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INTERNETASSOCIATIONPOSITIONPAPERON

TheRegulatoryEnvironmentforPlatforms,OnlineIntermediaries,DataandCloudComputingandtheCollaborativeEconomy

1. INTRODUCTIONANDSUMMARY

TheInternetAssociation(IA)submitsthispositionpaperalongsideourresponsetotheCommission’squestionnaireon theRegulatory Environment for Platforms,Online,Data andCloudComputing andthe Collaborative Economy. The Internet Association is the unified voice of the Internet economy,representingtheinterestsofleadingInternetcompanies1andtheirglobalcommunityofusers.TheIAis dedicated to advancingpublic policy solutions to strengthenandprotect Internet freedom, fosterinnovationandeconomicgrowth,andempowerusers.

IncludedinourmissionisthepromotionofregulatoryandlegalframeworksthatsupportnotonlyourmembercompaniesbutalsothewiderInternetecosystemthathasemergedinrecentdecades.ThatecosystemincludesthesmallandmediumsizedbusinessesintheEUwhohaveleveragedtheInternettolowercostsandexpandintoglobalmarketsinwaysundreamtofeventenyearsago;EUconsumerswhohavebenefittedandwillcontinuetobenefitfromtheconsumersurplustheInternethasbroughttotheireverydaylives;andinvestorswhoriskcapitaltofundstartupsintheEU.

The Internet Association commends the Commission for its outreach to stakeholders on the DigitalSingleMarket (DSM) proposal. TheDSM’s vision of removing barriers between the 28 EUMemberStates in order to foster digital innovation and growth is consistent with ourmission. IAmembersthereforestandreadytoplaytheirroleinprovidingthetoolsandservicesthatwillallowEUbusinessesandconsumerstoembracetheestimated€415billionperyearandhundredsofthousandsofnewjobstheDSMwillcreate.2

The Internet has already generated significant benefits for stakeholders in the DSM initiative.CopenhagenEconomicsestimatesthatthetotalvalueofgoodsandservicespurchasedbyEUprivatehouseholdsandthepublicsectorthroughonlineintermediarieswasabout€270billionin2014.3Not

1TheInternetAssociation’smembersincludeAirbnb,Amazon,auction.com,Coinbase,Dropbox,eBay,Etsy,Expedia,Facebook,FanDuel,Gilt,Google,Groupon,Handy,IAC,Intuit,LinkedIn,Lyft,MonsterWorldwide,Netflix,Pandora,PayPal,Pinterest,PracticeFusion,Rackspace,reddit,Salesforce.com,Sidecar,Snapchat,SurveyMonkey,TripAdvisor,Twitter,Yahoo,Yelp,Uber,Zenefits,andZynga.2ADigitalSingleMarketforEurope:Commissionsetsout16initiativestomakeithappen,EuropeanCommission(May5,2015)http://europa.eu/rapid/press-release_IP-15-4919_en.htm 3KatrineEllersgaardNielsen,Dr.BrunoBasaliscoandMartinH.Thelle,OnlineIntermediaries,ImpactontheEUEconomy,CopenhagenEconomics,(April2013).

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only has the Internet delivered these goods and services, in doing so it has generated a significantconsumersurplusforEUconsumers.Thissurplusistheproductoflowersearchandtransactioncostsaswell as the increased competition and choice the Internet brings to consumers’ lives.4 ThemostrecentexampleofthisInternetenabledconsumersurpluscanbeseeninthecollaborativeeconomy,whichwehighlightlateroninthispaper.

Significantly, these benefits have been brought to EU consumers’ lives without undue regulatoryintervention.Forthisreason,theInternetAssociationsubmitsthatradicalchangestotheexistingEUframeworkcontrollingonlineintermediariesarenotneededinorderfortheDSMtoachieveitsstatedgoals. Prior experience teaches us that regulatory intervention is warranted only when certainconditionsaremet:first,thereisarisktoconsumerwelfareduetoamarketfailureandsecond,lessrestrictive solutions are unavailable. In the case of online intermediaries, neither condition is met.With respect to the first condition, there is little evidence that consumer welfare is at risk due tomarket failure in theonline ecosystem.Onlinemarkets are fastmoving, entry barriers are low, andmarketpowerisfleetinginnature.5

Second, regulatory intervention is not warranted because less restrictive solutions are not onlyavailable but already exist in the digital realm. The existing EU laws governing online platforms,intermediaryliability,dataandcloudcomputingandthecollaborativeeconomyarerobustandflexibleand have proven fit for purpose over the years. Indeed, one study estimates the number of EUdirectives and regulations impacting online intermediaries to be “more than 40.”6 Included in thisnumberarethefollowingregimes:

• TheeCommerceDirective7controllingintermediaryliability;• ConsumerprotectionlawsattheEUandnationallevel,includingtheDataProtectionDirective8

(soontobereplacedwiththeGeneralDataProtectionRegulation);theDirectiveonConsumerRights9andtheDirectiveonUnfairContractTerms;10

• FinancialservicesregulationincludingthePaymentServicesDirective;11and• EUandnationalcompetitionauthoritiesthatengageinex-post,targetedantitrustenforcement

4EconomicStudyoftheConsumerBenefitsofeBay,FrontierEconomics(September2008),(findingtheestimatedcostsavingstoEUconsumersshoppingonlineintheformoflowerpricestobe18percentwhencomparedtosimilarproductsinretailstores).6Ellersgaardetal.,supra.7Directive2000/13/EC.8Directive1995/46/EC. 9 Directive2011/83/EC.10Directive1993/11/EEC.11 Directive2007/64/EC.

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againstInternetplatforms(includingseveralIAmembers).

Althoughthe InternetAssociationdoesnotseeaneedfor radicalchangesto theexistingEUregimecontrollingonlineintermediaries,it is importanttobearinmindthatradicalchanges,ifmade,wouldbemost impactfulonsmallandmediumsizedbusinesses, inparticularEUstartups.Asevidencedbyseveral economic studies, these startups will be less well equipped to meet increased regulatoryburdens and are therefore less likely to receive needed funding than their more establishedcompetitors.AttheInternetAssociation,wearewitnessingthisasymmetricalimpactfirsthandinthecontext of the recent invalidation of the EU/U.S. Safe Harbor, the burden of which CommissionerOettingeralsorecognizeshasfallenprimarilyonsmallerandmediumsizedbusinessesintheEUaswellasintheU.S.12

2. PlatformRegulation

Initsconsultation,theCommissionrequestsstakeholderviewsongeneralex-anteregulationofonlineplatformsandaskswhethernewregulatorytoolsareneededinthiscontext.13Atthesametime,theCommission recognizes thatonlineplatformswillplayan importantandpositive role increating theDigital SingleMarket.14 The Internet Association commends the Commission for acknowledging therole played by our member companies in the EU economy but we are concerned that increasedregulatoryburdenswillstymietheirabilitytodosointhefuture.

In summary, we submit that the following principles should be front-of-mind as the Commissionconsidershowtoproceedonthisissue.TheseprinciplesareconsistentwiththeCommission’sBetterRegulationprinciplestodesign“EUpoliciesandlawssothattheyachievetheirobjectivesatminimumcost”andare“informedbythebestavailableevidence.”15

• First, the definition of online platforms is both over and under inclusive and would bechallengingtoadministerinpractice,bothbytheCommissionitselfaswellasthoseitseekstoregulate.

• Second,inweighingthebenefitsandrisksofonlineintermediaries,carefulconsiderationshould 12 Seee.g.,SafeHarborjudgment:OettingerdoesnotbelieveinprivacyagreementswithUSA,DerSpiegel,(October9,2015),(explainingremarksbyCommissionerOettingerthatarenewedSafeHarborisneededinparticular“fürvielemittelständischeUnternehmen,dienunverunsichertsindunddringendKlarheitbrauchen.").http://www.spiegel.de/netzwelt/netzpolitik/guenther-oettinger-glaubt-nicht-an-datenschutz-abkommen-mit-usa-a-1057005.html 13 CommissionWorkingDocument:ADigitalSingleMarketStrategyforEurope,EuropeanCommission,Sec.4.6(June6,2015)http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52015SC010014Id.Sec.2.1,2.2. 15 BetterRegulation,EuropeanCommission(December2015)http://ec.europa.eu/smart-regulation/index_en.htm(statingthatbetterregulationisaboutdesigningEUpoliciesandlawssothattheyachievetheirobjectivesatminimumcost.Itensuresthatpolicyisprepared,implementedandreviewedinanopen,transparentmanner,informedbythebestavailableevidenceandbackedupbyinvolvingstakeholders.).

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begiventothesignificantbenefitstheyhavedeliveredtotheEUeconomy,bothforsmallandmediumsizedbusinessesaswellasforEUconsumers.

• Third, to theextent that thereare risksassociatedwithonline intermediaries, these risks fallwithinthescopeofexistingEUandmemberstateliabilityregimes.

As a threshold matter, the Commission’s working definition of online platforms poses significantchallengesandwillbedifficulttoadministerinpractice.Thisissueisimportanttoaddressbecausea“leaky”definitionofonlineplatformscouldcreateunintendedconsequencesbothfortheCommissionaswellas for those it seeks to regulate.Asacademiceconomistshaveobserved,aplatform isat itscoreaneconomicactorconnectingsupplywithdemand,aconceptthatencompassesawidevarietyofbusinessmodels.16 SeveralMEPs recognize this challengeandhavenoted“it is impossible tocoinauniform definition for web platforms [] Platforms are extremely varied, and I don’t think we canmanagetohaveadefinitionthatisall-embracing.”17There are few common threads to link such diverse businesses models as online marketplaces,collaborative or ‘sharing’ economy businesses, communication companies, social networks, searchengines and specialised search tools,maps, news aggregators,music providers, video sharing sites,payment systemsandapp stores.Thisprincipleappliesevenwhen the inquiry isnarroweddown topurelyonlineactorswhomightbemore clearly identifiedasa recognizable category. Forexample,even within the collaborative economy, there are significant differences that require bespokeregulatory approaches across different verticals. A collaborative economy business model in thefinancial services market will present very different regulatory challenges from a collaborativeeconomymodelintransportation.A better starting point for the Commissionmight therefore be to focus on the goods and servicesofferedbythevariousentitiesidentifiedintheconsultationanddevelopa‘layered’approachfromthisstartingpoint.ThiswastheapproachtakenintheeCommerceDirective,whichcraftedbespokerulesfornetwork infrastructure,services,hostingorsharingsitesor theapplication layerandthecontentlayer. Each layerplaysafundamentallydifferentrole inthe Internetecosystemandeach ishandleddifferentlyfromaregulatorystandpoint.

Beyond this threshold definitional argument, the Internet Association submits that the benefitsonline intermediaries bring to the EU economy should be carefullyweighed against any perceivedrisks associated with them. Online intermediaries are vectors for growth throughout the EUeconomy.Everyday, theyconnectbusinesses largeandsmallwithEUconsumers inothermemberstates.Today,onlyanestimated15percentofEUconsumersarecomfortableshoppingonlinefrom

16DavidS.EvansandRichardSchmalensee,TheIndustrialOrganizationofMarketswithTwo-SidedPlatforms,TheNationalBureauofEconomics(September2005). 17MEPsEvelynGebhard,KajaKallas,JuliaRedaandMichaelBoni,December1,2015.

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anothermemberstate,making itdifficult forEUsmallbusinesses to tradecrossborder.18 InternetAssociationmembers have led theway in enabling this cross border trade. For example,Amazonmakes it simple for sellers to offer their products across all Amazon’s EU websites from a singleaccount, reaching customers across the 28 EU member states and beyond. As a result, tens ofthousandsofsmallbusinessesacrossEuropeselltheirproductsdirectlytocustomers.In2014,thesesmall and medium-sized businesses generated intra-EU exports of €2.8bn through Amazon’swebsites.

ManyoftheremainingbarriersinhibitingcrossbordertradewillbetackledbytheCommission’sDSMinitiative,includingVATandpackagedeliveryrates.ButInternetAssociationmembercompaniessuchas eBay, Etsy, andAmazonwill also play an important role in enabling this trade by lowering entrybarriersforsmalltradersandcreatingtrustedpaymentsystemsforconsumers,justastheydotoday.

Beyondthisdirectandvisiblerole,otherIAmemberswillplayasignificantroleincreatingaffordablemarketingandadvertisingtoolsforsmallEUbusinessesenteringtheDSM,allowingthemtocompetewiththemarketingbudgetsoftheirmoreestablishedcompetitors.AstheCommission’srecentstudyofsmallbusinessesin6EUMemberStatesfound,61percentofbusinessessurveyedmadeformaluseoflowercostsocialmediasuchasFacebookandTwitterinmarketingtoconsumers.19ThesenumberswillgrowastheDSMopportunitygrows.Additionally,IAmemberssuchasMonsterandLinkedInwillcontinuetoplayanimportantroleinconnectingDSMjobseekersineconomiesimpactedbylong-termunemployment(e.g.Ireland)andyouthunemployment(e.g.Spain).AMcKinseysurveyestimatesthatby2025,onlinetalentplatformscouldincreaseemploymentby72millionfull-timejobsbyremovinginefficienciesfromlabormarkets,includinginEUmemberstates.20

Beyond these benefits to small businesses and job seekers, Internet Association members play animportantrole inenhancingoverallconsumerwelfare intheEU.Although lesseasytoquantifythanthedirectbenefitsdescribedabove,theconsumersurpluscreatedbytheInternetintheEUisnolessreal.Thisconsumersurplusisafunctionoftheincreasedtransparency,lowerprices,andwidervarietythe Internet brings to consumers’ day-to-day lives. Unsurprisingly, the most quantifiable of thesebenefitsisprice:oneeconomicstudyconductedacrossEUmarketsfoundthattheoverallpricesavingstoconsumersfrompurchasingthroughonlinemarketplacescomparedtoretailstoreswasintheorderof17percent.21

18MiriamShapiro,ForginganEUDigitalSingleMarket:DifficultiesandOpportunities,TheBrookingsInstitution(September22,2015)http://www.brookings.edu/blogs/up-front/posts/2015/09/22-european-union-digital-single-market-sapiro?cid=00900015020089101US0001-09241.19MichailBatikas,RenévanBavel,AaronMartin,IoannisMaghiros,UseofSocialMediabyEuropeanSMEs,EuropeanCommission,at2(May2013)http://www.europski-fondovi.eu/sites/default/files/dokumenti/KK0113565ENN_002.pdf.20JamesManyika,SusanLund,KelseyRobinson,JohnValentinoandRichardDobbs,Connectingtalentwithopportunityinthedigitalage,McKinsey&Company(June2015)http://www.mckinsey.com/insights/employment_and_growth/connecting_talent_with_opportunity_in_the_digital_age.21EconomicStudyoftheConsumerBenefitsofeBay,FrontierEconomics(September2008).

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While the benefits of online intermediaries to EU businesses and consumers can be supportedempirically, it isunclearthattheriskstheyposeareasclearlydefined. Ataminimum,there is littleevidencesupportingtheneedforheavy-handedregulatoryinterventionofthekindsuggestedinsomequarterswithintheEU.22Economictheoryteachesusthatregulationisneededinmarketsthatexhibitasustainedlackofcompetitionovertime.23Evidencesupportingregulatoryinterventionhasincludedhigh entry barriers and little evidence of actual successful entry. Evidence of oligopolistic conductbetweencompetitorsandstablemarketsharesisalsorelevant.Onlinemarketstypicallyexhibitfewofthesecompetitiveconditions.Thesemarketsaredynamic,entrybarriersarelow,andmarketpowerisatbesttemporaryinnature.24Iftheseobservationswereuntrue,thenthemergerbetweenAOLandTimeWarner would have resulted in an online behemoth (it did not) and MySpace would be theleadingsocialmediaplatform in theworld today (it isnot).However,oneonlyneeds to look to theGuardiannewspaperheadlinefrom2007questioningwhetherMySpacewilleverloseitsmonopolytounderstandhowdynamiconlinemarketsareinreality.25Beyond economic theory, several EU experts and regulators agree that onlinemarkets are notwellsuitedtoex-anteregulation.InareporttotheEUParliamentITREcommitteeearlierthisyear,agroupofacademicexpertsagreedwithcharacterizationofonlinemarketsaboveandconcluded,“itisunclearhow dominant large digital platforms actually are. Markets are often contestable due to dynamiccompetition for themarket.”26Similarly, theCEOof theUKCompetitionandMarketsAuthority inarecentspeechinBonncounseledagainstblanketregulationofonlineintermediariessince“thecostsofpremature, unmeritorious interventions are likely to be very high in this sector, given the positiveimpactofwelfare-enhancinginnovations.”27Tobeclear,arguingthatonlineintermediariesshouldnotberegulatedisnotthesameasarguingthattheyshouldbeimmunefromlegalscrutiny.Infact,theyaresubjecttolegalscrutinybothattheEUandindividualmemberstatelevels.Atthetimeofwriting,DGComphasopeninvestigationsintoseveral

22 Europe:laFranceetl’AllemagneveulentmieuxrégulerlesGAFA,http://www.silicon.fr/europe-france-allemagne-reguler-gafa-102869.html 23 Seegenerally,AlfredE.Kahn,TheEconomicsofRegulation,(2008). 24HowardShelanski,Information,Innovation,andCompetitionPolicyfortheInternet,UniversityofPennsylvaniaLawReview,at1676-1685(2013).25VictorKeegan,WillMySpaceEverLoseitsMonopoly?TheGuardian(February8,2007)http://www.theguardian.com/technology/2007/feb/08/business.comment26NicolaiVanGorp,CrossCompetitionAmongstInformation(Digital)Platforms,EuropeanParliamentDirectorateGeneralforInternalPolicyStudies(January20,2015)http://www.europarl.europa.eu/RegData/etudes/STUD/2015/542187/IPOL_STU(2015)542187_EN.pdf.27CMAChiefExecutiveAlexChisholm,RemarksattheBundesnetzagenturConferenceinBonn,Germany(October27,2015)https://www.gov.uk/government/speeches/alex-chisholm-speaks-about-online-platform-regulation.

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online intermediaries underArticles 101 and102of the TEU. Separately,DGComphas launched abroad investigation into the eCommerce sector. National EU data protection authorities regularlyscrutinizeonlinedataprotectionpractices.Thistargetedex-postenforcementframeworkhasprovenfitforpurposeovertimeandisbettersuitedtotherisksassociatedwithonlinemarketsthan“onesizefits all” ex-ante regulation. As explained by the CEO of the UK competition authority, ex-postenforcement allows for “more evidence-based, and therefore more targeted and proportionate,enforcement.Thedigitalplatformsshouldbejudgedandtreatedaccordingtohowtheybehave,andhowthisaffectsconsumers.”283. IntermediaryLiability

In itsconsultation,theCommissionrequests feedbackonthereopeningoftheeCommerceDirectiveandimplementinganew"dutyofcare"onInternetserviceproviders.TheCommissionisconsidering"whether to ask intermediaries to exercise greater responsibility and due diligence in theway theymanage theirnetworksand system [] soas to improve their resistance to thepropagationof illegalcontent."29 The Internet Association respectfully submits that changes to the existing intermediaryliabilityregimewouldruncountertothepoliticalgoalsunderpinningtheDSMpackagetofosterdigitalinnovationandgrowththroughouttheEU.Inevaluatingthisproposal,theInternetAssociationrequeststhattheCommissionkeepthefollowingprinciplesfront-of-mind:

• First,as thehistoryof intermediary liabilityboth in theU.S.and in theEUdemonstrates, theneedforsafeharborsfromliabilityisevengreatertodaythaninthepastduetotheexponentialgrowthinonlinecontentsincetheInternet’searlydays.

• Second,online intermediariesbynomeansoperate ina legalvacuumwithrespecttobothIPand non-IP liability. The current legal framework is supplemented by voluntary efforts,communitypolicingandreportsystemsthathelpstopthespreadofharassment,hatespeech,andotherharmfulcontent.

• Finally,itisimportantthattheCommissionexerciseregulatoryrestraintinthisareasinceheavyhandedregulationwouldstymieincentivestoinvestinandgrowEUstartupstoscaleandthisoutcomewouldruncountertotheDSM’soverarchingpoliticalgoal.

IntermediaryliabilitysafeharborsplayedapivotalroleinthegrowthoftheInternetonbothsidesofthe Atlantic. Several Internet Associationmember companies grew tomaturity during the early tomid-1990sandcanattesttothisfromdirectexperience.IntheInternet’searlydays,thelegalstatusofstartupswasuncertain.However,boththeUnitedStatesCongressandtheECCommissionrespondedtothisvacuuminanenlightenedwayandcourts inbothsystemshavedoneagood job interpreting

28Id. 29CommissionWorkingDocument:ADigitalSingleMarketStrategyforEurope,EuropeanCommission,(June6,2015)http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52015SC0100

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theselegalframeworksintheinterveningyears.IntheUnitedStates,CongresspassedSection230oftheCommunicationsDecencyActintolawin1996,whichshieldedInternetserviceprovidersfromliabilityforavarietyofactionsthatwerecommittedbytheirusers.30AlthoughSection230didnot include intellectualproperty infringement,Congress laterpassedtheDigitalMillenniumCopyrightActin1998,whichshieldedInternetprovidersfromliabilityfortheirusers'infringementprovidedtheyactedquicklytoremoveinfringingcontentwhennotified.BoththeCDAandtheDMCArecognizedthatitwasfunctionallyimpossibleforInternetplatformstomonitorallthecontenttheyserveorindex. Theinterveningyearshaveonlystrengthenedthecaseforbothsafe harbors since the Internet of the 1990s was infinitely smaller in scale and scope than today’sInternet.TheEUwasalsoquicktorecognizethechallengesfacingtheearlyInternet.TheeCommercedirectiveintroducedasimilarnotice-and-takedownframeworktotheU.S.systemformostcontent.Sinceitwasadirectivethatneededtobeinterpretedby(eventually)28EUmemberstatesithasresultedinsomeinconsistency of application that provided somewhat less certainty to Internet companies than themorebrightlineU.S.safeharbors.31Nevertheless,ithasprovidedandimportantandnecessarylegalfoundationfortheInternettogrowandexpandinEurope.TheeCommerceDirective’sliabilityregimehas proven to be balanced, effective and proportionate and has promoted dynamic, competitiveservicesinatechnologicallyneutralway.InternetAssociationmembershaveplayedaleadershiproleinensuringthattheintermediaryliabilityregimeworks on both sides of the Atlantic. Internet Associationmembers take down a significantamountofcontentthat infringescopyright. Inaddition,theyrespondtocourtordersandcooperatewith law enforcement on issues like child sexual abuse. While there is no uniform solution to theproblemofonlineabuse,ourmembershavecreatedeffectivecommunitypolicingandreportsystemsthat help stop the spread of harassment, hate speech, and other harmful content. For example,anyoneonYouTubecanflagavideoforreview,andGoogleemployeesreviewthoseflaggedvideosforabuse24hoursperday. In2014,14millionvideoswereremovedfromYouTubeforviolationof thesite'sCommunityGuidelines.32Importantly,thelegalcertaintyflowingfromintermediarysafeharbors,whilenotflawless,hasmeantthatwebsitesrelyingonthirdpartycontenthavebeenabletoattractinvestorfundingbothintheU.S.aswellasintheEU.Theabilityofstartupstoattractinvestorfundingpivotsonseveralinterdependentfactors.However,onesignificantfactoristheriskassociatedwithintermediaryliabilityinthestartup’s

3047U.S.C.§230(c)(1)(1996)(“Noprovideroruserofaninteractivecomputerusershallbetreatedasapublisherorspeakerofanyinformationprovidedbyanotherinformationcontentprovider.”).31Copyrightanddefamationlawisrepellinginvestors,TheIrishTimes(November26,2010)http://www.irishtimes.com/business/copyright-and-defamation-law-is-repelling-investors-1.681806.32MatthewLaMerle,RajuSarma,TashfeenAhmedandChristopherPencavel,TheImpactofU.S.InternetCopyrightRegulationsonearlyStageInvestment:AQuantitativeStudy,Booz&Co.(2011).

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homecountry.Thisisbecausefundingallocationsanddecisionsmustbalancetheresourcesnecessarytooperateandgrowabusinesswiththecostsassociatedwithlegalrisk.Theequationissimple:thehigherthelegalrisk,thelowertheincentivestoinvest.The relationship between intermediary liability risk and startup funding is evidenced by severalquantitative studies examining the relationship between the two. For example, in 2011, the globalconsultancy Booz surveyed venture capitalists and found that 80 per cent of investors areuncomfortableinvestinginbusinessmodelsopentounpredictableintermediaryliabilityregulations.3381percentofinvestorssaidtheywouldbemorelikelytoinvestinadigitalcontentplatformundera‘weakeconomy,’thaninastrongeconomywhereexistingsafeharborsareweakened.Theresultsofa2014studyconductedbyFifthEraandEngineAdvocacyareremarkablyconsistentwiththe2011Boozresults.ThisstudyfocusedonintellectualpropertyintermediaryliabilityincountriesincludingFrance,the UK, Germany, Italy, and Spain and found that85 per cent of early stage investors agreed orstronglyagreedthattheriskofhighstatutorydamagesinIPcasesisamajorfactorthatmakesthemuncomfortableaboutinvestinginmediaplatforms.78percentofinvestorsoverall-and80percentofEUinvestors-respondedthattheywouldbedeterredfrominvestingincompaniesthatinvolveuser-generatedcontentifnewlawsexposethemtoincreasedriskofsecondaryliability.34AsEUstartupsseektobecomehouseholdnames,theInternetAssociationsubmitsitisimperativethattheybeaffordedthesamelegalprotectionsandsafeharborsthatallowedourmemberstogrowandachieve scale.35The data and studies show that from an investor’s perspective, the imposition ofincreasedlegalliabilities–andmostcertainlyadutyofcare-onstartupsmeansthatfewernewideaswillgetfundedduetotherisksassociatedwiththem.4. CollaborativeEconomy

Thecollaborativeeconomyhasemergedinthousandsof localmarketsworldwideinthepastseveralyears.TheInternetAssociationhaswitnessedfirsthandtheoftenheavy-handedregulatoryresponseto sharing economy entry in localmarkets throughout theUnited States andwe are thereforewellqualifiedtoprovidetheCommissionwithvaluableperspectiveonthisissue.Fromthisexperience,werespectfullysuggest that theCommissionkeepsthe followingprinciples front-of-mindas itconsidersregulatoryresponsestothecollaborativeeconomy:

• First,evidencedemonstratingthebenefitstoEUconsumersandmicroentrepreneursofparticipationinthecollaborativeeconomyshouldbetakenintoaccountandweighedagainstanyperceivedrisks.

33 Id.34MatthewLeMerle,TallulahLeMerleandEvanEngstrom,TheImpactofInternetRegulationonEarlyStageInvestment,FifthEraandEngine(November2014). 35 Inthesamelight,tyingregulationtoturnoverthresholdswillskewincentivesforstartupstogrowbeyondacertainsizeandcompeteglobally.

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• Second,inlisteningtocomplaintsagainstcollaborativeeconomyentry,policymakersshouldassesswhetherthesecomplaintscapturegenuineconcernsorwhethertheyarepartofalongtraditioninwhichincumbentsseektoshieldtheirbusinessesfromincreasedcompetitionwhich,infact,benefitsconsumers.

• Third,thatinassessingtheeffectivenessofregulationinthecollaborativeeconomy,weightshouldbegiventotheextenttowhichcollaborativeeconomyplatformsalreadyself-regulatethroughvariousmechanismsthatarehardwiredintothetechnology,suchastwo-wayratingsystemsandsecurepaymentmechanisms.

The welfare benefits of participation in the collaborative economy are clear and increasingly wellevidenced. PriceWaterhouse Coopers has calculated that, on a global basis, the sharing economygenerated$15billioninglobalrevenuesin2013.AccordingtoPwC,thisfigureisestimatedtoriseto$335billionby2025.36Thisgrowthbenefitsnotonlycollaborativeeconomyplatforms;italsobenefitsthesmallbusinessesandconsumersoneithersideofthesetwo-sidedplatforms.On the supply side, evidence is mounting that participation in the collaborative economy is a netpositive for the ‘microenterpreneurs’whoparticipate in it.37A recent report38commissionedby theUKGovernmentcitestoanAirbnbsurveyofBritishhosts,inwhich63percentofhostsreportedthatAirbnbincomehelpedthemtopaybillstheywouldotherwisestruggletopay,andthatatypicalAirbnbhostinLondonearnsaround£2,822byrentingoutfor33nightsperyear.39AnalysisdonerecentlyinBelgiumisconsistentwiththeUKdata.40Onthedemandside,evidenceofthebenefitstoconsumersof increased participation in the sharing economy is also mounting. A recent industry survey ofconsumers in the United States, Canada and the United Kingdom suggested about one in fourrespondentshadusedoneormore‘collaborativeeconomy’marketplacesinthepastyear.41Thisrapidgrowth rate suggests that consumers have themselves concluded that the sharing economy isbeneficialtothem. 36TheSharingEconomy:SizingtheRevenueOpportunity,PwC,(2015)http://www.pwc.co.uk/issues/megatrends/collisions/sharingeconomy/the-sharing-economy-sizing-the-revenue-opportunity.jhtml37DebbieWosskow,Unlockingthesharingeconomy:Anindependentreview(2014)https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/378291/bis-14-1227-unlocking-the-sharing-economy-an-independent-review.pdf.38Id.39AirbnbEconomicImpact,(2015)http://blog.airbnb.com/economic-impact-airbnb/(thisstudyalsosurveyedtheeconomicimpactofAirbnbinothermajorcitiesthroughouttheworld.Theresultsarereassuringlyconsistent).40AnOverviewoftheAirbnbCommunityinBelgium,(2015)http://publicpolicy.airbnb.com/wp-content/uploads/2015/11/Belgium-V3.pdf.41JeremiahOwyangandAlexandraSamuel,SharingistheNewBuying,(March2014)http://www.web-strategist.com/blog/2014/03/03/report-sharing-is-the-new-buying-winning-in-the-collaborative-economy/.

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The Internethas since its inception loweredentrybarriers fornewentrants, searchand transactioncostsforconsumers,andgenerallycorrectedinformationasymmetriesinmanymarkets.Morerecently,the collaborative economyhas disrupted competition in twoeconomic sectors in particular, namelytransportation and accommodation. These sectors have existed “for ages”, but the “genius of thesharing economy [] was to harness new technologies – smart phones, GPS, payment systems,identification, feedbackmechanisms – to allow almost anyonewith the right assets tomake thoseservices available outside the formal hotel and taxi industry. In other words, new technologiessignificantly reduce the transaction costs of matching under-used assets to those willing to pay toemploythoseassets.”42ThecollaborativeeconomyhasbroughtcompetitionintheformoflowerpricesandhigherqualitytomanylocalmarketsthroughouttheEUinrecentyears.Ithasbeenwelcomedwithopenarmsinsomemarkets, and encountered fierce opposition in others. 43 In many respects, today’s collaborativeeconomyexperiencemirrorsthatoftheearlycommercial Internet.Since itsearlyyears,theInternethas played its part in the ongoing process that theAustrian economist Schumpeterwas the first toname“creativedestruction”backin1943.44Creativedestructionandincreasedcompetitioncreateanxietyonthepartofmarketincumbents.AsSchumpeter observed in the 1940s, “The resistance which comes from interests threatened by aninnovationintheproductiveprocessisnotlikelytodieoutaslongasthecapitalistorderpersists.”45In2015,EUmarketincumbents’resistancetothecollaborativeeconomythereforecomesasnosurprise.Consistent with previous experience, incumbents are unlikely ever to admit that they opposecompetitionfromnewentrantsandso,asintheInternet’searlydays,theywilldisguisetheirconcernsas, forexample,consumerprotection issues.This ispredictablebehavior,but itoughtnot todictateregulatoryoutcomestoday,anymoresothanithasdoneinthepast.The Internet Association agrees that consumer protection law has an important role to play in thecollaborativeeconomybecausetrustintheplatformsisanessentialelementintheirsuccess.However,this conclusion raises some important and timely questions: for example, what form should theseconsumer protections take? How should they be enforced? Does government have a role to playthrough ex-ante regulation or ex-post enforcement? Or is self-regulationmore appropriate in thiscontext?

42ScottWallsten,TheCompetitionEffectsoftheSharingEconomy:HowisUberChangingTaxis?TechnologyPolicyInstitute,at3(June2015)http://techpolicyinstitute.org/files/wallsten_the%20competitive%20effects%20of%20uber.pdf43EricAuchardandChristopherSteitz,GermancourtbansUber’sunlicensedtaxiservice,ReutersMarch18,2015,http://www.reuters.com/article/2015/03/18/us-uber-germany-ban-idUSKBN0ME1L820150318#RsyhB5HLzQV0iioc.97.44JosephSchumpeter,Capitalism,Socialism,andDemocracy,at83(1943).45Schumpeter,supraat132-3.

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Whilenotattemptingtoanswerallthesequestions,somesimpleobservationscanbemade.First,inmostrespects,theplatformspoweringthecollaborativeeconomyareidenticaltoexistinge-commerceand Internetbusinesses.Andwhile theplatformsmaybe facilitatingnewkindsofeconomicactivity(andprovidingdisruptivecompetitiontoestablishedbusinesses),theyarenotnecessarilyentirelynewkindsofbusinesses.Existinglawappliesrelativelycomfortablytothethingsthattheydo.TheselawsincludetheEUdataprotection,financialservices,consumerprotection,andtheantitrustregimes.Second, the Internet Association believes that self-regulation can - and does already - have animportantroletoplayinthecollaborativeeconomy.Specifically,wesubmitthatitisimportantforEUregulatorstoacknowledgetheunprecedentedwaysinwhichtechnologyhasenabledthecollaborativeeconomytoself-regulate,suchthat“platformscanbeviewedaspartofthesolution,ratherthanpartoftheproblem,and[]shouldbeincludedinkeyactorsinaself-regulatoryregime.”46AtaworkshopconvenedbytheU.S.FederalTradeCommissionearlier thisyear,panelistsdescribedhowconsumerprotectionsareessentiallyhardwired intocollaborativeeconomyplatforms - throughbranding, trustandpaymentmechanisms.47Thisisanimportantfeatureofthecollaborativeeconomythatshouldbeborne inmind by the Commission and others as it considers how best to handle regulation in thisgrowingsector.5. Conclusion

TheInternetAssociationfirmlysupportstheDigitalSingleMarketinitiativeandwishestheCommissionsuccess in eliminating barriers to trade and opportunity for EU small businesses thatwill ultimatelyfostercompetitionandincreasechoiceforconsumers.TherearemanyopportunitiesinherentintheDSM forourmember companiesbutalso, importantly, for theEU startupswehope to see joinourranks.However, these startupsneed tobeplacedona level playing field inorder to succeed. Thisplayingfieldincludestheintermediaryliabilitysafeharborsdiscussedabove.Experienceonbothsidesof the Atlantic has shown that these safe harbors were the key building blocks upon which ourmembercompanieswerebuilt.Manyofthemmayneverhavereceivedventurecapitalfundingabsentthesesafeharbors,letaloneachievedthegrowththeyneededtoscaleandbecomethesuccessestheyaretoday.

WhatEUstartupsdonotneedinordertogrowandscaleisex-anteplatformregulation.However,withadefinitionofonlineplatformasinchoateasthatpositedbysomeEUstakeholdersitisdifficulttoseehow startups will not be impacted. Any schemes which would require rating or approvals for thechangeofbusinessmodelsorbusinesspractices inthehighlydynamiconlineenvironmentwouldbehighly detrimental to EU startups and overall competitiveness. At a minimum, a careful impactassessmentshouldbeconductedbeforemoreredtape isput inplacethroughadditionalregulation. 46MollyCohenandArunSundararajan,Self-RegulationandInnovationinthePeer-to-PeerSharingEconomy,TheUniversityofChicagoLawReviewDialogue,at119(2015).47KateCox,TheConsumerist,NobodyReallyKnowsWhattoDoAboutRegulatingtheSharingEconomy,TheConsumerist,(June10,2015)http://consumerist.com/2015/06/10/nobody-really-knows-what-to-do-about-regulating-the-sharing-economy/

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Thegoodnewsisthattheconditionsneededtotriggerex-anteregulatoryinterventionarenotmetindynamicdigitalmarkets. Furthermore, to the extent that there are issues and imperfections in themarketplace,existingEUlegalregimesarewellequippedtohandlethem.