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Compliance Uncertainty And Social Media: Lessons From Uber, Airbnb, And Drones.

This article is more than 8 years old.

The challenges of coping with compliance and innovation were explored during “Rock, Meet Hard Place: Does Law Stifle Innovation?” at a recent event by Nabina Syed, Assistant General Council, Buzzfeed and Basha Rubin, CEO, Priori Legal LLC. Although this talk focused on helping entrepreneurs, there are some key lessons for regulated firms within financial services, healthcare, pharmaceuticals and the public sector, as they begin to deploy new communications channels such as social media and collaboration tools within the enterprise.

“You’ve had a brilliant million dollar, billion dollar game changing idea. There’s just one catch. You’re not sure if it’s legal, and when you talk to your lawyer, they’re not either.” said Rubin. As technology explodes, there may be “compliance uncertainty” around innovative ideas. “And what is compliance uncertainty? It’s a really fancy term for not knowing how your brilliant, wonderful, fantastic world changing idea fits into the thicket of state regulations, federal regulations, ethical rules and guidelines.” explained Syed.

For firms in regulated industries, compliance uncertainty may prevent them from reaping the rewards of social media and collaboration tools in order to avoid unnecessary regulatory risk. However, the tension between emerging technology and lack of specific regulations will only continue. Rather than wait until the opportunity is lost, firms in regulated industries instead may begin adopt new communications channels by following the leaders, providing input to their regulators and documenting everything.

Follow The Leaders

When firms create technology that challenges established firms, they face the risk of being sued by firms with deep pockets. That was the case for Aereo, a firm that created a cloud-based antenna and DVR that allowed users to watch live television on any device, without paying for cable subscriptions. Cable companies who pay fees to retransmit broadcast programming naturally objected and sued based on copyright infringement. Aereo committed to challenging the cable networks in court. From the federal district courts in New York and Boston to the Second Circuit Court of Appeals, Aereo fought all the way to the US Supreme Court. Copyright and other legal experts thought they had a chance to win, so they kept fighting. Unfortunately for Aereo, the Supreme Court ruled in favor of the cable networks. As this technology was their entire business model, Aereo wound up in bankruptcy in late 2014. For Syed, the key takeaway was this “winner takes all” approach of going to court is highly risky and resulted in a devastating loss that “gutted the company”. Rubin added you “might want to be in someone’s wake. In the literature around compliance uncertainty there is a documented second mover advantage.”

Lesson for regulated industries: Sometimes holding back initially is to your advantage. Follow the leaders in your industry. Look to other regulated industries for approaches that you can apply.

Provide Input To Regulators

When Uber, the app that provides on-demand rides, came on the scene, they started competing in the mature, protected, tightly regulated taxi and limousine industry. Due to the nature of their new technology, Uber offers convenience and competes aggressively on price, without the burden of complying with local regulations governing licenses, rates and insurance requirements. “Unlike Aereo, taxi / limousine regulations differ from jurisdiction to jurisdiction, so there is no 'winner takes all' proposition. Even though Uber has been deeply entrenched in battles in jurisdictions throughout the country, no one regulator was able to spell their death” said Rubin. She continued that as Uber is so well-funded, they have been able to afford to fight these battles. Uber also benefits from the popularity of their app. “So even when regulators try and stop them, and they have stopped them in certain jurisdictions, it seems difficult to imagine that anyone would be able to shut them down entirely” concluded Rubin.

Another example is Airbnb, the app that connects “hosts” seeking to rent out a room or an entire house for short periods with tourists. Many regions have regulations that expressly prohibit short term stays. These housing laws are designed to protect tenants and control available housing. Additionally, Airbnb avoids collecting local hotel taxes as it considers itself a “clearinghouse”, not a hotel. “So how does Airbnb deal with this potential liability in all of these different jurisdictions? It does something a little creative. In the fine print of Airbnb, it says that the onus is on the users to determine what they’re doing is permissible in their jurisdiction” said Syed. Airbnb also attempts to influence regulators by leveraging its users on billboards and print ads and encouraging them to lobby their local legislators to change housing laws. According to Syed, the key takeaway is “size and popularity gives you some legitimacy” to influence regulators that you may have side-stepped when you first launched. “If you’re dealing with an existing body of rules it makes sense to do what Uber and Airbnb have done, and wait to see if you can build that user base…. get popular and then go to the regulator once you actually have enough leverage and enough lobbying power to … have someone listen to you.”

Lesson for regulated industries: Existing rules from the 20th century may no longer apply to 21st century technology.  Process-driven regulators may not be able to keep up with the impact of rapidly changing technology. They may not have issued any guidance, or have issued guidance that was instantly outdated, or incomplete. If this if the case in your industryreach out to the regulator. Join working groups, write letters, provide real world industry feedback.

Document Everything

Drones are an example where regulators themselves have taken a “wait and see” approach. According to Syed, drones aren’t a firm per se, but, a “platform that allows you to do a variety of things, such as delivering packages, or news gathering or even crop dusting”. In an attempt to avoid hindering the development of technology, the Federal Aviation Administration (FAA) took an adaptive approach and issued rules slowly. Unfortunately, in an effort to be flexible, they left both hobbyists and commercial users confused. This regulatory uncertainty resulted in both disdain for the regulator as well as start-ups businesses considering leaving the US for countries with more defined rules.The takeaway? “The ‘wait and see’ approach when employed by the regulators, may actually inject more uncertainty into the system to stifle innovation, not encourage it” concluded Syed.

Lesson for regulated industries: If your firm decides not to wait for guidance and to interpret existing rules within an uncertain regulatory environment, be thoughtful in your approach and document your decisions.

Do you have any additional suggestions on how firms may move forward with social media and collaboration tools in the absence of clear regulatory guidance?

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