lawsuit, San Francisco City Attorney Office’s spokesperson Matt Dorsey said the law is “not regulating user content at all—it’s regulating the business activity of the hosting platform itself.” Some local communities outright oppose home-sharing platforms like Airbnb, citing their negative impact on the local economy and on full-time residents of the city, who are not able to occupy housing units that are reserved for short-term rentals.

The litigation could provide needed clarification of legal and regulatory boundaries in the booming sharing economy. Eric Goldman, an internet law professor at Santa Clara University School of Law recently said that the case comes down to whether the judge finds Airbnb to be an online marketplace of third-party advertisements or to be a retailer that rents properties to travelers.

Airbnb’s lawsuit reflects a common pattern between sharing firms and regulators. In a recent paper, Daniel Rauch and David Schleicher of Yale Law School describe the sharing firms “playbook.” Sharing firms build their customer base before getting regulatory approval so that once regulators start to crack down, the sharing firms can claim that they are only networks for connecting third-parties to each other. Regulations then become difficult to implement and enforce, as the market has already been established and consumers have come to depend on the services. By avoiding traditional political obstacles, sharing firms can dislodge established—and regulated—industries. Airbnb was able to grow as a hotel-type service without being subject to hotel regulations. And now that Airbnb has already established itself as a permanent fixture of travel and city life, it is able to react to regulators.

These consumer demands for the home-sharing platform already influenced San Francisco’s regulatory response in this case, as the threat of this lawsuit pressured city lawmakers to amend the legislation to punish Airbnb only when it books a stay in an unregistered home. Airbnb was not satisfied and filed an amended complaint that challenges the new legislation.

A federal court will hear the case in early October. Vivek Krishnamurthy, assistant director of the Cyberlaw Clinic at Harvard Law School‘s Berkman Klein Center for Internet & Society recently said that “this is going to be the first of many kinds of legal battles around the platform economy.” He further urged that Airbnb’s lawsuit might lead similar companies to use similar defenses when facing regulation.

On the other hand, a ruling against Airbnb would potentially make the platform more vulnerable and eligible for regulation. “If Airbnb loses the lawsuit, it will be open season for every regulatory body to tell Airbnb how it should run its business,” Goldman said. “That includes thousands of cities and counties.”