The age of the sharinge conomy 1

The age of the sharing economy

A special report from Advokatfirmaet Haavind AS

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The age of the sharing economyA special report from Advokatfirmaet Haavind AS

One of the principles of the sharing economy is that only those who share will receive. Inspired by this concept, we review in this special report the consequences of the sharing economy, and what the legal effects will be for Norwegian and foreign businesses.

In just a few years, the digital economy, of which the sharing economy is a part, has turned established industries and business models upside down. Many businesses have had to change fast and brutally. This is commonly called disruption. And while established operators and models are being impacted by a new reality, the regulation of these industries is also being disrupted. Sometimes the new operators have to adapt to old legislation. At other times, it is the established operators that have to change. Sometimes it is the authorities that have to make a move in order to get appropriate regulation in place.

This report examines the effect of the sharing economy on concepts such as:

– The labour market – Competition law – Protection of privacy and data security – Copyright law – IT procurements

A key aspect of the digital economy is that it traverses established industries and fields. In order to be able to meet the new age, we in #Haavindtech have established a vital, multidisciplinary group designed to offer the best possible legal and strategic advice on digital everyday life and digital business transformation.

Kari GimmingsrudPartnerTechnology, media and IPR

Andreas BerntPartnerTechnology, media and IPR

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Digitalization and disruptive technology are changing business models Sharing economy is more than just a buzz term. It is changing existing economic models and paving the way for new operators, consumers and suppliers. Furthermore, existing legislation is being developed and challenged.

Just a few years ago, the term “sharing economy” was totally unknown. The first use of the word that we have found in a Norwegian daily was on 16 June 2009 when the then editor-in-chief of VGNett (now editor-in-chief of Aftenposten), Espen Egil Hansen, wrote the following in Klassekampen about the challenges facing the media industry::

“The challenge to those who publish only on paper or elect to hide their content behind payment walls, is that they are cutting themselves off from the most important mechanism in the sharing economy: Only those who have something to give, get something in return! »1

It is no more than eight years since Hansen wrote those words. It is a long time ago, however, in the perspective of the digital economy, where development takes place at a constantly accelerating pace. Uber had not yet seen the

light of day at the time, and Airbnb was still being run from an attic in San Francisco.

Perhaps it was the media business that felt the effects of the sharing economy first and most acutely. Consumers switched with almost incredible speed from paying for access to news, to keeping abreast by watching one another’s sharing on social media. Since then, the fundamental principles of the sharing economy and the digitised marketplaces have impacted a large number of industries.

In other areas, it is not long since well-established operators such as eBay and Amazon were revolutionary, but now e-books and online shopping are yesterday’s news. Amazon has taken a step further to become one of the world’s biggest suppliers in the cloud-based supplier industry. Netflix and other streaming services altered expectations of the television and film industry, and made it necessary for all media suppliers to think innovatively. The effects of the realities of the sharing economy are now being felt deep within the most traditional industries.

Should we call it the access economy?

The very term “sharing economy” is controversial, and has been criticised as misleading. The fact is that the “sharing economy” is far more complex than the above quote from 2009 might suggest.

An article in the Harvard Business Review maintains that the sharing economy does not have anything to do with sharing at all, and should rather be called an “access economy”: an economic model that offers cost-effective access to valued resources, which is flexible and frees users from the financial, social and emotional obligations embedded in ownership. 2

Much of what is classified as sharing economy has little to do with sharing. This is a label that is often attached to much of what may be described as disruptive services; services that change an existing industry drastically and in a short space of time.

Services that are given one label or another often have in common that technology is the starting point for changes that take place in an established economic model. One such absolutely fundamental technological development, which forms the basis for a large number of new business concepts, is that “everyone” has a smart phone with built-in GPS.

“technology is the starting point for changes that take place in an established economic model”

Sharing economy

The term “sharing economy” does not have a defined content, but is used extensively to denote economic activities that in various ways mediate contact between sellers and buyers of various types of services or rentals. The sharing or mediation proceeds digitally and has a commercial purpose. It has been proposed that the term “access economy” would be more accurate.

1 Hansen: Den digitale supertankeren [The digital supertanker], Klassekampen, 16 June 2009 2 Eckhardt/Bardhi: The Sharing Economy isn’t About Sharing At All, Harvard Business Review, 28 January 2015

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The most widely known examples of the sharing economy are typical examples of such a disruption having taken place.

– Haxi, Über and similar companies connect drivers and passengers directly through mobile telephones. This eliminates costly intermediaries and reduces the end-users’ expenses, but the companies nonetheless make money by claiming a small share of the drivers’ earnings. Über and similar companies can potentially change the entire taxi industry.

– – Airbnb is doing much the same for accommodation.

You take a couple of pictures, describe the apartment, set a price and you are linked up to a tenant. Thus simple, flexible access is given to existing resources; in this case, real property. Airbnb now poses a serious challenge to the hotel industry.

Society today is inundated with innovation. The disruptive technology of just a short while ago is now a part of everyday life. The flood of services offered by suppliers gives consumers a wide range of choices, and increased consumer power. But there are also aspects of the services that challenge the legislation of many countries. And often in unforeseen ways. For example:

– Is a Haxi driver to be regarded as an employee, or self-employed?

– Must Airbnb report income from their rental activities to state tax authorities?

– Are you liable for value-added tax if you sell access to your car as a “Nabobil” (neighbour car)?

– How does one deal with the fact that what were once residential apartments become mini-hotels?

One of the main challenges of the sharing economy relates to taxation and working life. In an attempt to answer these and other questions, the Norwegian government appointed a Sharing Economy Committee to look at the possibilities and challenges.

The action proposed by the Sharing Economy Committee

The Committee recently delivered its report to the Min-istry of Finance, Ms Siv Jensen. Committee chair Tommy Staahl Gabrielsen summed up as follows when it was submitted:

“The sharing economy results in stronger competition, a greater range of choices for consumers and new earning opportunities for households.” 3

This general positive attitude to the principles of the sharing economy is attested to by the Committee’s proposals for a number of measures. The most widely discussed is the majority’s proposal to discontinue the requirement of a licence to operate in the taxi market. Recently the Committee also received backing from the EFTA Surveillance Authority (ESA) which claims in a statement of 22 February 2017 that the Norwegian rules for taxi licences are in breach of the EEA Agreement and place restrictions on the taxi market that affect consumers.

Other proposals from the Committee are:

– An information portal on rights and obligations in the sharing economy

– Duty of sharing economy platforms to report to the tax authorities

– Simplified treatment for tax purposes of small incomes for services

– A mediation service for consumers

A more flexible or a tougher labour market?

An example of how the sharing economy can pose working life-related challenges is that most business models in the sharing economy are based on the party offering the service (for example a driver, cleaner, consultant etc.) being an independent contractor. A legal classification as contractor implies a looser, more flexible connection with working life - without the traditional protection from which employees benefit.

Greater flexibility can be positive, but it is a challenge in itself if the participants do not know whether they are employees are independent contractors. Whether an individual belongs to one category of the other has major consequences for them in terms of taxation, labour law and with respect to social security and insurance. It will be important for all concerned, whether they be providers or consumers of a service, to determine which category they belong to. In the absence of certainty on this point, it is easy for both the individual and the platform operator to make a false move.

A number of legal actions have been brought internationally where the supplier (e.g. a driver) has demanded to be recognised as an employee. So far these suits have tended to be unsuccessful. Norway has an extensive list of factors to which weight must be attached in order to distinguish between contractors and employees. This means that platform operators and suppliers of services often have to make a difficult evaluation of the status of those involved.This was a topic discussed by the Sharing Economy Committee. But apart from proposing a limited possibility to negotiate collective agreements with platform operators and examine the HES consequences, the majority of the Committee are of the view that there is not currently a need for changes in the regulation of the labour market or the concept of employee. The Committee majority points out that the concept of employee in the Working Environment Act is already flexible, and as such in keeping with a complex reality. The Committee recommends monitoring developments closely.

If the new business models become more widespread, legislative amendments will not come as a surprise.

3 Source: Kjørstad/Slettemeås: The sharing economy in Norway: A study of the Norwegian people’s experiences of and attitudes to sharing, recycling, digital sharing platforms and consumer evaluations. National Institute for Consumer Research – Oslo and Akershus University College Assignment Report

Employee or contractor?

Whether a person is an employee or a contractor is often crucial for their occupational legal position. The Working Environment Act applies only to employees, where employee is defined as “anyone who performs work in the service of another”. In Norway there is no clear definition of which persons are independent contractors and not employees, but this is decided on the basis of an evaluation of a number of factors that are established through case law.

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Financial: To save money (52%)

Consumers’ reasons for using digital services

Curiosity: Exciting trying out new services (52%)

Climate/Environment: It’s good for the environment (48%)

Availability: The services are more readily available (36%)

Quality: The service is of higher quality (36%)

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Difficult encounters with regulation designed for an analogue world

It may be unclear whether companies like Airbnb, which mediates services over digital platforms, are subject to existing national (and “analogue”) regulation.The Norwegian requirement that taxi drivers have a licence is a good example. More technologically neutral regulation may be a solution for both the industries concerned and society. In our view, Norwegian rules should facilitate innovation, value creation and productivity, while safeguarding the interests of the general public.

The pace of development presents a particular challenge to regulation. In a system built up around sound, thorough processes, a legislative process may be too slow.

We find an example of this in the work on the Norwegian Property Unit Ownership Act. Information compiled by Advokatfirmaet Haavind in February 2017 showed that the Ministry of Local Government’s work on a new Act began with the ordering of a report in 2012, and culminated in a draft Act in 2016.4 During those same years, the number of Airbnb registrations surged from less than 100 to 3313 homes – in Oslo alone!

It is clear that the subject of short-term rental of homes is considerably more topical in 2017 than in 2012. But the result was that neither the report of 2012, the Norwegian Official Report (NOU) of 2014, nor the draft Act of 2016 take up the issue of digital rental services. The Sharing Economy Committee merely concluded that no new regulations were needed, a conclusion that the Association of Norwegian Homeowners has criticised.

This therefore applies pressure to our system of thorough legislation processes. It is not always possible to regulate fast enough. So it is not to be wondered at that new (international) operators launch first and adapt later.

Licensing rules will be crucial

As mentioned before, the cornerstone of the sharing economy is the fundamental assumption that owning property is less desirable than it used to be. Both businesses and consumers aim for access to property and services, rather than ownership. This gives more flexibility, and often also more effective exploitation of resources.

Because an alternative to the ownership model is sought, the focus on intellectual property rights also changes, from assignment of items and what may be done with them, to models where the question of licensing is distinctly

“In a system built up around sound, thorough processes, a legislative process may be too slow”

more important. This applies, for example, to the right to use a service.

The starting point for copyright itself was the right to publish examples, or copies of a work, hence the word copyright. The rules concerning copies were the most important until well into the 20th century. Now it is regulation of the making available, production and licensing of works that has become the most important commercially. Businesses have to adapt to a new distribution normality, and this creates legal challenges.

“owning property is less desirable than it used to be”

The existing regulatory framework was not necessarily drafted with an access-driven economy in mind. It requires sound, up-to-date knowledge to operate in this landscape, partly because the courts – in particular the European Court of Justice – are constantly having to draft rules and regulations faster than the legislators can manage.

The question of licences is also far more important than it used to be for consumers. To take an example: During the analogue era, your private photographs were of limited interest to lawyers and commercial operators. They existed as a rule in physical form, in an album or a shoe-box up in the attic. Today, the second a picture is taken with a mobile phone, many copies are frequently created, both on the phone and in one or more cloud services. Perhaps the picture is then shared, on Facebook, Instagram or Snapchat. The licensing rules for all these services accordingly determine how a private picture can be used, and by whom.

This has long been the prevailing trend in the consumption of music. Until just a few years ago, the music industry’s focus was on the sale of physical copies, and the right of consumers to use, copy, sell or loan examples was decisive. Now streaming services have taken over completely, and licensing is the foremost issue.

4 Presented in a lecture by Leif Eirik Thrane, “Digitalt inntog i en analog verden [Digital invasion of an analogue world]”, Lawyer’s Training Academy

The platform economy

Sharing economy vs access economy

Knowledge sharing Freelance job mediation

Car sharing Driver service

Take-with service Goods transport

Crowdfunding Cash transfer

Couchsurfing Home rental

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Licence-based business models pave the way for Pay-as-you-go

Although it is not traditionally regarded as part of the “sharing economy”, many of the same drivers lie behind the emergence of so-called Software-as-a-Service (SaaS).

SaaS has become a common means of procurement for many businesses with IT needs. In the past, people normally purchased a number of copies of a software package which were installed on their own hardware and could be used as long as needed (or the copy functioned). Now it is far more common to procure a number of licences, scale up and down as needed, and have the right of use as long for the duration of the licence.

Thus, licensing terms and right of use have largely taken over as legally deciding factors, just as they have in consumer relationships, while many years of development with respect to what one is allowed to do with a copy of software are of minor interest.

Software as a Service (SaaS)

Software owned by a provider who delivers and manages it remotely to customers on a one-to-many model, and which customers use on a pay-for-use basis or through a subscription. Also called software on demand.

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Personal information is gold – protection of privacy is something everyone has to consider

In the age of the sharing economy, personal data and data security are far more crucial than before for both consumers and businesses. Ordinary sharing economy services store enormous amounts of data about individuals. This raises issues relating to personal privacy, security, and how information about individuals can be exploited commercially.

If you use ordinary sharing economy services when you are on holiday, almost every step of your trip will be stored by various service suppliers:

– Where you stayed, how long, what wishes you had and the landlord’s assessment of you are stored in the accommodation service. At the same time, the service has stored pictures and detailed information about what may well be the landlord’s home.

– When you use a transport app, every second of your taxi trips is stored by another service supplier. The restaurants and museums you visited, and when, can be seen.

– In a third service, you may have shared tips and evaluated the various meals you ate, and checked in who you were travelling with on Facebook. Perhaps you complained that the restaurant had not taken account of your gluten intolerance.

– You put out pictures of your whole trip on Instagram, tagged with GPS coordinates and who you were with.

– On the way to and from the airport you bought various goods through online stores.

Perhaps you also use a single sign-on service that allows you to use one log-on, for example from Facebook, for many different services.

All in all, the digital services store large quantities of information about individuals, who can easily be identified. As a consumer, you are often obliged to provide

this information – a taxi app does not work properly if it doesn’t know where you are. By accumulating large quantities of data over time and across services, operators gain more information and greater control than they would by tracking (only) through cookies or IP addresses. Personal information has a high commercial value. On a large scale, data can be used for targeted marketing, to say something about trends, to predict behaviour and to provide businesses with a better basis for decision-making.

In a digital economy, protection of personal data and data security are the key to developing services, to market confidence and to increasing the competitiveness of Norwegian and European businesses. Any operator who compiles data is dependent on market confidence. The EU has therefore adopted an extensive new privacy protection of privacy package, the GDPR, which will come into force in May 2018.5 The rules will also be implemented in Norway. This will be the biggest change in the sphere of personal privacy for 20 years. The rules reinforce the privacy of the individual, simplify the regulatory framework for businesses that operate in several countries and reduce administrative burdens for small businesses in particular.

Who are your competitors?

A fundamental commercial question for a business is often who its competitors are. Many enterprises have experienced having this situation turned upside down in a short space of time. Who would have believed that tech companies from California would one day present a challenge to taxi centres?

But here, too, the commercial changes have clear legal consequences. Because who a business’s competitors are can have major implications for who they can cooperate with, and who they can take over.

An important principle of competition law is that it is prohibited to cooperate on prices with one’s competitors. This raises the question: For example, are drivers who offer transport through the same service self-employed competitors? In such case, it can be maintained that they engage in price-fixing, since they use the same app. And this may apply even if the platform itself is operated from in the world entirely.

5 General Data Protection Regulation (Regulation (EU) 2016/679 of the European Parliament and of the Council)

Source: medienorge. http://www.medienorge.uib.no/statistikk/medium/ikt/379

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Technology that makes new business concepts possible: Percentage with smart phones in Norway, 2011–2016

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The Sharing Economy Committee strongly suggested that this could present a competition law problem. Haavind Attorney Simen Moland Klevstrand took up this issue in an article in Norwegian business newspaper Dagens Næringsliv on 9 February 2017.

“[It is] something of a contradiction to say that a new operator who is sharpening competition by challenging established operators, is nonetheless breaking the competition rules. Should the competition rules really stand in the way of new business models?” 6

The competition landscape has been mapped through several decades of case law, but there are still some blank spaces. When the new platforms move in and operate in this landscape, they can step right into the white fields, or meet a terrain that no longer tallies with the map. This will present challenges and risk for the platforms, and also for businesses that want to use the platforms to meet customers.

Thus we see that the age of the sharing economy will also give rise to changes in how middle-men and others are viewed in terms of competition law.

For your business

Perhaps your business has already secured a favourable position in the digital landscape. Or is on the brink of taking a deep digital dive. Or you are thinking that this (for the time being) will not affect your business.It is important regardless for all new operators in new value chains to be well informed about existing and potential new legislation, preferably from players with a sound understanding of digital services. We in Haavind are closely monitoring developments, and what will ensue from the Sharing Economy Committee’s report.If you have questions about how technological innovations in your organisation can be brought into compliance with the law, contact us at www.haavind.no

6 Klevstrand: Uklart om deling [Unclear about sharing], Dagens Næringsliv 9 February 2017, p. 30

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Finding solutions

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