BLOOMINGTON, Ind. – An opinion issued March 13 by the 9th U.S. Circuit Court of Appeals — which likely will dramatically impact the regulation of platform-based technology firms nationwide — closely followed the line of argument laid out in a brief filed with the court by two Indiana University Kelley School of Business professors, Abbey Stemler and Matt Turk.
“This case is going to be huge as it will dramatically impact how the sharing economy is regulated. It could also have profound impacts on the regulation of the internet in general,” said Stemler, an assistant professor of business law and ethics at Kelley (pictured left).
Stemler and Turk, also an assistant professor of business law and ethics, filed the amicus brief in May on behalf of two California municipalities in the case, HomeAway.com Inc. & Airbnb vs. City of Santa Monica.
The case involved Airbnb and HomeAway’s challenges to an ordinance rolled out by the City of Santa Monica and represents a much larger battle between local governments and Silicon Valley. In particular, the Santa Monica ordinance requires an Airbnb or HomeAway host to have a short-term rental license before the companies can collect a fee for their booking services.
The two home-sharing platforms, however, asserted that Section 230 of the Communications Decency Act of 1996, a cornerstone of internet regulation in its current form, prohibited such an ordinance even though it was aimed solely at preserving the culture in and safety of the city’s own backyard.
Represented by former Solicitor General Don Verrilli and supported by other tech platform companies such as Uber and eBay, Airbnb and HomeAway asserted that Section 230 overrides Santa Monica’s measure and meant that they cannot be held liable for unlicensed listings.
A three-judge panel disagreed and unanimously upheld Santa Monica’s position that the companies could be directly regulated under the ordinance.
The 9th Circuit’s opinion agreed with Stemler and Turk (pictured right) on a number of points, including their claim that while Section 230 “has rightly been credited as the law that gave us the modern Internet,” it “does not preempt all regulation of the Internet. Neither does it provide blanket immunity from liability for platforms, like Airbnb.”
In the court’s words, Section 230 does not “create a lawless no-man’s land on the internet.”
The 9th Circuit also agreed with Stemler and Turk’s further argument that platforms within the so-called “sharing economy” have real impacts on the physical world, and, to “strip state and local governments of the authority to police what takes place in their own jurisdictions” would go against the Communications Decency Act’s “overall statutory structure, substantive terms and text, and the context in which it was enacted.”
While it is “possible that extending some traditional forms of business regulations to internet platforms will expose those policies as unwise, the solution in that case is to roll back the misguided aspects of existing rules, which have presumably been hindering brick-and-mortar companies as well, not to strip state and local governments of the authority to police what takes place in their own jurisdictions,” Turk and Stemler wrote. The judges agreed, stating that “like their brick-and-mortar counterparts, internet companies must also comply with any number of local regulations concerning, for example, employment, tax or zoning.”
The brief was signed by 14 prominent law scholars and is based Stemler’s forthcoming article in the Harvard Journal on Legislation, From the Digital to the Physical: Federal Limitations on Regulating Online Marketplaces (with Harvard Business School professor Ben Edelman), which provides a detailed defense of state and local governments’ ability to regulate platform-based business models. The brief also drew heavily on Turk’s years of experience as both a judicial clerk for the 9th Circuit and as a corporate litigator in Silicon Valley.