How Technology Disrupts Private Law: An Exploratory Study of California and Switzerland as Innovative Jurisdictions

2018 is the first year in history when more than half of the world’s population is online. Since its dawn, the Internet has changed many aspects of daily life. The first wave of the Internet saw a change in communication: the use of e-mails and the rise of Internet browsers facilitated online transactions and marked the beginning of global access to goods. Then came wider access to services, in what is by now called the ‘gig’ economy: Internet platforms started matching demand and supply in sectors such as transportation, tourism and even entertainment. More recently, a new wave of decentralization through cryptography developments in distributed ledger technologies has challenged the fitness of established legal rules and practices and disrupted the law.

Legal systems have always had adapt to modernity. What is new, however, is that all aspects of human development are moving faster than ever and at an unprecedented scale, with unmatched complexity. By contrast, regulatory solutions for legal questions arising out of technology innovation have been rather slow and random. The legal status of Uber drivers as independent employees has been established in different jurisdictions around the world, but will it also apply to Youtubers? Such case-by-case approaches tend to increase legal uncertainty rather than reduce it. In a recent working paper I completed for the Stanford Transatlantic Technology Law Forum, I looked at a number of private law issues raised by disruptive technologies in two particular jurisdictions: California and Switzerland. The goal of the paper is to map and analyse regulatory responses.

Innovative jurisdictions and disruptive technologies

While very different at first sight, Switzerland and California have in common to be both considered 'innovative' thanks to their excellence in fields such as education, research (both publicly and privately funded) or intellectual property assets (according to the European Innovation Scoreboard, the Global Innovation Index and the Bloomberg US State Innovation Index). Switzerland is ranked as one of the most innovative countries in Europe and in some metrics in the world; as the cradle of Internet technology, California is one of the most innovative US states.

The paper takes California and Switzerland as regulatory spaces where three disruptive Internet innovations are investigated. In Clayton Christensen’s ubiquitous definition, ‘disruptive technologies’ are business models that start at the least profitable end of the market and succeed in displacing incumbent leaders by creating innovative products that create entirely new markets. Beyond this specific definition, disruption is not just about markets, as its effects trickle down through other levels of society as well: the political level (eg, policy-makers need to weigh the costs and benefits of innovation); the social level (eg, wide-spread adoption of technology affects human behavior); and the legal level (eg, the very nature and role of law in governing the future are put into question). More specifically, law may lose effectiveness in the light of new legal questions that challenge existing frameworks. However, not all innovations are disruptive from a legal perspective, and only a high adoption rate of new technologies will create legal disruptions.

Three generations of disruptions

To address the question of how innovative jurisdictions respond to disruptions, three case studies were selected. These cases come from different Internet eras, and each case explores specific legal issues:

• E-commerce (contract formation and consumer rights) - Ebay has been in the business of e-commerce since 1995.
• Social media advertising (influencer marketing and creative gig work): developing and creating media content online started with the launch of Youtube in 2005, and the on-demand/gig economy started to take off with AirBnB and Uber between 2008-2011.
• Blockchain (contractual validity of smart contracts): while it emerged as a cryptographic solution in 2008, blockchain-based smart contracts have only gained traction after the creation of Ethereum in 2015.

Valuable insights from the mapping exercise: models of private law regulation and legal culture

The paper takes a doctrinal, comparative, questionnaire-based approach to investigate the three case studies. Perhaps unsurprisingly, Swiss and Californian law have similar regulatory patterns. Both jurisdictions are known for reduced regulatory intervention, in order not to stifle innovation. The predominant feature of both legal systems is the reluctance with which new regulation is adopted in the field of technology. In e-commerce, this may put consumers at greater risk (eg, no withdrawal rights) than in other legal spaces which are more protective towards individuals, and thus more invasive from a regulatory perspective. However, the adoption of certification standards for the cryptographic components of digital signatures regulated for contract formation in both jurisdictions can be a great inspiration for similar technologies of newer generation (eg, blockchain). Mandates are not used for the specific cases, but could be a way in which private actors get involved in the certification process (eg, delegating the cryptographic certification process to a trade union, etc).

Finally, legal culture as understood from a private law perspective plays an important role in the regulation of technology, though this theme is under-represented in academic literature. In particular, private law culture on the continent mirrors the rich history of codification dating from the 19^th century and upon which most legal systems in the European Union still base their private law frameworks. It may be that both California and Switzerland are weary of regulating new technologies like blockchain and granting them regulatory subsidies. However, it can be equally argued that technology-related private law-making confronts cultural identities that create path-dependencies aimed to preserve tradition. In other words, technology regulation might be limited to interventions that do not endanger the infrastructure of codification, held as a defining feature of modern private law. In the absence of further evidence, it is difficult to tell which argument is more likely to be true. The perspective of technology regulation and private law culture is however fertile ground for much future research.

Catalina Goanta is Assistant Professor in Private Law at Maastricht University