Just recently, I
facilitated a seminar for the Lagos Judiciary at the Lagos Business School with
theme Digital Economy and Legal Regulation. The aim of the programme was to
share insights on the emerging digital economy with their Lordships, and draw
attention to the imperative for regulatory evolution in the face of the
pervasiveness of online platforms of the kind operated by technology giants
such as Facebook, Google, Uber and Airbnb. There is hardly an area of economic
and social interaction these days that is left untouched by these platforms in
some way.
The Regulatory Gaps
To fill the regulatory
gaps in the digital economy, these behemoths have resorted to what could be
referred to as spontaneous deregulation. I first encountered this term in an
article by Benjamin Edelman and Damien Geradin, and has arisen as a result of
digital disrupters ignoring laws and regulations that appear to preclude their
business model, which is typically based on providing platforms for crowd
sourcing and giving rise to the sharing economy. Believing in the efficacy of
their utility model and its appeal to a pent up global demand, these disrupters
seem to see many rules and regulations as belonging to the past and impractical
for today’s innovative clime. They therefore simply ignore them, opting for
their own version of self-regulation, usually based on a mutual rating system
between service providers and consumers. It is this skirting of existing
regulation that is referred to as spontaneous private deregulation.
These disrupters make
the rules for themselves as they go along, because in fairness to them, as
their platforms reshape markets, the scope of activity subject to regulation
tends to decrease, and various forms of protection disappear. These companies operate in interstitial areas of the law because
they present new and fundamentally different issues that were not foreseen when
the governing statutes and regulations were enacted.
Two major areas in
which these digital czars have riled the establishment are in transportation
and hospitality; the major ‘culprits’ being UBER and Airbnb. UBER, until recently a relatively unknown company out of Silicon
Valley in California employs 160,000 drivers today, and is adding an average of
20,000 drivers every month. This transport services disrupter is now valued at
$41b, and operates in many major cities across the globe. Airbnb, a previously
obscure company with similar roots and reach, has over 1.5m accommodation on
her platform, and is now valued at $25b.
The
need for ‘platform fairness’
Axelle Lemaire, French secretary of
state in charge of all things digital, insists that France is open to platform
operators, but consumers have to be protected. She is sponsoring a law to be
passed by the French Parliament which will create the principle of ‘platform
fairness’.
Karnataka state in India, where Uber piloted its India service two
years ago has directed taxi aggregators such as Uber to stop operations in the state
until they secure a licence from the government, triggering sharp reactions
from the corporate world. Getting a licence would mean no more surge pricing,
complying with the maximum fares fixed by the government periodically and
registering with local transport authorities. The question is why has it taken
the Karnataka government such a long time to wake up to regulatory gaps in her
transport sector? And how many other cities are in this quagmire?
The U.S Supreme Court recently ended a
decade-long battle over Google’s massive book-scanning project, declining to
take up an appeal by authors who claimed the company violated copyright law
‘’on an epic scale’’. The justices denied certiorari in Authors Guild v.
Google, 15-849, leaving in place a ruling last year by the U.S. Court of
Appeals for the Second Circuit that said Google’s project was permissible. The
appeals court decision invoked the ‘’fair use’’ doctrine, which permits some
‘’socially beneficial’’ use of published works such as news reporting or
research, that would otherwise constitute copyright infringement.
Airbnb has had its fair share of issues
with one of her largest markets, New York. A major concern is the legal regime within
which Airbnb operates; one that is marked by poorly drafted laws that fail to
account for challenges presented by the sharing economy. As explained by Airbnb
cofounder Brian Chesky, “There were laws created for businesses, and there were
laws for people. What the sharing economy did was create a third category: people
as businesses,” to which the
application of existing laws is often unclear. These new business models raise
complex questions that have not yet been addressed by either legislatures or
courts.
Because the threat of enforcement
actions can have a chilling effect on start-ups and their users, state and
local government officials should consider how their actions may affect
burgeoning businesses. Officials should encourage the sharing economy’s growth
through collaborative efforts rather than seek to protect incumbent businesses.
Regulation
seems too slow in catching up
The slow pace of regulation evolution seems
to strongly suggest that the legal profession itself is ripe for a technology revolution
that will optimise the largely manual and laborious process of enacting laws
and regulation in the face of the aggressive pace of digital innovation.
I recall the
indignation of their Lordships when I cautioned that the learned profession
could be more vulnerable than they think when it comes to disruption, and that
emerging technologies like cognitive computing and other forms of machine
learning can help narrow the gap between regulation and innovation.
Much as it may sound
improbable, given its intrinsic consultative nature, I was not surprised when I
came across an article on the World Economic Forum’s collaborative platform,
announcing that a Law firm Baker & Hostetler has done just that!
Green shoots of technology in Law and
Regulation
According to the
article, Baker &
Hostetler has announced
that they are employing IBM’s AI Ross to handle their bankruptcy practice,
which at the moment consists of nearly 50 lawyers. Ross, “the world’s first
artificially intelligent attorney” built on IBM’s cognitive computer Watson, was designed to read and understand language,
postulate hypotheses when asked questions, research, and then generate
responses (along with references and citations) to back up its conclusions.
Ross also learns from experience, gaining speed and knowledge the more you
interact with it. “You ask your questions in plain English, as you would a
colleague, and ROSS then reads through the entire body of law and returns a
cited answer and topical readings from legislation, case law and secondary
sources to get you up-to-speed quickly,” the website says. “In addition, ROSS monitors the law around
the clock to notify you of new court decisions that can affect your case.”
Ross also minimizes
the time it takes by narrowing down results from a thousand to only the most
highly relevant answers, and presents the answers in a more casual,
understandable language. It also keeps up-to-date with developments in the
legal system, specifically those that may affect your cases. According to CEO
and co-founder Andrew Arruda, other firms have also signed licenses with Ross,
and they will also be making announcements shortly.
This disruption, happening to the most
unlikely profession, with a highly codified ethic is a clear manifestation that
no industry is immune from disruption in the impending fourth industrial
revolution. Any industry that does not figure out how to be a part of it might
as well write their obituaries. My takeaway expressed to their Lordships after
the seminar was that the digital revolution is like a train whose drivers are
the entrepreneur disrupters.
The passengers are the global customers with a
pent up demand for the value and convenience that they provide. Naysayers to
this phenomenon can stand in front of the train and be crushed, stay on the
platform and be left behind, or come on board for a ride into progressive
partnership.
Regulators still have much to learn
about how to deal with platforms. They have no choice than to get more involved
and get the needed expertise. But will they? The jury is still out.
*Contributed by Austin
Okere is the Founder of CWG Plc, the largest Systems Integration Company in
Sub-Saharan Africa & Entrepreneur in Residence at CBS, New York. Austin
also and serves on the World Economic Forum Business Council on Innovation and
Intrapreneurship.
Pix: Okere with Justice Opeyemi Oke, representative of Chief Judge, Lagos State at the event.
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