Standards, not rules

We need to rethink regulation of online businesses.

Written by Ananth Padmanabhan | Updated: December 13, 2014 8:19 am
The court must rather devote singular attention to whether a reasonable taxi-aggregator service would allow a suspected rapist to work as a cab driver. The court must rather devote singular attention to whether a reasonable taxi-aggregator service would allow a suspected rapist to work as a cab driver.

The Uber case has shaken both government and citizens. While Delhi has banned all taxi “aggregator” services, Maharashtra has acted on the “advice” tendered by the Centre to condemn Uber. These knee-jerk reactions demonstrate the need for more thoughtful enquiry into the appropriate design of legal rules and enforcement mechanisms for regulating online businesses.

Broadly, regulations can take the form of hard-and-fast rules or flexible standards. Rules attempt to predict every situation that could possibly occur and address it through rigidly worded mandates. Standards are more open-ended and only prescribe broad guidelines to the regulated actor. Lawmakers normally resort to standards when confronted with low predictive capability because of the myriad possibilities of human error, conduct or growth.

Standards provide more autonomy and flexibility to the regulated actor. They leave the task of ascertaining compliance to the judiciary, shifting power away from the bureaucracy. As far as internet-based businesses are concerned, there are strong reasons to deploy standards rather than rules.

In The Future of the Internet, the renowned scholar on internet law and policy, Jonathan Zittrain, identifies the Net’s generative nature as vital to its growth. In hindsight, the generative architecture of the Net, which permits anyone with a personal computer to design his own website and offer services, presents itself as a given. However, the truth is that the internet could well have been designed in a non-generative way — indeed, it was for a brief period in the early 1990s, when end users could only consume a fixed menu of services, not devise their own offerings. Today, apps have extended the Net’s generativity to mobile devices. This is of special significance for India, where the mobile internet segment has grown by approximately 50 per cent since 2013. For a high percentage of first-generation users, especially in rural areas, mobile phones are the first point of contact with the Net.

Rules, the most extreme version of which is an outright ban, would be a death sentence for the Net’s generativity. No one can predict the innovative and generative potential of the internet. It is a jungle, whose potential will be best harnessed by taming the wild, not by extermination. This leads us to two obvious questions. Should Uber get away? No, but the answer also does not lie in a regulatory ban or a hundred dos and don’ts. We need, instead, a strong standards-based liability regime that drives the fear of god into businesses, a regime that makes nonchalant CEOs like Uber’s Travis Kalanick think twice before indirectly blaming the government for the absence of background checks.

Second, what about the regulatory road ahead? What is the appropriate enforcement mechanism? The only workable solution — to which all energies must be devoted instead of setting up a dozen high-powered committees — is a pro-consumer judiciary that can impose hefty penalties running into crores against billion dollar companies such as Uber. We need to transition from fixing compensation based on the victim’s losses to punishing corporate entities for their gross negligence regardless of the specific nature of the injury in question.

“Negligence” is an established category of legal liability in tort law. The court’s job, in such cases, is to first see whether the alleged perpetrator owed a duty of care to the victim; then, whether there has been a breach of such duty; and finally, whether the breach resulted in an injury. The appropriate standard for determining if there has been a breach is to see whether a reasonable person in the same position as the alleged perpetrator would have acted differently. Under this standard, what the government or the Motor Vehicles Act expected Uber to do become less important. The court must rather devote singular attention to whether a reasonable taxi-aggregator service would allow a suspected rapist to work as a cab driver. If the response to this is in the negative, exemplary damages must follow.

Presently, consumer courts in India are in a state of absolute disarray. Yet, for those unconvinced by the policy reform above, the Competition Commission of India holds up as a model. By imposing fines hitherto unheard of in Indian law, this institution is slowly emerging as a beacon of hope for meek consumers. We need to revamp our consumer courts to function likewise.

These courts must treat corporate liability differently from the liability of individual professionals, because the former have deeper pockets and a more significant impact on people’s lives due to their larger and wider scale of operations. The application of the reasonableness standard must be coupled with the award of “extraordinary” damages to force entities that deliver products or services to self-correct. The moment Indian law does this, multinationals will start respecting Indian lives.

The writer is a lawyer and author of ‘Intellectual Property Rights: Infringement and Remedies’
express@expressindia.com

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  1. K
    KSRao
    Dec 13, 2014 at 4:04 pm
    A simple method is government coordinating the driving calibre and background check and issuing periodic certificates and the driver can be portable from one agency to another. Why burden small agencies with an enormous task. Come what may, we are for Uber, Ola, Taxi for Sure and the like.
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    1. K
      KSRao
      Dec 13, 2014 at 8:40 pm
      Let the government take responsibility for the driving skill and and character of the drivers through its RTOs and police and certify their character. Why bother and destroy small companies of this onerous task?
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      1. R
        RV
        Dec 13, 2014 at 11:06 pm
        Excellent article. Raised many relevant issues
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