Guido Smorto: Known by many names – platform, sharing, peer-to-peer (p2p), collaborative economy, and so on – entirely new business models have emerged in recent years, whereby online platforms use digital technologies to connect distinct groups of users in order to facilitate transactions for the exchange of assets and services. Compared to both offline and online providers, these platforms do not act as direct suppliers, but leverage the widespread diffusion of internet and mobile technologies to operate as virtual meeting points for supply and demand, providing ancillary facilities for the smooth functioning of these markets.[1]

This dramatic shift in business organisation and market structure has opened an intense debate on the persisting need for those regulatory measures that typically protect the weaker party in bilateral business-to-consumer (b2c) transactions. In the platform economy both customers and providers are said be empowered, with the former enjoying wider choice and lower prices and the latter benefiting from countless new business opportunities, while platforms make transactions safe and efficient by adopting new mechanisms to enhance trust. Widespread calls for a more “levelled playing field” makes a strong argument for reconsidering the scope of regulation and delegating regulatory responsibility to the platforms. Accordingly, the appeal for lighter rules and reliance on self-regulatory mechanisms is pervasive.[2]

The chapter calls into question these assumptions. It demonstrates that platforms make frequent use of boilerplate, architecture and algorithms to leverage their power over users – whether customers or providers [3] – and that it is still not clear to what extent effective market-based solutions are emerging to tackle these issues. Part I illustrates the reasons for the alleged reduction of disparities, and it explains why such conclusion fails to fully appreciate the many grounds to the contrary. Part II scrutinizes terms and conditions adopted by online platforms to assess whether they mirror an imbalance in the parties’ rights and obligations. The article concludes that it is crucial to protect the weaker parties in these emerging markets, and it presents some brief recommendations.

Click here to read the whole text: The Protection of the Weaker Parties in the Platform Economy

[1] Cf. Kenneth A. Bamberger & Orly Lobel, Platform Market Power, 32 Berkeley Tech. L.J. (forthcoming 2017), https://ssrn.com/abstract=3074717; Liran Einav et al., Peer-to-Peer Markets, Annual Review of Economics, vol. 8, 615 (2016); Bertin Martens, An Economic Policy Perspective on Online Platforms, Institute for Prospective Technological Studies Digital Economy Working Paper 2016/05. JRC101501 (2016), https://ec.europa.eu/jrc/sites/jrcsh/files/JRC101501.pdf.

[2] See generally Adam Thierer et al., How the Internet, the Sharing Economy, and Reputational Feedback Mechanisms Solve the “Lemons Problem”, 70 U. Miami L. Rev. 830 (2016); Christopher Koopman et al., The Sharing Economy and Consumer Protection Regulation: The Case for Policy Change, 8 J. Bus. Entrepreneurship & L. 529 (2015); Molly Cohen & Arun Sundararajan, Self-Regulation and Innovation in the Peer-to-Peer Sharing Economy, U. Chi. L. Rev. Dialogue 116 (2015); Darcy Allen & Chris Berg, The Sharing Economy: How Over-Regulation Could Destroy an Economic Revolution, Institute of Public Affairs (2014).

[3] See Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “A European agenda for the collaborative economy” {SWD(2016) 184 final}, at 3 (“The collaborative economy involves three categories of actors: (i) service providers who share assets, resources, time and/or skills — these can be private individuals offering services on an occasional basis (‘peers’) or service providers acting in their professional capacity (“professional services providers”); (ii) users of these; and (iii) intermediaries that connect — via an online platform — providers with users and that facilitate transactions between them (‘collaborative platforms’)”).

Photo by Tankesmedjan Futurion

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Guido Smorto:

“Platform cooperativism” has become the most successful term used in the ongoing debate on shared governance and shared ownership in the platform economy. It attempts to define the new organizational structures and entire ecosystem that can offer a true alternative to the large-scale, for-profit corporations that are exploiting online cooperation among “peers”. However, in this lively debate the issue of market regulation has so far received little attention, especially with regard to the context of the European Union. This short article aims to show that the many solutions to the challenges of platform cooperativism cannot simply be reduced to the platforms’ capacity for self-government and to new organizational tools. Against the backdrop of the creation of a European regulatory framework, it is important to recognise the key role of competitive legal strategies from the perspective of both justice and efficiency. Only thus can co-operative models be sustainable and competitive in the platform economy.

Make the Rules or Your Rivals Will is the title of one of the most acclaimed books on competitive legal strategies, offering economic actors a clear choice: either play by your competitors’ rules or subject them to your own.[1] Needless to say, the second solution promises a better chance of success, especially in the early days of yet unexplored economic models. From Henry Ford’s victory over the Selden patent to the forty-year litigation faced by Thomas Edison and the complex strategies adopted by Bill Gates on standard licensing terms for software contracts and software copyright protection, an analysis of key economic sectors clearly shows that working under congenial rules from the outset of an economic model is the most crucial ingredient for success.

This assumption may seem quite obvious. After all, legal regulations create markets, define their boundaries and influence choices and behaviour. However, the weight of competitive legal strategies is often underrated, perhaps due to a natural aversion to litigation and lawyers, or because we tend to believe that the “state should not be picking the winner” but instead create a “level playing field” that puts the competitors on equal terms.

This general underestimation of legal strategies also applies to “platform cooperativism” – a term that refers to experimentation around shared ownership and shared governance in the online economy, with the aim of devising organizational models and a new ecosystem in opposition to the large-scale for-profit corporations that are exploiting online cooperation among peers.[2]

At first, this conclusion may seem overly harsh. After all, the ongoing debate is being enriched almost every day by initiatives seeking to develop new theoretical and practical instruments that aim to contribute to creating new kinds of collaborative platforms that are a true expression of a social and solidarity economy.

Loomio is an online tool for group decision-makin | Loomio

Research and analysis is more dynamic than ever in the fields of organizational models, decision-making tools and funding schemes. Software is being developed to facilitate collaborative decision-making (Loomio, Enspiral) and new legal solutions for tax and labour law (FreedomCoop). New instruments are being conceived to foster self-government and the creation of online communities (Fairshares), and innovative tools are coming up with new ways to coordinate capital and labour (Mastly, Timefounder). Original instruments based on blockchain are being engineered to create decentralized organizations (Backfeed, Comakery) and local currencies in accordance with social economy values (Colu). These experiments also are also investing in funding schemes that emerge as an alternative to venture capital (Purpose Capital, The working world, Transform Finance, Community Shares) as well as payment systems (Fairpay). And thought-provoking solutions (copyleft, copyfair) are being developed in the field of intellectual property and privacy as alternatives to traditional copyright law and the intrusive arrogance of capitalistic platforms.

The overall picture is extremely vibrant but also unstable and unbalanced. If we go deeper and try to confirm the actual consolidation of many of the proposals in question, we find that most of them are in a very early testing stage or facing severe financial problems. Furthermore, in the absence of established models many of these experiments face enormous difficulties in conceiving utterly new solutions capable of negotiating risks, ownership, control and profits.

But above all, what is really lacking is a full and engaged debate on market regulation and on the effects of legal regulations on competitiveness. According to the widely recognised distinction drawn by Lawrence Lessig – who came up with the formula “code is law” – the current discussion around platform cooperativism focuses mainly on the architecture (“code”) but largely overlooks legal regulations. [3]

Yet the two aspects should go hand in hand, given that legal regulations play a fundamental role in the ability to successfully design and implement viable alternatives for cooperative platforms: beyond technical difficulties, it will only be possible to establish effective tools that incorporate the values of cooperativism if those models remain competitive in the market. Because what is the point of devising more equitable systems if the market punishes those who make the effort?

Perhaps due to its North American origins, the absence of a thorough debate on legal frameworks for platform cooperativism is even more striking in Europe, where reflection on these issues generally fails to take into account the economic, cultural and legal peculiarities of the European Union.

Nonetheless, appropriate reflection and debate would be highly desirable, especially given that EU rules are being shaped right now: in June 2016 the European Commission published a Communication on the collaborative economy[4] and another on online platforms dates back to 2015.[5] The Uber case, now pending a hearing before the European Court of Justice, will be decided in 2017[6] and the European Parliament and other EU institutions are also taking a stance on these issues.[7]

Fairpay is a payment card to use in physical stores. It is loaded with Faircoin | Faircoop

Moving on to the content, what should be the focus of the debate on European rules for platform cooperativism? The first and most direct answer is to examine the distribution effects of these new economic environments, in order to understand who wins and who loses.[8] This involves studying their impact on different social groups and geographical areas, and looking at how they effect gender equality and the relationship between labour and capital. [9] Secondly, it requires a deeper analysis on how the digital economy affects the principles and values that our societies are based on[10], from the “commodification” of new goods and services[11] to the economic and political consequences of big data. [12]

But it is not just a question of justice and fairness. The current debate often points out the potential and actual injustices of this new economy, but fails to carry out a more technical analysis of market failures, precisely when EC Services Directive (2006/123/EC), e-Commerce Directive (2000/31/EC) and the acquis communautaire on consumer protection are being called into question.[13] Due to this oversight, the debates on platform cooperativism too often ignore the in-depth revision of the game rules that is currently taking place, particularly in regards to the role and the limits of self-regulation, thus fuelling the risk that these changes may result in massive deregulation. [14]

In the search for solutions to the many challenges facing cooperative platforms, simply relying on self-government capacities is clearly not enough. The development of a regulatory framework that is in tune with cooperative values is essential for the creation of public policies and for the development of solutions designed around the principles of co-creation and co-management. It is only when these rules are in place that social enterprises will be able to compete on equal terms in emerging online markets.

A few months ago, a proposal to buy Twitter was launched from The Guardian by one of the promoters of platform cooperativism. In the face of persistent rumours of a severe financial crisis and related concerns of a possible purchase by a well-known online giant, the #BuyTwitter campaign raised the idea of a purchase bid by its users and its subsequent transformation into a cooperative. The initiative garnered media attention and raised some hopes, but it stalled for practical reasons. Above all, the price was too high to be feasible. And it showed how difficult it is to channel individual enthusiasm into collective success, without the backing of considerable financial strength and appropriate organizational structures.

When real life does not go as we wish, sometimes we rebel and sometimes we turn to fantasy. We can throw stones at the Google bus – a symbol of gentrification and surge prices – as in the Douglas Rushkoff book that takes its cue from an episode that occurred in San Francisco in 2014.[15] Or we can imagine a future in which all companies are “social” and people can be punished for “anti-social investment”[16]; a future where Twitter really becomes a prosperous cooperative, where new cooperative social networks are successfully founded, and Facebook has no choice but to “democratize” its structure by including users in its board of directors. [17]

But if we’d rather deal with reality, we need to put competitive legal strategies at the very centre of the debate on platform cooperativism, thus channelling the discussion towards the context of the European Union at a time when the regulatory framework is being decided. It is crucial to act now, because failing to do so it will make it increasingly difficult to envision the success of cooperative models.

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