Opinion: Taming the digital Wild West

POSTED: 04/25/14 8:30 AM

The Internet has grown up. It is no longer just about providing information but about fundamental changes in the way we go about our daily lives, Eric Schneiderman, New York State’s attorney-general, writes in an opinion piece in the New York Times. While his piece touches on e-commerce, rather than on e-content (St. Maarten has its own share of problems with that, just ask Minister Maurice Lake) the point he is making is something for our lawmakers to consider as well.

“Enormous amounts of commerce that have long been subject to regulation and policing in the brick-and-mortar world are now moving online. This means big changes in the marketplace, even though many of the fundamental goods and services remain the same. Regulators are left struggling to keep up — and the companies involved want to keep it that way.

Amazingly, many of these companies claim that the fact that their goods and services are provided online somehow makes them immune from regulation.

This isn’t smart, or sustainable. Just because a company has an app instead of a storefront doesn’t mean consumer protection laws don’t apply. The cold shoulder that regulators like me get from self-proclaimed cyber libertarians deprives us of powerful partners in protecting the public interest online. While this may shield companies in the short run, authorities will ultimately be forced to use the blunt tools of traditional law enforcement. Cooperation is a better path.

Take Airbnb, a San Francisco-based company now valued at close to $10 billion that enables users in 192 countries to turn their homes into hotel rooms. In 2010, the state of New York passed a law confirming that short-stay rentals were generally illegal in apartment buildings, and for good reason: The longstanding distinction between hotels and apartment buildings protects the rights of building residents who didn’t choose to live 10 feet away from a parade of strangers. The law also protects tourists — who are usually unfamiliar with the rooms and buildings where they are sleeping — by imposing stiffer fire safety and building codes on hotels.

Airbnb “hosts” rent out apartments every day in violation of this law. Some of these are large, commercial enterprises with dozens of apartments — truly illegal hotels.

The most straightforward solution would be for Airbnb to simply prevent illegal transactions. But when my office reached out to Airbnb, the company rejected the idea of self-policing out of hand and refused to provide data that would give us a handle on the scope of the problem. With my hope of working in partnership with Airbnb dashed, we were forced to subpoena the company for information, a step that Airbnb has attempted to quash in court.

On Monday, just 24 hours before a key court date, Airbnb announced it had removed some 2,000 New York-based listings from the site, suggesting that our concerns are not misplaced. But none of this promotes confidence in the site — by users, their neighbors or the regulators whose job it is to protect the public.

Another example is Uber, a company valued at more than $3 billion that has revolutionized the old-fashioned act of standing in the street to hail a cab. Uber has been an agent for change in an industry that has long been controlled by small groups of taxi owners. The regulations and bureaucracies that protect these entrenched incumbents do not, by and large, serve the public interest.

But Uber may also have run afoul of New York State laws against price gouging, which do serve the public interest. In the last year, in bad weather, Uber charged New Yorkers as much as eight times the company’s base price. We are investigating whether this is prohibited by the same laws under which I’ve sued gas stations that gouged motorists during Hurricane Sandy. Uber makes some persuasive arguments for its pricing model, but the ability to pay truly exorbitant prices shouldn’t determine someone’s ability to get critical goods and services when they’re in short supply in an emergency. I’m hopeful that the company will collaborate with us to address the problem thoughtfully.

This kind of cooperation can work. Last year my office discovered that the consumer review website Yelp was being flooded by companies hired to fraudulently inflate rankings for clients and hurt those clients’ competitors. Rather than taking a knee-jerk anti-regulatory stand, Yelp, a publicly traded company, decided to cooperate with law enforcement on a yearlong undercover investigation that resulted in fines against 19 of these companies. This furthered the public interest, but also burnished Yelp’s reputation for reliability.

Cyber libertarians argue that regulators often lack the tools or know-how to provide smart enforcement. They are not entirely wrong. But that doesn’t mean that regulation is unnecessary. Nor does it excuse those same critics for refusing to work with the government agencies that must develop those tools.

Regulators should not be deterred and, as a practical matter, they can’t and won’t be — we are now living in an online world, one that offers great promise but is also becoming one of the primary crime scenes of the 21st century. Major service providers cannot be allowed to treat it as a digital Wild West. The only question is how long it will take for these cyber cowboys to realize that working with the sheriffs is both good business and the right thing to do.”



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