Photographer: David Paul Morris/Bloomberg

Airbnb’s ‘Don’t Punish Us’ for Scofflaws Fails Court Test

  • Judge says further proceedings needed to decide on city rules
  • Case will affect how gig economy firms approach regulation

Airbnb Inc.’s claim that it’s just a conduit for user-generated content was rejected by a judge who said the company may not be able to duck a San Francisco law punishing it when hosts book units that aren’t registered with the city.

U.S. District Judge James Donato on Tuesday rebuffed Airbnb’s argument that because it operates on the internet, it can’t be held responsible if users circumvent local laws. Still, the judge stopped short of letting San Francisco enforce its measure, saying he needs more information to decide whether the city has adequate procedures for verifying registrations.

Had the world’s fourth-most valuable startup succeeded in its early attempt to block the ordinance enacted in June by its hometown, the strategy might have served as a template for other gig economy firms challenging regulations across the U.S. Instead, while Airbnb may appeal Donato’s ruling, other cities struggling with high housing costs may now be emboldened to follow San Francisco’s model.

"While we appreciate that the judge has acknowledged our concerns about the inadequacy of the screening obligations in the new law and has continued to postpone enforcement of these rules as a result, we respectfully disagree with the remainder of his ruling," Airbnb spokesman Nick Papas said in an an e-mail. "No matter what happens in this case, we want to work with the city to fix the broken system long before the legal process runs its course."

City Attorney Dennis Herrera said the ruling reinforces that “online businesses don’t get a free pass from the types of regulations that apply to other businesses in San Francisco.”

“They have to play by the rules, just like everybody else,” he said in a statement. “These platforms have numerous options to verify whether hosts have registered with the city and comply with the law.”

Airbnb is already fighting its next major legal battle against the city and state New York, using the same arguments that failed in San Francisco to challenge a law that fines residents who rent out their apartments for illegal short-term stays.

For more on Airbnb’s legal battle in New York, click here

The company also has a pending case against beach-front Santa Monica in Southern California. Anaheim, home to Disneyland, dropped its effort to regulate Airbnb less than two weeks after it was sued by Airbnb.

San Francisco’s measure imposes a fine of as much as $1,000 a day on rental platforms for every booking of an unregistered host, plus possible misdemeanor charges, and blocks the companies from collecting fees from those bookings.

Michael Risch, a professor at Villanova University School of Law in Pennsylvania, said it’s not certain that other cities will follow San Francisco’s lead in adopting home-sharing regulations because the judge’s “logic is difficult to follow” in Tuesday’s ruling.

"The court has clearly held that Airbnb is not immune due to its marketplace functions," Risch said. “It may embolden other states and judges to find creative ways to circumvent the ‘content from users’ rule. Or, other courts may simply disagree with the logic here, creating a split of authorities."

Communications Decency Act

Airbnb argued a 20-year-old U.S. law shields it from liability tied to users in the same way EBay Inc. isn’t responsible for sales of bootleg recordings or Stubhub Inc. for scalped tickets. Airbnb’s online transactions and fees are protected by the Communications Decency Act of 1996 because they are “part and parcel" of its service, it claimed.

San Francisco contended the company’s attack on the ordinance was absurd because it wasn’t intended to police what rental hosts upload to the website. The ordinance "regulates only conduct -- an unlawful commercial transaction, not speech," the city argued.

The San Francisco law “does not threaten the liability plaintiffs fear,” Donato wrote in his ruling. It doesn’t treat Airbnb as a publisher of the rental listings provided by hosts or regulate what’s said in the listings, he wrote. Instead, the law holds the company liable only for providing and collecting a fee for booking services for unregistered units, Donato ruled.

Airbnb is “perfectly free to publish any listing they get from a host and to collect fees for doing so -- whether the unit is lawfully registered or not -- without threat of prosecution or penalty,” Donato wrote.

The judge said San Francisco shouldn’t enforce the law until after he hears further discussion of the city’s mechanism for verifying whether rentals are legally registered. Donato left open the possibility that Airbnb could still win an order blocking the law based on the company’s objections to possible criminal sanctions without a clear verification system.

Governor Cuomo

In October, the city and state of New York said they would hold off enforcing new restrictions on short-term apartment sublets against Airbnb until the company’s lawsuit in that state is resolved. The move was a reversal from earlier indications that the restrictions would be enforced immediately after New York Governor Andrew Cuomo signed them into law on Oct. 21. The home-sharing company sued to block the measure just hours after Cuomo’s action.

In the San Francisco fight, Airbnb, with a valuation of $30 billion, garnered support from competitor Expedia Inc.’s HomeAway, as well as a group representing Amazon.com Inc., Facebook Inc. and Google. The Internet Association, whose members also include Uber Technologies Inc. and ride-hailing rival Lyft Inc., said the dispute has wide-ranging implications for free speech on the internet.

The case is Airbnb v. City and County of San Francisco, 16-cv-03615, U.S. District Court, Northern District of California (San Francisco).

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