A regulatory conundrum in the platform economy, case C-390/18 Airbnb Ireland

Soon after the Uber judgments (C- 434/15 Uber and C-320/16 Uber France) Airbnb came into the spotlight as the next troublemaker of the sharing economy. As the platform was accused of hollowing out European city centres and competing unfairly with hotels, it was only a matter of time before the question whether its services must be regarded as an ‘information society service’ (ISS) under Directive 2000/31 was referred to the Court. Famous French juge d’instruction Renaud Van Ruymbeke made it happen and the European Court of Justice handed its judgement (C-390/18) in the final days of 2019.

Following a complaint from the Association pour un hébergement et un tourisme professionnel (AHTOP) that Airbnb was acting as an estate agency without a licence, breaching an act from 1970 known as the Hoguet Law, the Paris Prosecutor’s Office had issued an indictment for fund handling as well as mediation and management of real property by a person not in possession of a professional licence.

While it remained unclear before the Uber judgments whether Uber could benefit from the freedom to provide services, it was never contested that Airbnb could. The question was rather whether the service provided by Airbnb fell within the material scope of Directive 2000/31 or within that of Directive 2006/123. Although both directives provide that national requirements may only restrict the freedom to provide services of an economic operator established in another Member State if detailed conditions are fulfilled, there are major differences between their provisions. Directive 2006/123 contains no equivalent to Articles 12 to 15 of Directive 2000/31, regarding the liability of intermediary service providers. Those who are able to rely on the provisions of Directive 2000/31 benefit from a more extensive freedom to provide their services. Indeed, they must not be held liable for the information stored or transmitted, provided that certain conditions are met, and should not be subject to a general obligation to monitor this information.

Determining the exact nature of the service provided by Airbnb and the precise scope of Article 3(4) of Directive 2000/31 was thus critical both for the companies in the sharing economy market and Member States. It is particularly worth examining as the new Commission is seeking to overhaul Directive 2000/31 and strengthen the country-of-origin principle for digital companies.

Judgment

First question

The first question referred to the Court is whether the service provided by Airbnb must be classified as an ISS under Directive 2000/31. The Court says that the service meets the four cumulative conditions laid down in Article 1(1)(b) of Directive 2015/1535 (‘any service normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services’) and therefore, in principle, constitutes an ISS (paras. 42-49). However, relying on the Uber judgement, the Court adds that that cannot be the case if it appears that the service forms an integral part of an overall service whose main component is an ‘accommodation service’. The Court then demonstrates that it is not the case. Its reasoning may be divided into three parts.

In the first place, the Court gives three reasons why the service provided by Airbnb is independent from the ‘accommodation service’ provided thanks to its platform. In this regard, it first says that the essential feature of the electronic platform managed by Airbnb is the creation of a list of available accommodations, corresponding to the criteria selected by the persons looking for short-term accommodation, which facilitates the conclusion of contracts. Because of its importance, the Court finds that this service cannot be regarded as merely ancillary to an overall ‘accommodation service’, which would fall within the scope of Directive 2006/123 (paras. 53-54). Second, the Court asserts that the service offered by Airbnb is in no way indispensable to the provision of the accommodation service, since guests and hosts have many other channels at their disposal (para. 55). Third, it underlines that Airbnb does not set or cap the amounts of the rents charged by the hosts but allows the latter, at most, to estimate their rental price based on the market averages taken from the platform, leaving the final decision in their hands (para. 56).

In the second place, the Court explains why the other services offered by the platform do not put that finding into question. The Court refers to the template offered to hosts to set out the content of their offer, the optional photography service, the rating tool available to hosts and guests, the collection of the rents on behalf of the hosts, the guarantee against damage and the civil liability insurance (paras. 59-63). It says that such services are ancillary in nature because they do not constitute an end in themselves, but rather a means of making the service provided by Airbnb better (para. 58), and do not substantially modify the specific characteristics of the service (para. 64).

In the third place, the Court objects to the application of the solution reached in the Uber cases, arguing that the services offered by Uber and Airbnb are not comparable. According to the Court, unlike Uber, Airbnb does not exercise any decisive influence over the accommodation services since Airbnb does not either control the amounts of the rents or select the offers put up on its platform (paras 65-68).

Second question

The second question referred to the Court asks whether Article 3(4) of Directive 2000/31 enables individuals to oppose the application of national measures restricting the freedom to provide an ISS, where those measures do not satisfy all the conditions laid down by that provision.

The Court says that Member States may take measures that derogate from the principle of the freedom to provide information society services, subject to two cumulative conditions, including that the Member State concerned has notified the Commission and the Member State on whose territory the service provider in question is established of its intention to adopt the restrictive measures concerned.

The Court focuses on this procedural condition. It clarifies that the obligation of notification contained in Article 3(4) applies to measures enacted before the entry into force of the Directive (para. 87). It then extends to Directive 2000/31 the solution adopted in its judgment CIA Security International (C-194/94), in relation to Directive 2015/1535, and sanctions the unenforceability of non-notified measures restricting the freedom to provide an ISS against individuals, whether it be in criminal proceedings or in a dispute between individuals (paras. 88-98).

Commentary

First question

While the authors agree with the Court that Airbnb offers an ISS, they believe the judgment is problematic for three main reasons:

• The reasoning followed by the Court, albeit clear, is at times quite unconvincing (i) ;
• The Court missed the opportunity to provide clearer guidance regarding the legal regime applicable to platform services (ii)
• The judgment leads to a partial liberalisation of services that causes major undesirable effects (iii).

A judgement based on some contestable assumptions

In the first place, the Court comes up with some fragile arguments and sets aside significant aspects of the service at issue.

First, the arguments that allow the Court to conclude that the service provided by Airbnb constitutes an ISS rely on highly contestable assumptions. In that regard, the facts that Airbnb allows guests to chose their preferred accommodation from a list and that the service it provides is in no way indispensable to the provision of accommodation services should not allow the Court to conclude that this ISS is not merely ancillary to an overall service coming under a different legal classification. Uber’s algorithm and user-friendly mobile application are at least as significant to consumers as Airbnb’s listing and are not either indispensable to the provision of an offline service. Still, the Court said that they were merely ancillary to an overall service in the field of transport. It is also surprising and somewhat contradictory that, further in the judgment, the Court makes the point that services which do not constitute an end in themselves are ancillary in nature (para. 58). It is hardly arguable that access to a listing constitutes an end in itself for the users of Airbnb. Consequently, the Court’s reasoning applied, by analogy, to the main service offered by Airbnb should lead to the conclusion that the ISS at stake is ancillary in nature to the overall accommodation service..

Second, the Court’s swiftly rejects valid arguments. It does not hesitate to dismiss the importance of the system for rating hosts and guests available on the platform, although the fact that it ‘form[s] part of the collaborative model inherent in intermediation platforms’ does not prevent Airbnb from using it to exercise, directly or indirectly, some kind of influence over the conditions for the provision of the accommodation services. As Advocate General Szpunar pointed out in its Opinion (para. 30), thanks to this system, Airbnb may temporarily or definitively prohibit a host to access the platform. Here again, it is hard to understand why this feature would only be of importance in the Uber cases (C-434/15, para. 39; C-320/16, para. 21).

A missed opportunity

In the second place, the judgment wasted the opportunity to provide clearer guidance regarding the legal regime governing platforms’ services.

First, it can be regretted that the Court did not follow the Advocate General’s lead on the hierarchy between the two Uber criteria (creation of a new service by the platform and control over this service).[1] Advocate General Szpunar had suggested that the criterion relating to the creation of a supply of services constituted only an indication, contrary to the decisive influence exercised by the service provider over the conditions of the supply of the services having material content, which is capable of rendering those services inseparable from the service that that provider provides by electronic means (paras 61-68). The Court does not appear to take up the idea, and refers to the two criteria without any mention of their relative importance, leaving the question open (see para. 55 regarding indispensability and paras. 56, 62 and 68 regarding decisive influence).

Second, in the wake of the Uber and Airbnb judgments, it would seem that the answer to the question whether the platform exercises a decisive influence over the offline service strongly depends on the extent to which the platform is willing to control the price of the service. As the Court rightly points out, Airbnb does not set or cap the amounts of the rents. It is also apparent, for that matter, that Airbnb does not either controls the properties’ location, size or lay out. This, however, begs the question of the relevance of this criterion. As it has been very well argued elsewhere, the accommodation service at stake is far more complex than the transportation service provided by Uber. It involves a greater number of variables, which Airbnb would presumably have a hard time determining. Thus, there would no point for Airbnb to try and fix rents. The mere fact that platforms fix prices or not seems to discriminate wildly on the basis of the economic sector of the offline service at stake. This is a rather odd model of regulation.

The undesirable effects of the judgment

In the third place, severe consequences may stem from the present judgment. First, it is leaving Member States quite narrow margins to regulate these services, except in spheres that do not fall within the coordinated field of Directive 2000/31 (the Court will deal specifically with fiscal obligations imposed on Airbnb in pending case C-723/19).

Second, while the present judgment does not affect Member State competence to impose obligations on the users of the platforms, which will be tackled by the Court in pending cases C-724/18 and C-727/18 in light of the provisions of Directive 2006/123, it certainly cripples the enforcement of such obligations. In his Opinion in the Uber case, Advocate General Szpunar himself had warned against an “incomplete – or simply apparent – liberalisation [that may] create legal uncertainty, giving rise to grey areas and encouraging infringements of the law” (para. 66). Articles 3(4) and 15 of Directive 2000/31 will empower platforms to oppose laws that require them to report data to public authorities, which will make infringement detection incredibly hard for local authorities. This will probably be at the heart of another Court case in a few months.

Third, the authors argue that the present case will create a strong incentive for platforms to try and dissociate themselves from the services they offer, which seems to push the EU further away from an optimal regulatory framework (see also here). All the above was equally true for Uber, so even if the Court was willing to reach the conclusion based on political expediency, it appears that it should have reached a similar conclusion.

In any event, it should be borne in mind that the unfortunate consequences of the present judgment are mostly due to the out-dated nature of Directive 2000/31. In that regard, the Digital Services Act (DSA) that the new Commission is pushing will be critical in creating an optimal regulatory framework striking a right balance between the digital companies’ stakes and the general interest. The present judgment foreshadows a very difficult negotiation process.

Second question

Just as the CIA and Unilever judgments, the present judgment may lead to a significant rise in the number of Member State notifications, which should help the Commission to preserve the competence of the Member State of origin (para. 95) and focus its enforcement efforts on the most important breaches of EU law (see the Communication of the Commission). This is a welcome development.

However, the fact that the Court does not mention the first condition of Article 3(4)(b) and says that Member States should notify general measures that predate the entry into force of Directive 2000/31 leaves one to wonder whether the ex post notification of such measures under the sole Directive 2000/31 will be sufficient to avoid the sanction of non-enforceability. This is all the more crucial that, following the judgment, the respective material scopes of Directive 2000/31 and Directive 2015/1535 appear to intersect.

Here again, the Court leaves many questions open, and a clarification of the legal framework applicable is desirable. There are definitely high expectations for the upcoming DSA.

[1] See Hatzopoulos, Vassilis, « La première prise de position de la Cour en matière d’économie collaborative », Revue trimestrielle de droit européen, 2018(2), p.273-283