Shared Risks? The Top Six Issues 
Facing the Sharing Economy

DWT Media Law September 25, 2017 0
Shared Risks? The Top Six Issues 
Facing the Sharing Economy

The sharing economy—often called “collaborative consumption” or “the gig economy”—allows individuals to enter markets dominated by established companies by using technology to advertise or purchase goods or services. Websites like HomeAway and Airbnb allow anyone with a house, apartment, or even a spare room to instantly rival traditional tourist accommodations like hotels. With platforms like Lyft and Uber, drivers and passengers in major urban areas can find each other, often within minutes. TaskRabbit connects those looking for and providing freelance labor for everyday tasks, such as delivery and house cleaning. These are just a few examples.

The sharing economy has immediately provided convenience and flexibility but has also created legal uncertainty as to whether it is—or should be—subject to the same legal rules as established businesses. Municipalities and states have sought to regulate sharing economy platforms, and plaintiffs have made them a target. This article provides an overview of the primary legal issues facing the sharing economy.

Liability for User Content

Among the first and most heavily litigated issues in the sharing economy are efforts to hold a platform liable for content supplied by its users. This was exactly the type of liability Congress sought to preclude when it enacted Section 230 of the Communications Decency Act (CDA), 47 U.S.C. § 230, which courts have interpreted to provide near-absolute immunity to online providers for claims stemming from content provided by their users. See, e.g., Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, 1118 (9th Cir. 2007) (Section 230 “establish[es] broad federal immunity to any cause of action that would make service providers liable for information originating with a third-party user of the service”).

Applying this fundamental principle, courts have generally held that websites that facilitate sales by third parties are immune for claims based on sellers’ representations about their products and services. For example, as early as 2000, a California trial court held that eBay cannot be liable for sales by users of pirated music. Stoner v. eBay, Inc., 2000 WL 1705637 (Cal. Sup. Ct. Nov. 1, 2000); see also Hill v. Stubhub, 727 S.E.2d 219 (N.C. Ct. App. 2012) (refusing to hold StubHub liable for allegedly unfair and deceptive pricing policies by sellers of event tickets); Hinton v. Amazon.com.dedc, LLC, 72 F. Supp. 3d 685, 689 (S.D. Miss. 2014) (Amazon immune for claims “concerning the sale of defective or illegal items” by third parties).

The same should hold true for other online marketplaces: Section 230 should prevent liability against these businesses for content provided by their users, such as advertisements by homeowners for short-term rentals on HomeAway or messages between drivers and riders facilitated by Uber. But the few cases to decide these issues have mixed results.

In a victory for the sharing economy, the City of Portland, Ore., recently conceded that Section 230 preempts an ordinance that would have required websites like HomeAway and Airbnb to publish only short-term rental listings that comply with Portland law. City’s Response to Plaintiff’s Motion for Preliminary Injunction, HomeAway.com, Inc. v. City of Portland, No. 3:17-cv-0091-MO (D. Or. Mar. 20, 2017), Dkt. No. 30 at 1. The court also held that the Stored Communications Act likely preempts another portion of the Portland ordinance that would have required these platforms to share user information with the city. See Privacy, infra.

One court, against the weight of authority, reached a different conclusion. In Airbnb, Inc. v. City & Cty. of San Francisco, 217 F. Supp. 3d 1066 (N.D. Cal. 2016), the court held that Section 230 does not preempt an ordinance that penalizes short-term rental platforms for accepting a fee and providing tools that permit users to book and pay for reservations after viewing listings created and posted by users. A prior version of the ordinance—which the city abandoned after filing of the lawsuit—would have directly regulated user content by prohibiting the publication of listings without a valid registration number. The court did not mention, much less distinguish, the eBay or StubHub cases, or any other cases expressly declining to hinge liability on the acceptance of a fee. See, e.g., Inman v. Technicolor USA, Inc., 2011 WL 5829024, at *6 (W.D. Pa. Nov. 18, 2011) (rejecting plaintiff’s argument that “CDA applies only to communications,” not processing “business transactions”); Evans v. Hewlett-Packard Co., 2013 WL 5594717, at *4 (N.D. Cal. Oct. 10, 2013) (where app sold by third party on defendant’s website, court rejected “attempt to plead around Section 230” by focusing on defendant “receiv[ing] commission from selling the app”).

The Airbnb case settled. Whether it will withstand the scrutiny of other courts remains to be seen—as it is the type of “artful skirting” of Section 230 immunity the 9th Circuit has cautioned against. See Kimzey v. Yelp! Inc., 836 F.3d 1263 (9th Cir. 2016) (warning against theories that “artful[ly] skirt the CDA’s safe harbor”).

Vicarious Liability for Injuries

Lawsuits have also alleged claims based on personal injuries stemming from the actions of third parties using sharing economy platforms.

For ride-sharing companies, these lawsuits, which are generally based on the allegedly negligent or reckless conduct of drivers, have become a fact of life. For example, plaintiffs have alleged claims against Lyft based on theories that its drivers were hearing-impaired and could not hear a passenger’s instructions; were using the Lyft application at the time of an accident; tried to extort money from a rider; drove while a rider was not completely in the car; hit a bicyclist with his door; and collided with a tractor-trailer. See Zalihic v. Lyft, Inc., No. CGC-17-557457 (S.F. Cty. Sup. Ct. (Cal.) 2017); Edwards v. Lyft, Inc., No. D-1-GN- 17-000975 (Travis Cty. Dist. Ct. (Tex.) 2017); Moore v. Lyft, Inc., No. 17-152162 (Supr. Ct. N.Y. Cty. 2017); Walsh v. Lyft, Inc., No. CGC-17-556722 (S.F. Cty. Sup. Ct. (Cal.) 2017); Cox v. Lyft, Inc., No. CGC-16-555500 (S.F. Cty. Sup. Ct. (Cal.) 2016).

In one case, a plaintiff sued Sidecar—once a Lyft and Uber rival—for wrongful death. The complaint alleged that an obviously intoxicated man used Sidecar to get a ride to his own vehicle. The man then drove and caused a head-on accident that killed him and another driver—whose mother filed the lawsuit against Sidecar. The case is ongoing. See Anitohin v. Sidecar Techs., Inc., No. CGC-16-553479 (S.F. Cty. Sup. Ct. (Cal.) 2016).

In 2015, two women sued Uber alleging drivers sexually assaulted them. Uber moved to dismiss on the basis that it could not be vicariously liable for these alleged acts of drivers. The court denied the motion, concluding it was a “close enough call” whether the drivers were employees acting within the scope of their employment with Uber. The case settled. Doe v. Uber Tech, Inc., No. 3:15-cv-04670 (N.D. Cal. Oct. 8, 2015).

Any platform that permits users to offer services for hire could face similar claims. For example, a lawsuit by the Attorney General of the District of Columbia against Handy—which connects consumers and providers of cleaning and other home services—sought to hold the platform liable for several thefts. See D.C. v. Handy Techs, Inc., No. 16CA6729 (D.C. Sup. Ct. 2016). Similarly, HomeJoy, which offered similar services as Handy, was sued based on a user’s alleged installation of a secret camera during a visit. Santaromana v. HomeJoy, Inc., No. SC123515 (L.A. Cty. Sup. Ct. (Cal.) 2014).

As the Uber case demonstrated, the merits of these claims against may rise and fall based on whether courts consider the service providers employees acting in the scope of their employment. That question, though, has much larger ramifications—and lies at the heart of one of the most prominent issues facing the sharing economy.

Employment and Labor

No legal issue has plagued the sharing economy quite like the question of whether users offering their services are employees or independent contractors. The answer has serious consequences for companies like Uber, Lyft, and Handy, whose agreements with users state that they do not create an employment relationship. If users are employees, they could be entitled to many legal protections—including a minimum wage, benefits, and the right to unionize. Further, lawsuits about this issue alone can be costly. In fact, HomeJoy attributed its shutdown in 2016 largely to lawsuits about employment classifications.

Under the traditional tests for deciding whether someone is an employee or independent contractor, the result is generally the latter. Some courts, regulators, and employees’ rights advocates, however, are uncomfortable with that outcome. Employees traditionally have little choice as to when and how long they work; providers on platforms like Uber and TaskRabbit can work as much or as little as they want. At the same time, the more providers work, the more platforms benefit. Recent U.S. Department of Labor guidance suggests that for purposes of the Fair Labor Standards Act, this benefit alone may render providers employees. [U.S. Department of Labor Wage and Hour Division, Administrator’s Interpretation No. 2015-1, at 2 (July 15, 2015), available at http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.pdf.]

Despite dozens, if not hundreds, of lawsuits alleging plaintiffs have been misclassified as independent contractors, courts have not reached a consensus. In 2015, the federal district court for the Northern District of California declined to enforce Uber’s arbitration clause and instead certified a class of Uber drivers on the basis they could potentially prove they were employees, not independent contractors. Uber has appealed. O’Connor v. Uber Techs., Inc., 2015 WL 5138097, at *37 (N.D. Cal. Sept. 1, 2015). In the interim, the 9th Circuit enforced Uber’s arbitration clause. Mohamed v. Uber Techs., Inc., 848 F.3d 1201, 1211-12 (9th Cir. 2016). Comparable cases involving Shyp, Instacart, Handy, DoorDash, and Caviar have also proceeded to arbitration. [See Marissa Kendall, The Uber settlement provides payout, no closure, San Jose Mercury News (Apr. 22, 2016), http://www.mercurynews.com/breaking-news/ci_29802852/uber settlement-provides-payout-no-closure.] In 2016, Lyft settled a class action for $27 million under an agreement that permitted it to continue classifying drivers as independent contractors, but required it to change its terms of service to remove its ability to deactivate a driver’s account for any reason. See www.lyftdriverlawsuit.com/faq.

Sharing economy participants may also face efforts by providers to unionize. For example, in 2015, the City of Seattle enacted local legislation that would permit certain ride-sharing drivers, as independent contractors, to vote on a collective bargaining representative. The city certified a union as such a representative, triggering requirements for ride-sharing companies to provide lists of their drivers and drivers’ private identifying information for the express purpose of soliciting support for collective bargaining. The U.S. Chamber of Commerce sued on behalf of its members, and Right to Work sued on behalf of drivers. On April 4, 2017, a federal district judge preliminarily enjoined the ordinance, finding that the law may violate federal antitrust laws prohibiting price fixing and collusion and the federal Driver’s Privacy Protection Act. Chamber of Commerce of the U.S.A. v. City of Seattle, No. C17-0370RSL (W.D. Wash. Apr. 4, 2017), Dkt. No. 49. The city has filed an appeal of the preliminary injunction and a motion to dismiss the complaint. Id. Dkt. No, 42. As of July 28, 2017, the district court had taken the motion to dismiss under advisement. An Uber subsidiary, Rasier LLC, has joined the action as a plaintiff. Id. Dkt. No. 53.

Privacy

Platforms in the sharing economy, like many online businesses, often have vast information about users, including names, addresses, phone numbers, and financial information. Some also permit users to communicate with each other and store those communications. Many governments, typically at the local level, have begun passing laws that would require platforms to disclose user information upon request—but without a subpoena or court order.

The Stored Communications Act (SCA), 18 U.S.C. § 2701 et seq., likely prohibits such demands. The SCA forbids the government from obtaining information from a provider of an “electronic communications service” (ECS) or “remote computing service” (RCS) without a subpoena or other process. 18 U.S.C. § 2703. Few cases interpret the arcane definitions of RCS and ECS, which were enacted in 1986, and those cases that do typically concern traditional internet and email providers.

In March, an Oregon federal district court held that HomeAway was likely to prevail on its argument that it is an ECS and RCS. Minutes of Proceedings: Granting in Part & Denying in Part Plaintiffs’ Motion for a Preliminary Injunction, HomeAway.com, Inc. v. City of Portland, No. 3:17-cv-0091-MO (D. Or. Mar. 20, 2017), Dkt. No. 35. And because the ordinance HomeAway challenged would require it and similar platforms to disclose user information “upon request,” i.e., without any process, the court, ruling from the bench, preliminarily enjoined its enforcement.

Taxation

Governments also have begun to try collecting taxes from sharing economy companies for services their users have provided—a much easier task than collecting from individual users. Whether these laws are enforceable likely depends on state and municipal laws. In City of Chicago v. StubHub!, Inc., 624 F.3d 363, 366 (7th Cir, 2010), for example, after the 7th Circuit certified the question whether the state of Illinois could collect taxes from StubHub, the Illinois Supreme Court held it could not. Id. Similarly, the City of Portland filed suit seeking a declaration that HomeAway was required to collect and remit taxes from its users. See City of Portland v. HomeAway.com, Inc., No. 3:15-cv-01984-MO (D. Or.). In granting HomeAway’s first motion to dismiss, the court held Portland’s city charter did not give it the authority to tax HomeAway. The city amended its complaint, and the court granted in part and denied in part HomeAway’s second motion to dismiss. The case is ongoing.

Patents

Because the sharing economy depends largely on technology, patent issues will likely become an important part of the legal landscape. Uber, for example, has recently begun a patent purchase program that will allow it to enhance its patent library. See Uber Patent Purchase Program, https://www.uber.com/legal/intellectual-property/patent-purchase-program/en/ (last visited May 1, 2017). Airbnb is also growing its patent portfolio, with 13 published, pending U.S. patent applications. See Maulin Shah, Airbnb is Actively Growing Its Patent Portfolio, Patentvue (Mar. 27, 2017), http://patentvue.com/2017/03/27/airbnb-is-actively-growing-its-patent-portfolio.

These companies, like traditional ones, must contend with lawsuits from non-practicing entities (NPEs, or, as they are also known, “patent trolls”). NPEs hold patents but do not use them to make goods or provide services; instead, they enforce patents to secure licensing fees. In 2016, for example, Lending Club—through which users can request loans from other users—was sued by Phoenix Licensing, an NPE that has filed no fewer than 75 lawsuits in the past five years against companies big and small. The case settled in March 2017. See Order Dismissing Case, Phoenix Licensing, L.L.C. v. LendingClub Corp., No. 2:16-cv-00159-JRG-RSP (E.D. Tex. Mar. 16, 2017), Dkt. No. 15.

Conclusion

The law concerning sharing economy companies is in its infancy. But the technological and economic forces driving it are accelerating. Every day, companies discover new ways to facilitate the ordering and delivery of products and services ranging from craft furniture to food and wine. Innovations like bitcoin, blockchain, and big data ordering platforms cut across jurisdictions and country borders. Cities, states, and the plaintiff’s bar will ensure the law continues to develop, but nowhere near as fast as technology and consumer demand.

This article originally appeared in the MLRC May 2017 Bulletin – Legal Frontiers in Digital Media.

Ambika Kumar Doran is partner and co-chair of DWT’s media practice group and based in Seattle.
Tom Wyrwich is an associate based in Seattle.
Daniel M. Waggoner, partner and co-chair of DWT’s communications, media & information technology practice groups, is based in Seattle.

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