Law and Innovation, Again

In my July post for the National Magazine’s blog I wrote that the decision of Ontario’s Superior Court rejecting the attempt by the city of Toronto to stop Uber operating there without a “taxicab broker” license was a reminder of the fact that technological innovation often challenges the law not directly, but by enabling innovative business models. In a recent post for the Hoover Institution’s Defining Ideas, Richard Epstein offers a similar argument, and draws similar conclusions from it.

Prof. Epstein’s post, as it happens, was also prompted by litigation against Uber ― this time in California, where an administrative tribunal recently concluded that its drivers were “employees” and thus entitled to certain benefits. (It is worth noting that New York City’s authorities have since taken the contrary position.) Prof. Epstein points out that

There is no question that [“sharing economy”] platform systems require a contractual framework for a three-party relationship that is not found in the playbook of traditional industries, where there is a direct relationship between the party that supplies the goods and services and the party that requests them.

The law, says prof. Epstein, has a choice in how to respond to the situation. It can let the market work out new forms of contractual relations, which might combine elements of pre-existing standard arrangements (such as the employment contract) if the parties want it. Alternatively, it can try to simply fit new commercial relationships into the pre-existing forms.

For prof. Epstein, the choice is clear:

it is a hopeless task to apply traditional regulatory structures to modern arrangements, especially when they block the implementation of new business models. Indeed, it is necessary to go one step further: it makes no sense to apply these regulatory statutes to older businesses, too. Time after time, these statutes are drafted with some “typical” arrangement in mind, only for the drafters to discover that they must also try to apply the statutes to nonstandard transactions that do not fit within the mold.

No disagreement from me. Here’s what I had written last month:

[t]he law ― including the regulation of taxis ― is written with specific business models in mind. When the business models in question are no longer the only ones around, the legal rules based on the assumption that they are lose their efficacy.

We should, I said, resist “[t]he temptation to expand the scope of the existing regulations, to close the ‘loopholes’ opened up by innovation,” and take “the disruptions caused by innovation … as an opportunity to ask whether any of the arguments for the old rules … still apply.”

But if you didn’t want to take it from me then, you should take it from Prof. Epstein now.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s