Who does what in the Collaborative economy: legal qualifications of the parties in tripartite relationships ? by Vassilis Hatzopoulos

The problem

As discussed in the previous (introductory) post, the sharing economy is based on a tri-partite relationship, whereby an electronic platform matches consumers’ demand for specific services (or goods) with the offer of its affiliated ‘prosumers’ (producing consumers) or professionals. Τhe first – and foremost – legal difficulty in the framework of the collaborative economy is the qualification of the relationships between the parties. Questions such as a) who will the Airbnb guest be able to sue for damage to life or property suffered during a short stay; b) how will the Airbnb owner be indemnified for damage caused to their property by ‘their’ guests; c) who will the pedestrian hit by an Uber driver sue for damages; d) is the relationship between the platform and the prosumer one in contract or also in tort; e) if the former is true, is there an employment relationship between the two; f) which law should be applicable to all the above disputes, before which jurisdictions, g) does the authorization given to the platform cover the activity of its affiliated prosumers and, conversely, i) does the fact that the prosumers are non-professionals mean that the they and/or platform need not comply with all the rules and regulations normally applicable to the underlying activity, and many more, depend on this legal qualification.

The scenarios

There are at least four (plus one) different scenarios under which these relationships may be accounted for:

  1. a) the platform, while creating new offer/demand through its intermediation, only offers e-services to the two parties, without any direct involvement in the (underlying) contract between them; this is the position constantly put forward by the platforms – and explains the fact that Uber has changed its name from UberCab to Uber Technologies;
  2. b) the platform has such a tight grip on either the definition/content of the underlying service or on the provider of such service (ie through an employment relation), that it is to be considered as the provider of the underlying service too – this corresponds to the finding of the Court in Uber Spain (see below);
  3. c) the platform does not create new offer/demand, but is merely another means of communicating to the public the services of an already powerful service provider – such as eg Booking.com for the Hilton Hotel;
  4. d) the platform and the providers of the underlying service are so closely intertwined that they are considered together as a single contracting entity, in the sense that (under tort law) they constitute a ‘joint enterprise’;
  5. e) the last scenario is an ‘artificial’ one, in the sense that the legislator (EU or national) recognizes the special nature of the collaborative three-party relationship and sets special rules for it, specifically allocating the rights and liabilities of the parties involved; such an approach has been followed by the EU legislature in another two-sided market, that of package travelling.[1]

The Commission’s approach

The Commission in its Communication on a European Agenda for the collaborative economy has tried to offer some guidance.[2] While acknowledging that the question whether a collaborative platform also provides the underlying service may only be resolved on a case-by-case basis, the Commission sets out three criteria: a) whether the platform imposes (as opposed to proposes) the price, b) whether it decides on other key contractual terms and c) whether it owns the key assets used to provide the underlying service. When these criteria are cumulatively met, then, according to the Commission, there would be ‘strong indications’ that the platform also offers the underlying service. This is an extremely demanding test (especially if it is only to offer ‘strong indications’), since even where the platform does actively decide on key contractual terms, it will rarely impose a price and even more rarely, if ever, will it possess the assets required to offer the underlying service. Possession of the assets by the platform is likely to run counter to two of the very defining concepts of the collaborative economy, ie sharing goods and services and two-sided platforms. The extremely demanding test set by the Commission in order to reach the conclusion that a platform actively participates in the underlying service, and thus is subject to the corresponding regulatory and liability burdens, is consistent with the Commission’s pro-platform attitude; it runs, however, in the direct opposite direction from the EU’s approach in the other two-sided market regulated by the EU, ie package travelling, where the core burden of consumer protection is specifically attributed to the intermediary.

The Court’s approach

The CJEU had the occasion to address some of these issues in Asociacion Profesional Elite Taxi v Uber Systems Spain, SL (hereinafter: Uber Spain).[3]  By answering under what conditions may a platform, on top of its intermediation e-services, also be considered as the provider of the underlying service, the Court made clear two points.

First, that the shield separating the platform from the providers of the underlying service is not as impermeable as the platforms would like it to be. This finding, in line with most national jurisdictions which have dealt with Uber,[4] is, however, case-specific. It does not automatically extend to other transportation platforms such as Blablacar,[5] let alone other platforms in the collaborative sector. In view of the variety of the collaborative exploitation models and the differences existing between seemingly similar platforms, the test put forward by the Court should be used with caution in future cases.

The Court recognizes that the (electronic) intermediation and the underlying services offered in a collaborative framework may often be so closely linked as to constitute a single ‘composite’ service, where the underlying service is typically the ‘main component’ in economic terms.[7] Then the Court examines the role of the platform in this ‘main component’ on the basis of two criteria: whether the platform makes such service possible at the first place, in the sense that it would not altogether exist were it not for its intermediation; and/or whether it exercises ‘decisive influence’ over the underlying service.[8] For this latter point, the Court uses, in this case, the following elements: 1) it organizes the characteristics and functions of this new service; 2) it selects the providers (drivers) according to its own criteria; 3) it fixes the conditions of service delivery, 4) most importantly the price, 5) which it receives directly from the users before returning a part to the providers; 6) it (indirectly) controls the quality of the service (vehicles, drivers, conduct) through a rating application; and 7) it reserves to itself the right to ultimately exclude those providers which it does not deem fit.

The above test leaves without answer the following questions. First, when are we in presence of a ‘composite service’? If Uber is one, what about Airbnb, and further down the line, what about Booking? Is this question the same as the one on exercising ‘decisive influence’ or is it a separate test? Second, the Court’s test does not make it clear whether the requirements that the platform should be ‘inventing’ the service and should be exercising a ‘decisive influence’ over it are cumulative or if one is enough. Third, it does not set any hierarchy between the (seven) criteria used for identifying the existence of decisive influence nor does it state how many of those need be present in any given case.

The second point to take back home from the Court’s judgment in Uber Spain is that some collaborative platforms such as Uber – the most successful of them all –[9] may be stripped from the core advantages offered by the collaborative model of exploitation through the application of non-adapted national regulations: flexibility and the use of non-professional service providers (prosumers). This, soothing as it may sound to the ears of incumbents (traditional cab drivers in Uber’s case), is counter-intuitive, and may prove destructive, for the development of the sharing economy.

Conclusion

The problem, as aptly put by Judge Chhabria put in the Lyft litigation in California, is that courts, based on pre-existing legal categories ‘must decide whether a multi-faceted product of new technology should be fixed into either the old square or the old round hole of existing legal categories, when neither is a perfect fit’.[10] Therefore, if the collaborative economy is not to be transformed in yet another bubble, it is for the legislature (local, national or supranational – for that point see further below) to devise new categories, principles, methods and (possibly) rules, in order to make sure that the promise of the fourth industrial revolution, made possible by technology, is not brought down to its knees by the inadequate and/or inappropriate regulatory framework. This brings to the fore scenario (e), above, and the issue of a ‘platform directive’.

[1] European Parliament and Council Directive (EU) 2015/2302 of 25 November 2015 on package travel and linked travel arrangements, amending Regulation (EC) No 2006/2004 and Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 90/314/EEC (Package Travel Directive) [2015] OJ L 326/1.

[2] Communication from the Commission, ‘A European Agenda for the collaborative economy’, COM(2016) 356 final.

[3] C-434/15, Asociacion Profesional Elite Taxi v Uber Systems Spain, SL, EU:C:2017:981.

[4] See eg Uber France / DGCCRF et autres; upheld by the Cour d’appel de Paris in Judgment PI4084000776 of 7 December 2015, available at www.legalis.net/jurisprudences/cour-dappel-de-paris-pole-4-chambre-10-arret-du-7-decembre-2015, where the Tribunal correctionnel de Paris fined the French subsidiary of Uber for misleading commercial practices on the grounds of presenting its UberPOP service as ride-sharing, despite being, in reality, a taxi service.

[5] See the judgment of the Madrid Commercial Court, Confebus v BlablaCar SJM M 6/2017 (2 February 2017) ECLI:ES:JMM:2017:6.

[6] The term ‘composite’ is used by the AG in his Opinion (paras 28, 31, 33 etc), but the same idea is reflected in the Court’s judgment where it states that ‘the provider of that intermediation service simultaneously offers urban transport services’ (para 38) and that ‘that intermediation service must thus be regarded as forming an integral part of an overall service whose main component is a transport service’.

[7] Para 40.

[8] Para 39.

[9] So far, at least; it is put forward by some that this judgment could be the beginning of the end of Uber, see S. Hill, ‘Losing money rapidly, how long can Uber last?’ Salon 15-1-18, available at https://www.salon.com/2018/01/14/losing-money-rapidly-how-long-can-uber-last/#.Wl3B0SGyWp8.email.

[10] Cotter v Lyft Inc, 60 F Supp 3d 1067, ND Cal 2015.

Next week: Market access in the collaborative economy

To Read the first post : Introduction: Basic facts about the collaborative economy

ΧΑΤΖΟΠΟΥΛΟΣ ΒΑΣΙΛΗΣ

Vassilis HATZOPOULOS is full Professor of EU Law and Policies at the Panteion University, Athens (Greece), visiting Professor at the College of Europe, Bruges (Belgium), honourary Asst. Professor at the University of Nottingham (UK), Attorney at law – member of the Athens Bar. A leading expert in EU law, he notably wrote the first reference book on collaborative economy, The Collaborative Economy and EU Law, Oxford, Hart, 2018

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