Spontaneous Deregulation tests Regulatory Gaps on Digital Platforms

By Austin Okere

There is a perfect storm brewing on Twitter between the President of the United States of America, Donald J. Trump and Twitter Founder, Jack Dorsey.

“The Trump-Twitter fight ropes in the rest of Silicon Valley” was the screaming headline on Politico.com on Sunday, May 30, 2020.

President Donald Trump tweeted earlier this week about mail-in voting, alleging without evidence that the effort would lead to voter fraud.

For the first time, Twitter marked the tweet with a small notice that read “Get the facts about mail-in ballots,” which linked to facts-based reporting on the subject.

Twitter’s fact-check led Trump to issue an executive order targeting social media companies. The order involves Section 230 , part of a 1996 law that gives websites (including companies like Twitter and Facebook) the ability to moderate content on their sites without worrying about First Amendment violations.

Legal experts have said the move is possibly illegal and difficult to enforce. Facebook, meanwhile, has tried to stay out of the clash, with CEO Mark Zuckerberg weighing to say he has a much different view from Twitter on how Social Media Platforms should handle controversial political speech. Companies like Facebook and Twitter, Zuckerberg said, should not act as “the arbiter of truth.”

The relationship between platforms and regulation has been thorny right from the start and can at best, be described as a keg of gunpowder waiting to be triggered.

Has the time come for the trigger to be pulled? I wrote this article four years ago in June 2016, and it still captures the essence of this feud. What are your views on this fractious issue?

I facilitated a seminar for the Lagos Judiciary at the Lagos Business School in May 2016, with theme Digital Economy and Legal Regulation.

The aim of the program 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 shape or form.

The Regulatory Gaps

Justice Opeyemi Oke, representing the Chief Judge of Lagos State receiving the certificate of Participation

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 have 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 take 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 partnerships.

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.

Austin Okere is the Founder of CWG Plc, the largest ICT Company on the Nigerian Stock Exchange & Entrepreneur in Residence at CBS, New York. Austin also serves on the Advisory Board of the Global Business School Network, and on the World Economic Forum Global Agenda Council on Innovation and Intrapreneurship. Austin now runs the Ausso Leadership Academy focused on Business and Entrepreneurial Mentorship.