Assessing Airbnb’s prospects in its San Francisco litigation, by Nancy Leong and Ben Edelman

by Guest Blogger — Friday, July 15, 2016

Last week the Internet buzzed with news of Airbnb’s lawsuit against San Francisco. Dissatisfied with a new ordinance updating and enforcing 2014 regulations of short-term rentals, Airbnb filed suit against the city, arguing that the new ordinance violated both federal law and the federal constitution.

The regulations reflect San Francisco’s conclusion, grounded in more than a year of experience, that enforcing short-term rental rules requires help from rental platforms. Platforms are in the best position to provide regulators with information about new listings (so regulators can check each listing for compliance), or to supplement each posted listing with a registration number (to let regulators focus their attention on any unapproved listings).

San Francisco’s new regulations would help housing regulators uncover unlawful listings, and would thereby increase compliance with applicable law. But are such regulations legal? Perhaps applicable law forecloses these approaches, guaranteeing that some local rental rules are unenforceable as a practical matter because Airbnb legally cannot be required to assist housing regulators in the manner that these rules propose. Airbnb broadly offers this defense in its dealings with cities and in its recent lawsuit against San Francisco—arguing not that hosts’ activities are legal (an argument that would be difficult for most hosts in most jurisdictions), but that enforcement procedures are overdone and themselves improper.

In this piece we assess Airbnb’s arguments in its San Francisco complaint—finding some validity but, on the whole, considerable weakness.

The Communications Decency Act

Airbnb claims that the San Francisco ordinance violates section 230 of the Communications Decency Act. That law states: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” The CDA was intended to protect online providers from claims arising from users’ speech and behavior. For example, under the CDA, Facebook is not liable if one of its users commits libel via Facebook’s service. The proper interpretation of section 230 remains hotly debated among Internet authorities, and the Supreme Court has yet to settle many of the most contentious disputes.

Even without reaching the most controversial issues, however, Airbnb’s arguments face serious questions. First, it is not at all clear that San Francisco’s ordinance even falls within the reach of the CDA. The CDA’s concern is that an online provider—such as Airbnb—would be held liable for the actions of users. In contrast, San Francisco’s ordinance regulates Airbnb directly by requiring it to verify that its listings have valid registration numbers under the city’s licensing system. Such an ordinance does not hold Airbnb liable for user-generated content; rather, it regulates Airbnb directly as a platform and requires Airbnb to satisfy certain requirements.

Second, the CDA contains a number of important exclusions—areas in which the CDA immunity does not apply. Prominent among those is a complete exclusion of criminal liability, which the CDA leaves unchanged. The criminal exception is clear-cut and well understood; indeed, while Google usually escapes liability for deceptive or unlawful advertising, the US Department of Justice threatened criminal penalties for Google’s display of (and other facilitation of) unlawful pharmaceutical advertising, leading to Google’s remarkable $500 million payment in lieu of criminal prosecution. Violations of the San Francisco ordinance are similarly subject to criminal liability including a misdemeanor penalty of a fine of not more than $1000 or six months’ imprisonment. As Google’s experience confirms, at least where a prosecutor seeks criminal liability, the CDA offers no shield.

The Stored Communications Act

Airbnb next turns to the Stored Communications Act. Airbnb says the SCA prohibits a provider of remote computing service or electronic communication service from divulging records or other information to a government entity without subpoena or other legal process. Airbnb notes that the SCA provides a variety of “exceptions,” but the company is too quick to dispose of those exceptions.

For one, the SCA indicates that customer consent is a complete basis for sharing customer information. See 18 USC 2703 (c)(1)(C). One might not expect an Airbnb host to consent to its information being shared with government authorities who, to be sure, may in turn penalize the host. But Airbnb’s Terms of Service require exactly this consent. See Airbnb TOS Section 14, paragraph 3: “Airbnb may access, preserve and disclose any of your information if we are required to do so by law.”

The SCA also allows service providers to share data “incident to the rendition of the service or to the protection of the rights or property of the provider of that service.” 2702(c)(3). San Francisco’s new ordinance calls for Airbnb to disclose certain customer information as a condition of operating a short-term rental platform, and in this context, the data sharing is indeed incident to the service, satisfying the first (c)(3) exception. Moreover, San Francisco’s ordinance also imposes penalties if Airbnb fails to provide the required information – so Airbnb could fairly invoke the “protection of the rights or property” exception too.

Finally, the San Francisco ordinance offers Airbnb the choice of two methods of compliance—either providing the city with information about hosts, or posting hosts’ registration numbers. If Airbnb strongly dislikes providing the city with information about hosts, it can simply choose the second method, immediately disposing of all information sharing obligations and hence eliminating SCA concerns.

First Amendment

Airbnb finally asserts that the San Francisco ordinance violates the First Amendment by infringing on Airbnb’s freedom of speech. Airbnb is of course correct that advertising rental listings constitute speech. But Airbnb appears to argue that San Francisco’s ordinance should receive strict scrutiny because it is, supposedly, a content-based regulation on speech, under which the government would have to show that the ordinance is “narrowly tailored to further a substantial government interest.”

This view misstates the current landscape of free speech doctrine. For one, regulation of commercial speech is evaluated under the less demanding standard of intermediate scrutiny. To regulate such speech, the government need only show that the regulation is substantially related to an important government interest.

Here, San Francisco has an important interest in tracking the location and other characteristics of rental properties. The city’s its ordinance is substantially related to that goal. Indeed, the existing method of tracking rental properties have yielded low compliance: A report from the San Francisco Budget and Legislative Analyst’s Office found 76.6% of Airbnb hosts out of compliance. Moreover, existing methods have proven insufficient both to identify and to deter noncompliance. As the same report concludes after assessing methods to date, Airbnb is in the best position to improve compliance because, in its normal course of business, the company already collects information about properties and locations, and because the ordinance asks Airbnb only to ensure that regulated entities have entered a valid registration number—a burden that could be met with minimal time and effort.

Meanwhile, the compelled disclosure of factual and uncontroversial information receives particularly lenient scrutiny; here, the fact of a property’s registration with a required government regulation is factual and should satisfy trigger this lower standard. Furthermore, commercial speech receives first amendment protection only if it concerns lawful activity—but San Francisco’s research reveals that most of the city’s listings are unlawful, perhaps forfeiting any First Amendment protection whatever.

Our view, then, is that Airbnb’s free speech claims are particularly weak. We credit that the government is compelling Airbnb to speak, but courts widely allow such requirements: Consider calorie counts on restaurant menus and country-of-origin labels on food products (among numerous others). Here, San Francisco requires not that the disclosure be large or prominent, as in controversial cigarette box disclosures; a small disclosure in the corner of a property page would suffice—much reducing any distraction to Airbnb guests and correspondingly reducing the burden on to Airbnb.

Looking Ahead

Airbnb’s business is grounded on widespread hosting, almost everywhere. Only with widely-available hosting can Airbnb sustain the usage it aspires to and the valuation investors now expect. If Airbnb must remove service in numerous jurisdictions—those where regulators step up, or conceivably everywhere where short-term hosting is for some reason illegal or where a given property falls short of applicable requirements—the company’s opportunity and valuation will shrink accordingly. Airbnb has every reason to fight regulation that reduces its opportunities. But it’s not clear that Airbnb has compelling legal grounds to do so.

Perhaps Airbnb’s argument is better taken to legislators. Clearly Airbnb thinks its business is meritorious and should be permitted, including revising or lifting any laws standing in the way. By all indications many voters would agree. Airbnb staff might shudder at the work of clearing legal impediments, jurisdiction by jurisdiction across the country and indeed the world. But every large business must similarly assure its legality everywhere it operates. With Airbnb’s lofty valuation, the company is unusually well-positioned to fund these efforts. And with a large base of satisfied hosts and guests, Airbnb is well-positioned to organize political support. This, we think, is the proper approach for the company in light of the gaps in its current legal arguments.

We will explore these questions in greater detail in a forthcoming working paper.

@nancyleong // @bgedelman

This entry was tagged .

Cite As: Author Name, Title, Yale J. on Reg.: Notice & Comment (date), URL.

Leave a Reply

Your email address will not be published. Required fields are marked *