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Jim Middlemiss

Taking a bite out of the sharing economy

Hail, hail the sharing economy! It’s putting lawyers to work.

As companies like Uber and Airbnb Inc. hit critical mass in public popularity they are wreaking havoc with long-standing regulatory processes, zoning laws, condo rules, and tax regimes that have been put in place to govern things like taxi rides and local accommodations. That spells opportunities for lawyers, who have to sort out the legal mess that innovation creates.

The sharing economy is the buzzword attached to situations where someone uses technology and the Internet to share their existing good or service with another individual. It’s also known as the peer-to-peer economy.

For example, you have an expensive camera that sits on your shelf 90 per cent of the time, why not rent it out? Need a ride, why not share someone’s car? Need a place to stay? Crash on a stranger’s couch. All for a fee. It’s capitalism at its most basic. As city populations get denser, the ability to share in the utility of something increases exponentially, creating market opportunities.

The sharing economy is becoming big business. Rachel Botsman, author of What’s Mine Is Yours: The Rise of Collaborative Consumption, pegged it at US$26 billion in 2010.

Airbnb, the popular rental accommodation web site, is probably the best-known success. It operates in 34,000 cities in 190 countries, and claims more than 25 million people have used its service.

(Disclaimer: I have used Airbnb on a number of occasions and have nothing but positive things to say about the experience.) Not yet a public company, Airbnb is raising money at a $US20-billion valuation, according to Bloomberg.

Car-sharing pioneer Zipcar, which allows urbanites to rent a car by the hour, sold for US$500 million to the Avis Budget Group. TaskRabbit allows you to buy people’s time to do tasks around your home. Tripda is a ride-sharing service for long distance travel. The list is ever expanding.

The most notorious, though, is Uber, the global ride-sharing service that is the bane of taxi commissions around the world. You can book an Uber driver in most major cities for a local ride using your smartphone and with GPS know when it’s arriving. Uber skirts the law by taking the position it is a technology company that matches people to their rides. Although in May said it would apply for a taxi licence in Toronto.

Users rave about the quality of service. No more dingy, run-down cabs that smell like cigarette smoke and are piloted like a bad NASCAR driver at the local demolition derby. Nevertheless, Uber is at loggerheads with most taxi commissions, including Toronto, where 11 Uber drivers were charged in the spring for operating without a commercial licence or insurance.

Airbnb also faces the wrath of politicians, with the Quebec government claiming it skirts the laws on tourist establishments and avoids taxes paid by traditional accommodation companies. The state of New York also claims many of Airbnb’s listings violate local zoning laws and that the state has been cheated out of millions of dollars in accommodation taxes.

The taxi, hotel, and bed and breakfast lobbies have all weighed in. But that’s what happens when innovators figure out a better way of doing things and they engage in regulatory arbitrage.

Just where can the sharing economy go and what’s next? Which brings us back to opportunities for lawyers. The structure for regulating the sharing economy is still being built, and it will fall on the shoulders of lawyers to help construct.

Tort law will likely play a pivotal role. Who is liable if something goes terribly wrong with any of these services? It will be worked out in time, likely in front of a judge, thanks to clever lawyers looking for ways to seek reparations for those harmed.

Driven by the ability of the Internet to marry people to a service or good, the sharing economy is really an output of technology and innovation. The law seldom stops innovation, rather it often gets steamrolled by it. Law lags innovation. It has to. It can’t be ahead of innovation, though law can sometimes foster it, for example research tax credits.

So the sharing economy faces the same hurdles industries before have faced in getting established. Ask someone in 1906 if the automobile would fly, and many would have asked why do we need it when we have the horse and buggy? Same for aviation, but we found a way to master that and built international travel. Drone delivery service is the latest regulatory challenge to the aviation world, and flying, collapsible cars are probably not far behind.

Politicians can bemoan services like Uber and Airbnb all they want. They provide a service the public has embraced and demands. What politicians should do is harness the opportunity and figure out how to make it work and flourish. New York Attorney General Eric Schneiderman has said: “We must ensure that, as online marketplaces revolutionize the way we live, laws designed to promote safety and quality-of-life are not forsaken under the pretext of innovation.”

That’s true, but nor should online marketplaces be forsaken under the pretext of protecting the status quo and the entrenched companies that stand to benefit when we shut out innovation. It will be left to clever and creative lawyers to make the case for the sharing economy. I am optimistic that it will prevail. History is on their side.

Jim Middlemiss is a principal at