Case C-390/18 Airbnb Ireland, Judgment of the Court (Grand Chamber) of 19 December 2019, ECLI:EU:C:2019:1112
I. Introduction
Digital platforms such as Uber, Airbnb and Amazon represent one of the main political priorities of the von der Leyen Commission,Footnote 1 as these technological innovations present new business opportunities for service providers in the European digital single market. Yet, innovation-driven business models attract significant economic and social controversies. While run by companies located in one Member State, online platforms often influence services provided in the rest of the European Union (EU) and compete with national incumbents providing similar services but subject to heavier regulatory burdens. This often disruptive character raises pressing regulatory challenges for the EU, posing questions about the level at which the activity of digital platforms ought to be regulated and the balance that their regulatory framework must strike between market innovation and social protection.Footnote 2
The case discussed hereafter (C-390/18 Airbnb Ireland) engages directly with these questions.Footnote 3 This judgment is particularly important because it extends the case law on the interpretation of digital platforms beyond the transport sector, whereby competences remain with Member States.Footnote 4 It also partly clarifies the regulatory leeway of domestic authorities on the platform economy. National and city powers regulating digital platforms are now subject to tight procedural and substantive constraints set in Directive 2000/31 (the E-Commerce Directive).Footnote 5 At the same time, the decision leaves some unsolved questions. The judicial interpretation by the European Court of complex data-driven business models may raise concerns regarding the fitness of existing European regulatory frameworks. The following analysis examines the digital asymmetries inherent in algorithmic platform governance and discusses these aspects in the light of Airbnb practices.
II. Facts and legal background of the case
Airbnb is an online platform that allows the sharing of short-term accommodations in most countries and cities around the globe. Its business model consists essentially in matching, via its online platform and for payment, listings of accommodations posted by professional and non-professional operators with potential guests. The characteristics of Airbnb (eg hosts gaining new forms of income and guests enjoying “live-like-local” homestays), which are mutually beneficial for participants in this ecosystem, are considered to be the main driving forces behind the success of the service,Footnote 6 which has been expanding to 191 countries and 200 million users since 2008.Footnote 7
The EU operations of the US-based Airbnb, Inc., are run by two subsidiaries. Airbnb Ireland UC, a company established in Ireland, provides the electronic platform that connects hosts with guests. Airbnb Payments UK (now replaced by Airbnb Payments Luxembourg), a company based in London, takes care of online payments by holding the rent paid by the guest and transferring it to the host twenty-four hours after the check-in, in exchange for a small fee paid as a percentage of the total price. In this context, hosts and guests conclude three types of contracts: one with Airbnb Ireland UC, for the use of the platform, another one with Airbnb Payments UK, for the payment made therein, and a final one between themselves, for the performance of the accommodation service.Footnote 8
Albeit seemingly easy and consumer-friendly, Airbnb’s business model raises a number of legal problems within the EU. While the platform runs from one Member State and is subject to its jurisdiction, it ultimately aims to provide accommodation services in the rest of the EU. However, Airbnb is typically not in possession of licenses or administrative authorisations imposed by national law on real estate brokers, nor does it require such licenses from its hosts. Airbnb describes itself as being just an online marketplace that enables registered users to post, communicate and transact on hosting services, while clearing any responsibility for itself with respect to the listings on its website, which lies instead with the hosts. This responsibility includes setting the price and the conditions of use for listed facilities.
The problem is that drawing a line between fulfilling the role of an online marketspace and that of a rental agent is hardly an easy task. Airbnb’s intermediation approach has sparked social and political unrest from numerous stakeholders who consider the activity of sharing economy operators as detrimental for their own commercial interests, such as is the case with other hospitality and real estate providers complying with stringent national and municipal regulation. Meanwhile, in densely populated cities, Airbnb has been held accountable for skyrocketing rental prices, tight housing supplies and connected social inequalities.Footnote 9 National administrative agencies and city officials across the globe have sought to minimise Airbnb’s impact in multiple ways.Footnote 10 While some have struck voluntary agreements with the platform,Footnote 11 others have imposed restrictions such as bans, higher letting limitations, direct taxation or permits. Yet the digital enforcement of these rules poses serious infrastructural and legal questions that are gradually starting to be addressed by national courts, such as automated evidence collection for the infringement of municipal regulation.Footnote 12 In addition, liability questions relating to widespread scams on the platform have remained unaddressed from the perspective of consumer protection.Footnote 13
The same controversial background defined the facts that led to the preliminary questions addressed by a French court in the case at hand. In 2017, the Association pour un hebergement et un tourisme professionals (AHTOP) brought a criminal action against Airbnb at the Tribunal de France instance de Paris. It claimed that the company was operating as an intermediary of property transactions without holding the professional license imposed by the Hoguet law.Footnote 14 This national law sets out the obligation for real estate agents to obtain a license released upon the fulfilment of certain conditions about professional ability, financial guarantees and other formalities related to the profession.
Airbnb rebutted that it was not acting as a real estate agent, but rather as an “information society service”, thereby benefitting from the free movement of services guaranteed by Directive 2000/31.
In this context, the domestic court referred two questions for interpretation to the Court of Justice of the EU (CJEU). First, it enquired as to whether the services provided in France by Airbnb Ireland via its electronic platform benefit from the freedom to provide services laid down in Article 3 of Directive 2000/31. Second, it asked whether national rules restricting the exercise of the profession of real estate agent are enforceable against Airbnb.
Key points at issue in the case are thus the legal qualification of Airbnb under EU law and the resulting scope for Member States to impose conditions on the company’s activities in their jurisdictions. Holding that such an online platform qualifies as an “information society service” under the E-Commerce Directive would have two major consequences: first, that limitations to Airbnb’s access to national markets would need a prior notification to EU institutions and to abide by a few restrictive conditions (ie for reasons of public policy, public health, public security and consumer protection); and second, that Airbnb could not be held liable for the information stored or transmitted and for monitoring it. Otherwise, the platform would fall under the Directive 2006/123 (the Services Directive),Footnote 15 given its horizontal application. In this instance, the discretion of Member States would be broader and in line with the Cassis de Dijon jurisprudence,Footnote 16 validating the imposition of prior authorisations if justified, necessary and proportionate for overriding reasons of public interest. In addition, the platform would not enjoy the general exclusion of liability for intermediary service providers.
III. The opinion of the Advocate General
Advocate General (AG) Szpunar delivered his opinion on 30 April 2019.Footnote 17 Right from the start, he highlighted the connection with other judgments on online transport services, notably Elite Taxi Footnote 18 and Uber France. Footnote 19 While he saw their qualification under EU law as a common problem, he also recognised that the service of connecting hosts and guests of short-term accommodations has its own peculiarities.
To determine whether Airbnb should benefit from the freedom of providing services, he first looked at the concept of “information society service” laid down in Directive 2000/31.Footnote 20 The key problem here was whether Airbnb provides services (1) for remuneration, (2) at a distance, (3) by electronic means and (4) at the request of a recipient. In line with previous decisions on Uber, he clarified that platforms such as Airbnb raise questions about the application of the second and third conditions. Indeed, while the intermediation of Airbnb allows hosts and guests to connect and eventually conclude rental contracts at a distance, this electronic component “results in the use of an accommodation, which may be regarded as a non-electronic component of the service provided by the company”.Footnote 21
This leads AG Szpunar to further elaborate on the conditions under which mixed services that combine an electronic and a material part can qualify as “information society services”. In line with Ker-Optica,Footnote 22 he claimed that this is the case when, based on a detailed examination, each part can be carried out independently and keeps its own economic interest and nature. For instance, the online sale of contact lenses does not lose its qualification as “information society service” even when subject to the physical examination of a patient, because the former service can be carried out independently from the latter. By contrast, an electronic service connecting non-professional drivers with people wishing to make an urban journey is inseparably linked with a transport service when “it renders accessible, in particular, through software tools” an offer of transport services and exercises decisive influence over its conditions, such the minimum fare, price collection or quality control.Footnote 23 Thus, in keeping with the two Uber judgments, the AG clarified that a mixed service qualifies as “information society service” when it satisfies two criteria: creation of an offer of services with material content and exercising decisive influence over its conditions.
The AG found that Airbnb does not fulfil the first criterion. Unlike Uber, whose application “guarantee[s] a match between offer and request”Footnote 24 in on-demand transport services, Airbnb’s electronic service retains its own economic interest, to the extent that professional and non-professional hosts can offer their assets for short-term rents either via traditional channels or via websites created ad hoc. Similarly, Airbnb does not meet the second condition either. To this purpose, the AG clarified that the decisive influence must be inferred from elements that, taken together, show that the platform exercises control on the economically significant aspects of the material service. Regarding the short-term accommodation market, he considered that the location and standards represent economically significant aspects, while price does not. Based on these elements, he thus showed that Airbnb does not regulate or exercise decisive control over the short-term accommodation service. First, the rental price is determined by the hosts, and the “only factor that might discourage them to do so is the logic of supply and demand”.Footnote 25 Second, differently from Uber, the final decision on the quality and conditions of the material service is taken by the host alone, while Airbnb only predefines the options for this. Third, while Airbnb retains some powers of administrative control – such as temporarily suspending a listing, cancelling a reservation or banning access to the platform – these concern compliance with conditions set by users. Fourth, the fact that Airbnb collects the rental price and transfers it to the host is typical of the majority of information society services and “does not permit the conclusion that all those services are inseparable”.Footnote 26
The second question dealt with ascertaining whether the provisions of the Hoguet law could be applied to Airbnb Ireland as a provider of information society services, if these provisions would lead to limitations that do not meet the conditions enshrined in Article 3(4) of the E-Commerce Directive. To address this question, AG Szpunar delved into the compatibility of the Loi Hoguet with Directive 2005/36, Directive 2007/64, Directive 2015/1535 and Directive 2000/31 to define the substantive and procedural conditions under which Member States may adopt measures restricting the free movement of information society services.Footnote 27 With regard to the substantive conditions, the AG considered that Member States can only impose measures restricting the free movement of information society services on a “case-by-case” basis. In relation to the procedural conditions, the AG made an analogy between the control procedure applicable to technical regulations as governed by Directive 2015/1535 and the procedure regarding the national adoption of measures restricting the free movement of information society services under Directive 2000/31. Interpreting the latter directive, the AG determined that if Member States fail to notify the measures restricting the free movement of information, this attracts the sanction of non-enforceability of said measures.
IV. The CJEU judgment
The CJEU agreed with the broad lines of the AG’s opinion. It qualified an intermediation company such as Airbnb as an “information society service” and concluded that such a service cannot be limited by any national measure that had not been notified.
Regarding the first question about the qualification of the platform under EU law, the Court noted, as a general matter, that the services provided by Airbnb fall under Directive 2001/31, intended as the lex specialis, which regulates specific aspects of access to and exercise of services in the EU. It then claimed that Airbnb fulfils all four conditions of the notion of “information society service” set in the E-Commerce Directive,Footnote 28 and moreover that this classification is not excluded by its mere connection with an accommodation service, which comes under another classification in EU law. According to the CJEU, although “the purpose of the intermediation service provided by Airbnb Ireland is to enable the renting of accommodation, the nature of the links between those services does not justify departing from the classification … as an ‘information society service’”.Footnote 29 To this purpose, the Court considered a number of factual elements. First, the intermediation of Airbnb has a distinct nature from the underpinning property transaction, because its online tools essentially aim to create a list of offers for the conclusion of future rental contracts. Second, the platform provided by Airbnb is not indispensable for the provision of short-term accommodations, since both guests and hosts can use other channels, such as estate agents, classified advertisements or ad hoc websites. Third, Airbnb has no influence on the offer, as it does not set or limit the price hosts charge on the platform.
The Court also clarified that the other services Airbnb provides are ancillary in nature and allow users to benefit from its intermediation service. Indeed, the harmonised format used for posting the offers of accommodation, the collection and transfer of money among users and other optional services, such as civil liability insurances, are typical tools that digital platforms use to promote informed and secure transactions in an online environment. Finally, the Court claimed that Airbnb’s rules do not support the conclusion that it exercises a decisive influence on the conditions of the accommodation services. This is so because, differently from Uber in the transport service, Airbnb is not able to determine, directly or indirectly, the rental price or to select the host or the accommodations on its platform.Footnote 30
Regarding the second question, the Court settled that national provisions restricting the freedom to provide services, such as the Hoguet law, cannot be opposed in criminal proceedings against a company if the conditions laid down in Article 3(4) of Directive 2000/31 are not fulfilled. In this sense, it first noted that, since the requirement to hold a professional license is intended to limit the access to and exercise of the activity of intermediation of accommodation services in France, it has to comply with the substantive and procedural conditions set in EU law. It then focused specifically on the fulfilment of the procedural condition, remarking that the French state failed to notify this measure to the EU Commission. Arguing in line with its jurisprudence on the Member State’s failure to notify technical rules,Footnote 31 the Court referred to three elements that render this national law unenforceable against individuals, as indicated in what follows. First, the obligation laid down in the E-Commerce Directive is sufficiently clear, precise and unconditional to confer it direct effect, as it pursues the objective of ensuring the freedom to provide information society services between Member States. Second, the supranational provision sets an essential procedural requirement, since the Commission has the power to ask the Member State concerned to refrain from acting and to put an end to the measures in question in case of urgency. Third, the Directive is intended to prevent Member States from impinging on the competences of the Member States where the provider of the information society service is established.
V. Comments
1. Airbnb and algorithmic governance
To determine whether Airbnb as an intermediation service is an information society service, and whether its intermediation forms an integral part of an overall service that could fall under a different legal classification, the Court looked into the characteristics of intermediation in the light of Airbnb’s business supply chain and made comparisons in two directions. First, the Court compared Airbnb to other services providing an accommodation service in order to determine whether the service provided by Airbnb can be separated from the property transaction itself or whether it forms an integral part of an overall service for the provision of accommodation. The Court’s assessment that Airbnb’s intermediation is not indispensable for the provision of accommodation services seems, at first, reasonable. The competing channels in the hospitality and real estate letting sector, as identified by the Court in the form of “estate agents, classified advertisements, whether in paper or electronic format, or even property lettings websites”,Footnote 32 bring to mind a more classical image of the real estate sector with clearly delineated services. However, the reality is that real estate is a dynamic sector where services are all but clearly delineated. As an illustration, a lot of real estate companies offering a portfolio of rentals will provide a plethora of services that may complicate the legal classifications involved (eg determining who a real estate agency represents in a contract, determining the role of a payment such as a “registration fee” on a website). In addition, the real estate sector has also jumped on the algorithmic bandwagon. Skyline AI, “the artificial intelligence asset manager for commercial real estate”,Footnote 33 or Proportunity, the company claiming to apply “AI technologies to understand the potential of tomorrow, enabling us to help people buy a home today”,Footnote 34 are only a few examples of data-driven companies coming up with tools that fall right into the characterisation made by the Court of the essential features of Airbnb: “the compiling of offers using a harmonized format, coupled with tools for searching for, locating and comparing those offers”.Footnote 35 Such tools may now be built and owned by companies that would qualify as information society services, but the productification of algorithmic models trained on easily retrievable data is gradually changing the nature of the services offered in this sector, leading to more business model alignment. As a consequence, even though the Court tried to make a comparison between Airbnb and other services that offer accommodation, its assessment failed to take into account the contemporary expression of the latter. Upon a closer look at the two categories of services (information versus accommodation), the business models and “channels” or tools used in the course of their business may reveal more similarities than differences between them, as well as more general convergence (eg hotels offering listings on Airbnb and Booking.com in addition to their own websites).
Second, the Court compared Airbnb with other services that were in principle held to be information society services, but in which intermediation formed an integral part of an overall service with a distinct legal classification.Footnote 36 In other words, compared to Uber, Airbnb is a mere intermediation service (connecting hosts and guests) with ancillary features (eg the availability of reviews) that are not considered an end in themselves and that do not prove that Airbnb exercises influence over the conditions under which accommodation services are provided. Once more, while in theory it may be intuitive to claim that, since Uber determines prices and Airbnb does not seem to do so, they are two separate types of services, in practice a different picture emerges. While it is true that Airbnb’s Terms of Service indicate that hosts are “solely responsible for setting a price”,Footnote 37 the Payment Terms indicate, for instance, that Airbnb retains some discretion in determining when payments are made and in what amount.Footnote 38 In addition, the same terms clarify that the payment for a listing is the listing price minus applicable taxes and host fees. When enquiring how host fees are calculated, it becomes clear that Airbnb does not reveal a lot of information in this respect, as it states that the host fee “[i]s 3% for most hosts, but may be higher for Airbnb Plus hosts, hosts in Italy, or for listings that have a Super Strict cancellation policy”.Footnote 39 No further information is given for the hosts that do not fall into the 3% fee bracket. What is more, when looking at the guest service fee, it is stated that “[t]his fee is typically under 14.2% of the booking subtotal (the nightly rate plus cleaning fee and additional guest fee, if applicable, but excluding Airbnb fees and taxes)”. The fee varies based on a “variety of booking factors and is displayed to guests during checkout before they book a reservation”. What booking factors play a role in this determination and how exactly this guest fee fluctuates remain unclear. This new fee structure, said to have been introduced in June 2019, has been at the heart of a lot of comments on sharing economy entrepreneurship websites, some of which even give hosts the advice of increasing nightly rates to make up for the changes in Airbnb’s fee system and emphasise guest confusion relating to fee calculation.Footnote 40
Another aspect worth mentioning is the Smart Pricing algorithm, which is an optional, data-driven match of demand and supply using specific parameters (eg day of the week, holiday period) to suggest prices to hosts. For professional hosts with industry know-how, pricing strategies might come easier, which is why non-professional hosts are said to more often rely on Smart Pricing. Once more, one of the differences between Uber and Airbnb may be reflected by how much freedom users have to determine their own prices. But is Smart Pricing really optional? The Airbnb forum features plenty of hosts who indicate that Smart Pricing, which is a feature that can be turned on and off from the listing interface,Footnote 41 was either set on by default or was still applicable even if set off.Footnote 42 On a similar forum, many hosts also seem to have faced the issue of undervalued properties during peak seasons.Footnote 43 Absent further evidence, no accurate determination can be made about whether this is bad faith, algorithmic bugs or simply inaccurate reports, but the patterns have a common narrative: Airbnb has a financial incentive to make demand and supply more predictable, and while it does communicate to its users that they determine the prices, for various reasons ranging from information asymmetry to infrastructural design, a lot of users may end up applying Airbnb’s Smart Pricing feature.
To sum up, Airbnb determines when to pay hosts and in what amount to make payments to this end. It also determines, in an opaque way, at least 17.2% of the price to be paid by the guest, and Smart Pricing may not be entirely optional. If these features lead to a level of control that can be, to a certain extent, equated to Uber’s practices, then a question emerges about whether there is a need to distinguish between the two platforms when it comes to their assessment as information society services.
2. Digital asymmetries and legal interpretations
While the judgment unpacked the so-called “ancillary services” Airbnb offers in addition to its intermediation activities between guests and hosts, it unveiled an inherent pitfall of analysing digital services with algorithmic components. This pitfall is represented by the overreliance on an abstract representation of what the said services actually consist of. In other words, while a level of abstraction is necessary in defining services such as those provided by Airbnb, defined in terms of compiling offers and searching, locating and comparing these offers, such abstraction does not do justice to the highly complex technologies, dynamic business models and behavioural incentives enshrined in such services. The interaction of these three aspects is far from clear, and while empirical studies on this theme are booming,Footnote 44 a granular understanding of the inner workings of Airbnb, which may well affect the public discourse regarding the actual implementation of its policies and general terms, is still lacking. By no means is such research a task for the CJEU, but what is indeed such a task is to accurately ascertain facts for the purpose of interpreting concepts set in EU law. When facts reflect complex industries where theory and practice may differ, a question arises relating to the role that scientific, evidence-based expertise should play in such cases and if/how this expertise should be interpreted. If an empirical overview of complaints on the Airbnb forum would show that Smart Pricing has been, for various periods of time, used by default on a wide number of accounts, this would make Airbnb no different from Uber in setting the prices of drivers/hosts. Yet without any insight into the mechanics and actual implementation of various technologies, judicial appreciations, of which this case is only an example, are affected by a heavy information asymmetry: a highly complex industry dominated by big data-driven inferences is put under the scrutiny of legal inferences alone. And while the legal interpretation and argumentation delivered by a court remain the legitimate backbone of the judiciary at all levels of governance, it cannot be denied that to the extent that information asymmetry affects the accuracy of an assessment of facts, it may also end up impacting the meaning of the legal interpretation. As the CJEU needs to use its interpretative tools on European law sources brought before it, one of the most important takeaways from Airbnb Ireland is the question of how the legal framework the E-Commerce Directive established two decades ago can be reformed, so that digital asymmetries between the public and the private sectors can be balanced out. Given the ongoing regulatory discussions around the Digital Services Act,Footnote 45 it is expected that the regime applicable to information society services will be overhauled in an attempt to undo the regulatory subsidy offered to digital platforms during the 1990s. At that time, a general lack of understanding of how technology would impact online business led to platforms not being burdened with a general monitoring duty, which it could be argued has contributed to the success of the intermediation model used by platforms such as Airbnb.
