Design Thinking: The Answer to the Impasse Between Innovation and Regulation
San Francisco is the home of the platform economy.1 Uber and Airbnb—the poster children of that economy—launched their initial products in the city and used the feedback garnered from Bay Area users to perfect their business models.2 These and other platform companies also started to build their loyal user bases with Bay Area consumers.3 But, if San Francisco nurtured Uber and Airbnb,4 New York helped them grow.5 Based on news stories of what was happening in San Francisco and New York, the tech community and others nationwide began to catch wind of the disruption that was heading their way.6
This disruption would not just involve new products and services affecting existing businesses. It would also serve as notice of the regulatory challenges that followed the entry of Uber and Airbnb into each new market. Government officials in California and the state of New York made national headlines as they struggled to apply existing consumer protections and licensing fees to these innovative services.7 In many ways, the states of California and New York and the cities of San Francisco and New York became crucibles for the development of regulatory policies to govern companies such as Uber and Airbnb. These solutions were often used as templates in other jurisdictions.8 Nevertheless, it has been anything but a smooth process for government officials, entrepreneurs, or consumers. Headlines about the ongoing battles fill news feeds even now, almost 10 years after Uber and Airbnb were founded.9
This article begins by examining how the different characteristics and cultures of Silicon Valley and City Hall set the scene for the confrontations to come. With that context in mind, we dive into the specifics of the battles between Uber and Airbnb on one side and California and New York regulators on the other. Those specifics help to illuminate why and how the current regulatory system is ill equipped to achieve its goals—consumer safety, competitive fairness, and nondiscrimination, among others10—while also supporting innovation and technological change.
These regulatory struggles have harmed everyone involved. Consumers have not been fully protected as they try out platform company services; regulators and policymakers have spent untold hours and government funds attempting to enforce existing regulations; and Uber and Airbnb have paid huge fees, penalties, and litigation costs as their battles have moved to the courts.11 Moreover, society in general is harmed as important policy and economic goals are often lost on the battleground of innovation versus regulation.12
These issues are not new. Regulatory history is replete with examples of innovative businesses in high demand by consumers—think railroads, telephone, and airlines13—that regulators took “command” of to ensure consumer safety and prevent price gouging and other unfair business practices. After decades of use, many of these regulations failed to function effectively as business and society changed. In response, all these industries were ultimately deregulated, creating another set of problems. Is there no other path for innovative, high-growth businesses other than strictly regulated or unregulated? In this article, we posit that there is.
In Part I, we discuss how regulators and platform companies arrived at this point of tension. In Part II, we detail how regulators’ attempts to control Uber and Airbnb resulted in harm to both sides. In Part III, we suggest a better way to regulate innovative companies.
We know that new disruptive technologies are just around the corner whether they are autonomous vehicles, smart contracts on blockchain platforms, ambient artificial intelligence systems in our homes and cars, or something yet to be envisioned. How do we prepare to regulate technology we do not really understand yet? We argue that this can be achieved by creating a collaborative, flexible, nimble process of regulation that involves all industry and regulatory stakeholders. In current models of regulation, this is not possible,14 but in Part III, we explore whether there is a way to create a different regulatory process by utilizing principles of design thinking, a method that has proven its worth in product design, system design, and infrastructure design, and is now making its way into the processes of government.15 We provide an understanding of design thinking in general and then detail the steps involved to create a new regulatory process using design thinking.16 By putting such a regulatory process in place, consumers and innovative businesses will know that both society’s best interests and innovation will be supported regardless of when the next disruption appears.
I. HOW THE BATTLE LINES WERE DRAWN17
The rulemaking procedures for the federal government and the state of California have been in place since the mid-1940s.18 They were designed to work well with a business models that are different from those used by many platform companies today. For that reason, there is inherent tension between existing rules and the models used by platform companies to offer services in new ways.
A. The Culture of Regulation
Regulations have not always kept up in times of rapid change.19 This inability to adapt quickly can be traced to the increasing complexity of regulation and the changing perspectives and theories concerning the goals of regulation that drove that complexity throughout its history.20
The history of regulation in the United States is most often traced back to the rules promulgated in the second half of the nineteenth century by the federal government.21 At that time, public officials recognized that the government had to protect merchants and farmers from the exorbitant rates they were charged by railroad companies to ship goods across the country.22 Eventually, Congress passed the Interstate Commerce Act of 1887,23 which created the first independent regulatory agency with the power to investigate corporate activities.24
More laws and regulations followed in the next several decades as the federal government exerted its power to control more industries.25 Additional agencies and regulations followed throughout the first two-thirds of the twentieth century. These included new consumer protection regulations in the 1900s and 1910s,26 as well as New Deal regulations in the 1930s.27 Environmental protections, civil rights, and reduction of poverty policies all grew during the 1960s.28 At the same time, state governments were also issuing rules in areas not covered by federal regulation.29 Following these decades of rulemaking, the 1980s and 1990s saw a wave of deregulation.30 After the financial crisis of 2008, however, there have been calls for a return to more regulation.31
Command-and-Control regulations are mandatory rules formulated by government officials and imposed on a targeted industry.32 These sorts of rules were seen as necessary because of the impact externalities had on the efficiency of unfettered free markets.33 However, this authoritarian, top-down method came under criticism in the 1970’s34—a period during which the number and specificity of regulations exploded.35 Theorists began to recognize that regulations did not always accomplish their goal of controlling externalities,36 in part because of what would come to be known as the theory of regulatory capture.
The term regulatory capture was the label given to the concepts first described by George Stigler in the early 1970s.37 Stigler posited that “every industry or occupation that has enough political power to utilize the state will seek to control entry” and that “regulatory policy will often be so fashioned as to retard the rate of growth of new firms.”38 In other words, the status quo is protected by the regulations themselves, as it is difficult and often expensive for new companies to comply with complicated rules.39
These theories of “government failure” led to a call for widespread deregulation.40 These reforms, however, did not often change state and local regulation, which is still regularly criticized for being subject to regulatory capture.41
In addition to the lack of incentives for change created by regulatory capture at the state and local level,42 other forces make new regulations difficult to implement. First, the rulemaking process is lengthy and cumbersome, and the process of revision even more so.43 Second, although an agency may begin a rulemaking process on its own initiative, in practice, the regulatory process is primarily reactive. Regulators tend to wait for a statutory mandate, a suggestion from other government official or agency, or a petition from an outside person before initiating the process to change an existing rule or write a new one.44
The result is that, even now, in the digital age, the state and local rulemaking process is slow and deliberative, waiting for changes in the marketplace to create demand for regulatory changes.45 For example, San Francisco had a law on the books from the 1980s that banned all short-term rentals.46 Airbnb hosts provided short-term rentals in the city for six years before the city changed that law. One member of the Board of Supervisors said that he had been trying for two years to write new rules to govern these rentals before changes were finally made in 2014.47 Similarly, taxi companies are regulated across the country by the cities in which they operate.48 The result was an industry that had not kept up with consumer demand or technological change and thus was ripe for disruption.49 Additionally, the mechanisms available to regulators to enforce the rules were limited to punitive tools designed to control industry participants with traditional business plans.50
Consequently, the industries that the platform-economy companies set out to disrupt in the first decade of the twentieth century were subject to a regulatory process that was slow, deliberative, and reactive. While existing regulations provided a way for the public to participate, these regulations were difficult to access or understand substantively and procedurally, and were focused on past ways of doing business.51 There was no incentive for regulators to stay on top of changes in the industry they regulated, nor to make amendments to existing rules. In this way, the regulators of the hotel and taxi industries operated in a bureaucratic culture in which change was not welcomed and happened slowly, if at all.
B. The Culture of Platform Companies
Silicon Valley culture, to which entrepreneurs all over the world pay attention, is based on a few long-standing principles. One is the belief that a successful startup should be built the “lean startup” way.52 Proponents of this method favor experimentation instead of elaborate planning, customer input over intuition, and designing in the open instead of in “stealth mode.”53 The second principle is building products or services using “agile development”: a model that incorporates feedback from users to quickly redesign and relaunch their innovation.54 As a result, entrepreneurs are used to being nimble, quickly addressing consumers’ issues that arise with a particular version of their product, or “pivoting” to a new product when feedback indicates that the appeal of their current minimum viable product is limited.
Following the lean-startup method and the agile-development process, entrepreneurs have embraced a culture of disruption, often based on the philosophy of “ask forgiveness, not permission.”55 Although this principle was not designed to foster rule breaking, entrepreneurs have applied this attitude toward existing rules and laws.56
C. The Clash of Two Very Different Cultures
New technologies allow innovators to engage with prospective users early in the creative process to receive feedback while the product or service is still in development. Therefore, entrepreneurs are used to welcoming change; new feedback continually informs their understanding of user needs and preferences.57 State and federal regulatory processes, however, tend to be slow and deliberative, involving years of preliminary fact finding activities, rulemaking notices, public hearings, proposed rules, and comment periods before new rules are able to be promulgated.58
Conceptually, the ways in which platform companies’ attitudes of disruption clash with traditional regulatory systems can be separated into three categories: (1) Nimble Methods versus Slow Deliberative Methods, (2) New Business Models versus Old Rules, and (3) Many Resources versus Few Resources. Following this roadmap, Part II of this article will demonstrate how the clash of culture played out in the regulatory battles of the two largest platform companies: Uber and Airbnb.
1. Nimble Methods Versus Slow Deliberative Methods
Entrepreneurs in the platform economy often base their businesses on the agile development process.59 Their reliance on nimble processes makes it difficult for innovators to understand and respect the drawn-out process of regulation.60 This lack of respect can make entrepreneurs disinclined to follow the existing rules.61 Ironically, however, it is specifically what entrepreneurs disrespect about regulation, the existence of regulatory capture and the slow deliberative methods of regulators, that fosters the consumer demand or “pain points” that an innovative company needs to succeed.62
2. New Business Models versus Old Rules
While previously it has been possible to find a shared ride or a vacation home to rent on community bulletin boards or local newsletters, platform companies have greatly expanded the number of these transactions and monetized them by taking a fee when a transaction results between users and providers on their platform.63 New technologies allow the founders of platform companies to connect directly the users of services to those who can provide them. As a result, platform companies do not own assets fundamental to the services they provide.64
Existing regulations for taxi companies and hotels were written predominantly when taxi companies and hotels owned the cars and rooms, respectively, that they provided. The regulations therefore include rules about the condition, hygiene, and use of those assets.65 Because platform companies do not own these fundamental assets, founders of these companies argue that the regulations written for incumbent companies do not apply to them.66 This argument enables platform companies to continue to operate after regulators attempt to ban their operations. Being able to argue that regulations do not apply to them is critical to the survival of these innovative companies.67
Platform companies grow quickly in part because, if they have successfully solved a major “pain point” for consumers, many people want to use their services. The large user base that results from this demand provides these companies with leverage over regulators in three powerful ways. First, users can be easily mobilized to create a groundswell of public opposition if regulators threaten to restrict the availability of their services.68 Second, millions of users indicate that the business has traction, which attracts additional investments from venture capitalists. With these additional funds, platform companies can lobby the government, afford expensive litigation, and finance campaigns to influence public opinion.69 Third, platform technology enables companies to amass large amounts of data. This data could be extremely useful to city and state officials as they plan for the future and assess the impact of the platform companies on their jurisdictions.70 Ownership of this data provides companies with a valuable bargaining chip when negotiating with local officials.
Traditional regulations can be difficult to apply to the new business models of the platform economy companies for yet another reason. Most rules are written for commercial enterprises and are based on two assumptions about the targeted businesses: first, they will possess a certain level of knowledge and sophistication about regulations and the regulatory process; and second, they will have the resources necessary to comply with complex regulations. The business model of the platform companies, however, permits individuals to earn income from activities previously available only to employees.71 One of the founders of Airbnb, Brian Chesky, acknowledged this point: “There were laws created for businesses, and there were laws for people. What the sharing economy did was create a third category: people as businesses.”72 The sorts of rules that are appropriate for business entities may not be appropriate for people who are providing the service as individuals using their personally-owned assets. These individuals often don’t have much knowledge of the rules that apply to them now that they are, according to regulators, a commercial operation.73
In sum, the new business models of platform companies cause struggles with regulators in three ways: first, they are able to argue plausibly that traditional regulations do not apply and thus continue to operate in the face of bans and prohibitive fees; second, they are able to quickly amass large consumer bases that supply additional pressure on regulators; and third, the actual provider of the commercial service, the owner of the asset used to supply the service is often an unsophisticated micro-entrepreneur. Thus it is not a simple matter for regulators to know the best ways to write rules that govern these innovative companies. For all these reasons, in a traditional regulatory system, successful platform companies have become “too big to regulate.”74
3. Access to Resources versus Limited Resources
Some platform-economy companies have the benefit of receiving substantial funding from private investors.75 With this level of funding, platform companies can engage in costly battles with regulators by utilizing lobbyists to influence state and municipal officials, and by employing lawyers to defend against court actions.76
The regulators who challenge these companies often have limited resources. In recent battles, most of these regulators have been state and municipal—rather than federal—authorities.77 As compared to federal regulators, these local officials do not have the staff or resources to create or oversee the extensive regulations that would be needed to effectively control the platform-economy companies.78 Moreover, sometimes the platform-economy companies control the data needed to enforce regulations and decline to share this data with regulators.79
For all of the reasons discussed above, attempts to regulate platform companies have not gone smoothly. Much of the tension between the entrepreneurs and the regulators stems from the platform companies’ innovative business models that are not obviously within the scope of traditional regulations. Some of the tension also stems from a clash of cultures: the iterative, fast-paced world of disruption does not mesh easily with the deliberative, slow-moving process of traditional rulemaking. In Part II, we will describe real-life examples of this tension as we delve into the details of the struggles of California and New York authorities to regulate Uber and Airbnb.
II. REACTIVE REGULATORS AND UNCOOPERATIVE COMPANIES
In the first two decades of the twenty-first century, technological innovation has allowed many nascent companies to provide traditional services like transportation and lodging to customers in new ways.80 As established in Part I, there are inherent cultural and contextual reasons for regulators and platform companies to clash.81 A command-type regulatory system has few, if any, mechanisms to resolve or ameliorate the tensions.82 A regulator’s toolkit primarily provides punitive options, such as fines and cease-and-desist orders, to enforce regulations.83
The struggle between platform companies and regulators often begins with a standard reactive response from the regulators after the company has already begun operating in the city. This pattern is borne out in the Uber and the Airbnb sagas in both San Francisco and New York. In neither city did regulators reach out with an offer of collaboration or an attempt to call a company in for discussions. Instead regulators drew a line in the sand by issuing cease-and-desist letters or enacting restrictive laws.84 Uber and Airbnb, both bolstered by the huge consumer demand for their innovative services,85 fought back.86 As the following sections will demonstrate, the resulting disputes created escalating costs and negative publicity for both sides.87 The battle began, however, with harsh and punitive responses from regulators that forced the young companies to adopt equally combative measures to keep the regulators at bay.
Part I described causes of tensions between regulators and platform companies: nimble methods versus methodical methods; new business models versus old rules and tools; and many resources versus few resources. These three causes of tension are demonstrated in many of the interactions between Uber and regulators in various localities. Uber was at first conciliatory towards regulators, offering to educate regulators about why its business model fell outside the categories of existing rules. As regulators continued to issue punitive rules and penalties, however, Uber became more confrontational and the fight escalated. While Uber eventually prevailed against regulators in most cities around the world, the position it ultimately embraced as a result—that it is not bound by existing rules— became, to the company’s eventual detriment, a company mantra in all aspects of its operations and culture.88
1. Early Interactions with Regulators
Uber was first available to the public to book rides in San Francisco in July 2010 as UberCab.89 Despite its name, the company only provided a way to book an on-demand ride in a luxury vehicle with a licensed driver, thereby taking much of the hassle out of having to book and pay for a private ride.90 Within three months, the California Public Utilities Commission (CPUC) and the San Francisco Metropolitan Transit Authority (SFMTA) issued Uber a cease-and-desist order for operating a taxi company without a license.91 In response, Uber promptly dropped “Cab” from its name and continued to operate its black car service.92 The regulators meanwhile continued to insist that Uber needed to register with the state, but Uber, which had just raised a round of funding for $1.25 million,93 had the resources to hire lawyers. These lawyers ultimately convinced the CPUC that Uber was not a taxi or limousine service, but rather a referral service connecting those who wanted a ride to those who could provide that ride—just as Expedia or Orbitz were referral services that connected travelers to airlines.94 Uber also posted a conciliatory statement on its website from then-CEO Ryan Graves.95 By late 2010, the regulators agreed and issued a ruling allowing Uber to operate without registering with the state.96
Uber, for the moment at peace with California regulators, took its black car service to New York in May of 2011.97 Because that business model (a limousine company using already licensed drivers) fit neatly within its existing rules, the Taxi and Limousine Commission (TLC) initially gave Uber permission to operate.98 When Uber pivoted and began competing with the city’s taxi space in 2012, however, interactions with regulators became more heated. Even though UberTaxi was designed to use already licensed taxi drivers, Uber itself did not own medallions and wasn’t a licensed taxi company. The TLC, using the tools available to it,99 issued rules that created heavy fines and a possible loss of commercial licenses for drivers that accepted rides through the Uber app.100 Uber quietly withdrew its taxi service, but within a few months the TLC decided to allow a pilot program in Manhattan. Around this time, Uber closed a Series B round for $37 million.101 Although there are no public records available to indicate exactly how Uber used its financial resources,102 it is quite possible that Uber utilized lobbyists to try to convince TLC commissioners to change their minds.103 In any event, TLC commissioners were soon stating publicly that e-hailing apps were inevitable.104 In late April 2013, UberTaxi was granted permission to operate in New York City.105 By early 2017, Uber had become a major player in the city.106 However, until quite recently, Uber was banned in all other parts of New York state.107 Existing taxi companies lobbied their state legislators hard to keep Uber out of their markets.108 Demonstrating the impact of regulatory capture, those regulators refused to change existing rules despite growing consumer demand for ridesharing services.109
2. Uber Hardens its Positions as Regulatory Battles Continue
By mid-2013, Uber was operating in San Francisco, Seattle, Los Angeles, Boston, Chicago, Washington, DC, New York City, and expanding internationally.110 In each locale, Uber confronted regulatory challenges, including large fines and outright bans.111 Perhaps as a result of all these challenges, Uber’s public stance changed from the conciliatory language of Ryan Graves’ blog post112 to the position that successful, innovative companies had to be “warriors” and keep on fighting.113 Uber was also quite willing to state its disrespect for government officials in public.114 In 2012, at TechCrunch Disrupt, Travis Kalanick criticized lawmakers, alleging that they used three dubious strategies to challenge Uber: (1) they took steps to protect the industry they regulated; (2) they labelled something illegal if it didn’t fit neatly within their pre-existing categories; and (3) they didn’t do anything until they had the chance to assess the “optics” of the situation.115 In 2013, Kalanick said to a luncheon for Members of Congress that the anti-competitive measures aimed at Uber by local regulators were the result of regulatory capture by the taxi industry.116 By 2014, Kalanick was blunt about the way he viewed regulators: “We’re in a political campaign, and the candidate is Uber and the opponent is  named Taxi. . . . Nobody likes him, he’s not a nice character, but he’s so woven into the political machinery and fabric that a lot of people owe him favors.”117
Despite the public criticisms described above, Uber was quite willing to work behind the scenes to influence regulators.118 In addition, Uber learned the power of its large user base.119 Uber demonstrated in Washington, D.C. how easily it could mobilize the many consumers of its services to provide direct pressure on their representatives in state and local government.120 As a result of the many resources available to it,121 Uber has been able to adopt a strategy of being one thing for one audience (highly-paid lobbyists for politicians) and a different entity altogether for a second audience (a social movement against backward-thinking regulators for its users).
This willingness to fight would continue even when conditions changed. While Uber had been fighting to launch its black-car service in cities around the world, three companies in San Francisco had begun offering peer-to-peer ridesharing in which noncommercial drivers use their privately-owned cars to offer rides on-demand.122 Despite its previous interactions with Uber and its eventual accommodation of the black car service, the CPUC returned to the same punitive enforcement mechanism it always used: it issued cease-and-desist letters to Lyft, Sideshow, and Tickengo.123 The companies, however, continued to operate.124 The CPUC responded by issuing citations for $20,000 fees to Lyft and Sidecar.125 The companies protested publicly, arguing that the charter-carrier regulations that the CPUC cited were inapplicable to their business models.126 In this now-familiar refrain of (1) launch of innovative service; (2) cease-and-desist letter issued by regulators; (3) continued operation by innovators; (4) imposition of fees by regulators; and (5) public protest, there was one indication that something had changed: the CPUC indicated that it would work with the companies to determine rules to regulate their services.127
Uber’s initial response to these developments in its hometown was to try to get the ridesharing companies shut down.128 Even though the CPUC indicated that it was interested in speaking with the ridesharing companies to receive their help to write new rules,129 Uber ignored the opportunity to collaborate and launched a lobbying campaign with the CPUC against Lyft and SideCar.130 Meanwhile, it was likely working on a competitive product in case regulators allowed ridesharing companies to operate in California.131
In January 2013, the CPUC issued a consent decree with temporary rules that protected consumers until a more complete analysis of the industry could be undertaken.132 Uber signed the decree as well and began offering ridesharing services.133 California eventually became the first state to write permanent regulations aimed specifically at ridesharing companies.134 These regulations became a template used by many other jurisdictions to craft their own regulations for ridesharing companies.135
3. Uber Broadens its Defiance
Shortly after announcing its own ridesharing services, Uber publicly released its principled approach to the conflicts between ride sharing and regulation in the form of a white paper: Principled Innovation: Addressing the Regulatory Ambiguity Around Ridesharing Apps.136 Despite its claim in the White Paper to only operate where it has at least tacit regulatory approval,137 Uber used its resources—financial and technological—to work around regulatory restrictions.
In some cities—like Austin, Texas—Uber used a different strategy to defy regulators: it had sufficient resources to ignore the potential revenues from the city and so opted to leave when the city continued to require background checks for all drivers.138 In Portland, Oregon, Uber adopted yet another strategy, demonstrating not only its ongoing disrespect for regulation, but also the resources—this time not financial, but technical—it had at its disposal. The company’s engineers developed a new technology named Greyball that recognized when an enforcement officer used Uber’s app to hail a car.139 Once such an officer is identified as requesting a ride, the Greyball software immediately cancels the ride. The result was that agents had a difficult time collecting evidence that the company was operating illegally. Allegedly, Uber used Greyball around the world to defy regulatory bans.140 The U.S. Department of Justice has launched an investigation into the company’s use of Greyball to determine if it constituted obstruction of justice.141
There are other instances of Uber leveraging its technological acumen to skirt what is legally acceptable. For instance, in another program (codenamed Hell) the company developed software that could track its drivers to identify those Uber drivers who also drove for other ride-sharing competitors, specifically Lyft.142 The software then targeted those drivers and prioritized placing customers in their cars to keep them from switching to a different app.143 Once Uber’s Hell program was revealed, drivers filed a class action lawsuit against the company for violating driver privacy and sought damages for anti-competitive behavior.144
Additional deceptive practices have also been alleged. A lawsuit has been filed against the company alleging breach of contract, unjust enrichment, fraud, and unfair competition on the grounds that Uber uses software that shows riders fares based on one route but directs drivers to take a shorter, more efficient route.145 Riders are charged for the longer route while drivers are paid for the shorter route, with Uber pocketing the difference.146 More recently, Uber has been accused of renting cars it knew were defective to its drivers in Singapore.147
Despite all the regulatory disputes and lawsuits, Uber continued to act as if regulations did not apply to them. In late 2016, Uber, still headquartered in San Francisco, announced that, although its initial testing of its driverless cars had taken place in Pittsburgh, where it will continue to run, it was now bringing them to San Francisco, and they would be publicly available.148 The California Department of Motor Vehicles issued rules for testing autonomous vehicles in May of 2014 and required all manufacturers of driverless cars to register them and receive a permit before testing them on California streets.149 Twenty companies complied with these regulations, including Waymo, Tesla, and General Motor’s Cruise subsidiary.150 Uber, however, adopted a familiar stance by beginning to test-drive its autonomous vehicles in San Francisco without first registering with the DMV.151 The DMV immediately stated that Uber was operating illegally for failure to register the cars on its site and issued a cease-and-desist order.152 The DMV subsequently pulled the registration on all of Uber’s self-driving cars (which were registered as traditional vehicles) and demanded that the company go through the necessary steps to receive a permit.153 Rather than comply, Uber echoed its reaction in Austin and moved its autonomous vehicle operations to Phoenix.154 Within three months, however, Uber returned to San Francisco.155 With very little fanfare, it complied with the DMV’s licensing regime and began once again to test its vehicles on the city’s streets.156
The attitude of disruption of anything and everything in its path began to catch up to Uber and Travis Kalanick in 2017. In the first three-quarters of the year, Uber has dealt with six major lawsuits involving sexual harassment, privacy violations, driver classification, intellectual property, deceptive practices and fights between Board members.157 Travis Kalanick resigned as CEO158 and the Board voted to remove his super-voting rights, although he will retain a seat on the Board.159
Over the course of its short life, Uber became the poster child of disruption. The company is known for not only disrupting the taxi industry, but also for disrupting regulatory systems.160 The conciliatory language of the 2010 blog post, describing a desire to work with regulators, was lost in the need to fight outright bans, punitive fees, and expensive lawsuits. As Uber pushed into new cities and continued its regulatory battles, investors and the public initially responded with support and encouragement.161 Unfortunately, Uber applied that same aggressive defiance to every aspect of its business, and negative consequences continue to arise.162 It is unlikely that one single factor caused Uber’s corrosive culture. Nevertheless, it is interesting to ponder whether Uber might have adopted a company mantra other than defiance, if regulators had reached out with more collaborative tools at the time the company was still looking to educate and work with rulemakers.163
Like Uber, Airbnb helped shape the platform economy in San Francisco. Unlike Uber, it had no immediate confrontations with California regulators. In fact, Airbnb operated for six years,164 simply ignoring California’s 1981 law that banned all short-term rentals.165 When the Board of Supervisors, San Francisco’s legislative body, finally addressed the need to regulate home-sharing platforms like Airbnb, the Board had already recognized Airbnb’s benefit.166 The new law limited the number of days a property could be “shared,” and it required all hosts to register with the city, but the city had a hard time enforcing these requirements.167
Although the General Counsel of Airbnb has asserted that the company had a desire to be authentic and transparent with customers and government officials,168 a series of harsh actions from state legislators changed its approach.169 New York state regulators did not see Airbnb in the same light in which it saw itself.170 In part, this unfriendly response was due to Mayor Michael Bloomberg’s long-time plan to go after avaricious landlords, but complaints about one of Airbnb’s New York hosts helped to produce the 2010 law that contained a statewide prohibition of short-term rentals.171 The law made it illegal to rent out a residence for less than 30 days unless the permanent resident was also present.172
At this time, Airbnb was still attempting to cooperate with government officials and offered to work with New York to pass a law that would impose an occupancy tax on its New York hosts.173 Nevertheless, the state’s harsh punitive reactions continued when the New York Attorney General issued a subpoena for the names, addresses, and contact information for all hosts in the state.174
In response, Airbnb dropped its cooperative attitude.175 About to close a Series C funding round for $200 million,176 Airbnb used its resources to take New York to court.177 Airbnb’s lawyers argued that the subpoena was too broad and violated its user’s privacy.178 The judge in the case ruled in Airbnb’s favor.179 The New York Attorney General issued a new subpoena that met the judge’s concerns and eventually, with no other choice, Airbnb agreed to turn over anonymized data.180 Despite receiving the data it requested, the state of New York continued to refuse to come to an agreement with the company to legitimize short-term rentals.181 As a result of these prohibitions and demands in New York and other jurisdictions,182 Airbnb quickly learned how to go to war with regulators and other government officials hostile to its business model.183
This new attitude towards outside threats to its business was also put to the test in Airbnb’s hometown. In San Francisco, a coalition of housing activists, landlords, neighborhood groups, and hotel workers’ unions were unhappy about the leniency and unenforceability of the 2014 short-term rental law in the city.184 They joined together to get sufficient signatures to place a proposition on the November 15, 2015 ballot.185 Proposition F, if approved by the city’s voters, would severely limit the number of days permitted for short-term rentals, require hosts and platforms to supply data on usage every quarter, and give standing to neighbors and activists to sue for violations of the rules.186
Having learned in New York and elsewhere that appeasement did not always work, Airbnb went to war. In June, Airbnb raised another round of funding, this time for $1.5 billion,187 and quickly invested $8 million to defeat the measure.188 It also demonstrated the power of its user base, mobilizing those who used its platform, whether as host or guest, to go door-to-door to convince voters that Prop. F was not the right way forward. On November 3, 2015, Prop. F was defeated.189
The city of San Francisco, however, had realized from this battle that a significant number of constituents were not satisfied with its apparent leniency with Airbnb and other home-sharing platforms. And, despite its victory, Airbnb’s image in the Bay Area had been tarnished by some of its ads during the campaign.190 The Board of Supervisors soon began to debate how to pass and enforce a new, more restrictive regime for short-term rentals. In June of 2016, the new bill was passed, continuing to require all hosts to register with the city, but switching the burden of enforcement to Airbnb.191 If hosts listing properties in San Francisco had not registered with the city, Airbnb was subject to large fines (up to $1,000 per day) and criminal penalties.192
Just as in New York, the company did not want to turn over data about its hosts or assume corporate liabilities for their actions.193 Shortly after the law’s passage, Airbnb filed a suit seeking an injunction to prevent the city from enforcing the law, arguing that the new ordinance violated the company’s rights under the Communications Decency Act (CDA) and the First Amendment.194 In response to Airbnb’s complaint, the Board of Supervisors passed Ordinance 178-16 which amended the law to “abandon any requirements or restrictions on the publication of a rental listing” and “ma[de] it a misdemeanor to collect a fee for providing booking services for the rental of an unregistered unit.”195 Nevertheless, Airbnb maintained its argument that the regulations violated their rights and added the argument that the regulations unlawfully imposed criminal strict liability.196 Airbnb used provisions of the CDA to argue that the company was not responsible—and could not be held accountable—for what properties people decided to list on its platform.197
As Airbnb was waiting for the ruling in the San Francisco, Governor Cuomo of New York signed a new law imposing harsh fines on short-term rental hosts that violate its provisions.198 New York had already banned rentals of fewer than 30 days in a multi-unit building, but the new law made listing an advertisement for such a prohibited rental also illegal, perhaps subjecting Airbnb itself to the fines of up to $7,500 per violation.199 Within hours, Airbnb filed a lawsuit alleging that the new law violated its constitutional rights on much the same grounds it used in its lawsuit against the city of San Francisco.200
In November of 2016, the judge in the San Francisco case ruled that it was unlikely that Airbnb would prevail on the merits of its claims.201 Carefully distinguishing prior cases under the Communications Decency Act, the court found that the San Francisco law was not imposing liability on Airbnb for its role as a content publisher, but for its conduct in taking a fee for the booking of an unregistered listing.202 The court also found that Airbnb had not met the standards for First Amendment scrutiny or those for contesting the imposition of criminal liability.203
Airbnb quickly recognized that it had its back against a wall. In the week following the judge’s ruling, Chris Lehane, Airbnb’s Global Head of Policy, wrote an op-ed in the San Francisco Chronicle stating that the company was ready to cooperate with city officials to create a simplified registration system that would share information about hosts’ listings and rentals with the city.204 By the beginning of December, the company had also settled with the state of New York.205
Airbnb has spent money, time and effort battling regulators and their harsh penalties for six years. Nevertheless, the company recognized that an attitude of defiance was no longer serving its interests.206 The bad publicity and aura of regulatory uncertainty from its continued battles with lawmakers was affecting the company’s valuation at either future funding rounds or an IPO.207 Perhaps if the regulators in New York and San Francisco had a more collaborative process for working with Airbnb when it first began to operate, everyone would have been better off.
In this section, we demonstrated that traditional regulatory processes cause escalating tension between innovative companies and rule makers. In pursuit of their goals of consumer safety and economic growth, regulators are most likely to use antiquated enforcement mechanisms as the basis for their initial interactions with new entrants to the industry.208 In response, companies like Uber and Airbnb use their financial resources, large customer base, and continually evolving technology to avoid complying with rules they did not believe applied to them. Ultimately, both sides compromised to some extent, but there was a great deal of time, money, and effort expended by every participant to get to that result. In Part III, we suggest a change in regulatory procedures so that similar losses do not occur when the next innovative business appears.
III. AN ALTERNATIVE METHOD FOR ALTERNATIVE RULEMAKING
In the spirit of innovation, this paper posits a different method for rulemaking that may yield more positive results for regulators as well as innovators. The process we suggest is adapted from research and design labs around the world, and is called design thinking. Design thinking offers a modern organization or bureaucracy a means to cultivate creativity and innovation.209 It has been said that the success rate for innovation dramatically improves when design principles are used to achieve it.210
A. What is Design Thinking?
Design thinking is a solution-focused method that begins by identifying a goal instead of a problem. In this way, the process encourages an action-oriented approach and uses “logic, imagination, intuition and systemic reasoning . . . to create desired outcomes.”211 Design thinking is also user-centric and thus requires an examination of the needs, experiences, and viewpoints of the user.
The design-thinking process involves successive steps, each of which utilizes input from all stakeholders to forge workable solutions. The best solutions are identified and then tested through experimentation with actual users in real-world situations. The feedback gained from those users is then utilized to redesign the possible solutions, with the resulting versions again sent out for testing. These successive feedback loops are reminiscent of the iterative cycles of agile product development, and help in the same way to quickly generate the information necessary to create the best possible results.212
The specific steps of design thinking are as follows
• Identify the problem to solve
• Identify the stakeholders, who then set their individual goals(divergent thinking)213
• Convene to brainstorm solutions with all stakeholders participating (convergent thinking)214
• Choose and implement best solutions
• Solicit stakeholder feedback
• Revise and retest solutions
• Continue with feedback loops until the most appropriate solution has been reached
• Release the most appropriate solution to a small segment of the public in a beta test
• Iterate process again based on data from beta tests
• Test again and collect feedback
• Continue process when necessary to adapt to new innovations
While design thinking may not be a panacea for every issue that plagues regulatory agencies, its emphasis on innovation and collaboration helps to facilitate open communication with entrepreneurs and the companies they build.
B. Design Thinking in the Private Sector
It is tempting to dismiss this agile and flexible process as relevant only to the sorts of teams that meet in co-working spaces in Silicon Valley. This collaborative method, however, is already making an impact in reimagining systems in various corporate sectors.
For example, Kaiser Permanente hired innovation lab IDEO to help them rethink the processes Kaiser uses to manage patient care. The goal was to diminish medical errors and oversights while improving overall efficiency and return on investment.215 IDEO convinced Kaiser to include all levels of management in the process because successful innovation cannot occur in a vacuum.216 Members of the Kaiser Permanente Innovation Team spent long periods of time observing nurses and going through the design thinking steps.217 Ultimately, IDEO and Kaiser designed a new program called the Nurse Knowledge Exchange.218 This program has lowered costs by 47% and is now operating in every Kaiser Permanente hospital.219
We posit that the same stakeholder-focused, collaborative process that Kaiser Permanente used for this successful innovation could also be implemented by governmental agencies in the regulatory process.220 Regulators currently rely on punitive measures to achieve their goals of consumer safety, environmental health, and positive economic expansion.221 But, as we explained in Part II, technology is developing so rapidly that companies can have programs or business models up and running long before regulators learn of their existence. For example, Uber created and used Greyball—a program that allowed it to evade law enforcement in cities where the platform company was under review—for three years before regulators discovered its existence.222 By utilizing design-thinking principles in the regulatory process, as behemoth private companies like Kaiser have done, rule makers will have an appropriate tool to meet the changing industries they regulate.223
The application of the design-thinking framework to the regulatory process can manifest itself in a number of different ways, but the most important functions must remain consistent:
• The problem the rule is intended to address is identified
• The relevant stakeholders identify their individual goals for new regulation224
• The stakeholders then meet to brainstorm solutions for the identified problem
• The best solutions are chosen, often by a smaller working group, and a regulation is designed that implements these solutions
• The initial regulation is presented to stakeholders, and feedback is solicited
• The stakeholders then revise their agreed-upon solutions and retest them to make sure they address the identified problem
• These feedback loops continue until the most appropriate regulation is produced
• The new regulation is then tested in a smaller segment of the relevant population in what is called a “beta test.”
• Feedback is solicited from the beta-test users
• This beta test will return new information to consider and the stakeholders will revise the regulation
• This process continues until the regulation best addresses problems identified
• Feedback loops remain open so that regulation can be easily amended to account for new problems and new stakeholders
C. Applying Design Thinking to the Regulatory Process
Design thinking involves a nonlinear way of thinking and requires real-world experimentation.225 The team chosen to undertake the process together should be interdisciplinary and all should have the capacity and disposition to think collaboratively.226 Unlike a multidisciplinary team in which each person advocates for his or her own position, an interdisciplinary team focuses on a collective ownership of ideas for which everyone takes responsibility.227 “In its simplest form, design thinking is a process—applicable to all walks of life—of creating new and innovative ideas and solving problems.”228
1. Identify the Stakeholders
The underlying tenet of design thinking is that everyone affected or involved in the use of that which is being designed should participate in the design process. For example, for the creation of regulations for the ride-sharing industry, the following stakeholders could be identified as having an interest in the eventual rule:229
• Ride-sharing companies
• Car-sharing companies
• Rental-car companies
• Taxi companies
• Local regulators
• Public-transit systems
• Airport representatives
• City planners
• Environmental-impact experts
2. Stakeholders Convene and Decide the Goals and Public Value of Specific Regulation
Public value includes not only consumer protection, fair competition, and accessibility for all potential consumers, but also the social good that comes from the availability of the innovative service or product the new entrants to the industry provide.230 With design thinking, all stakeholders work together to identify the public value of a specific area of regulation. For example, taxi companies might identify the public value of regulations in the pay-for-a-ride space as leveling the playing field for all participants in the market. City planners and environmental experts might see the value of the data the companies would be required to share on the number and locations of rides given, which would help them improve their estimates for future plans and impacts. A new entrant to the market might favor regulations because there would be a straightforward, user-friendly process of complying. Alternatively, an entrant might ask for modifications to fit its specific business model. Regulators might favor being an educated, engaged, and respected part of the process of making the industry competitive, safe, and valuable to the public at large.231
3. Stakeholders Brainstorm Possible Solutions
Stakeholders should first separately identify solutions and then bring them to a brainstorming session with everyone together.232 The first half of this, the independent brainstorming, utilizes divergent thinking, while the second half, collaborating with others to create more broadly based solutions, is called convergent thinking.233
4. Stakeholders Identify a Few Best Solutions and Implement Them
This implementation process is essentially a short-term pilot or experiment in which the best regulations are put to use for a set period of time.234 This part of the process could be referred to as a “sandbox” in which ideas can be tried out and quickly eliminated or redesigned. At this point, a smaller working group may be identified if not all stakeholders can devote the time and energy this requires.
5. Solicit Feedback from Users
In the case of a pilot regulation, the regulation would not just be published as a proposed rule, but would be immediately implemented. Feedback would be solicited within a month or two from the companies operating under the regulation, as well as from users and other stakeholders impacted by the experimental regulation. This process is shorter and more informal than the current extended comment period of proposed rules and feedback is based not just on theoretical objections, but on experiences operating under the rules.
6. Stakeholders Revise Solutions and Test Again
Based on user feedback and with input from all stakeholders, the pilot regulation is revised and implemented for another testing period.
7. Solicit Feedback Again
Once again feedback is based on how the rules are working in the real-world.
8. Feedback Loops Continue Until an MVP Is Agreed Upon
The Minimum Viable Product (MVP) is still an early version that will have ongoing feedback loops, but has met the minimum standards of the stakeholders and so is released to the public to be more widely used and tested.
9. New Process Allows Continuous Tweaking
For a regulatory process to be truly nimble and flexible, there will have to be ways for users and stakeholders to engage with regulators on a regular basis and work together to modify rules so that they are in line with changes in technology and the marketplace.
10. These Steps Must Be Repeated for Each Industry
This is not a one-size-fits-all process. The stakeholders, the public value, and the users will vary from one industry to another as will the regulations.
What are the foreseeable problems in bringing design thinking to the regulatory process? Possible trouble areas include:
• Getting startups to the table
• Incentivizing regulators to participate
• Identifying the correct stakeholders
• Prototyping and effectively iterating regulations
• Providing sufficient time for testing without unduly slowing the process
• Designing metrics that adequately summarize the impact the tested regulations are having on various stakeholders like the companies using them, the regulators enforcing them, and the public using the new product or service235
Ideally, applying design thinking to the regulatory process will transform the regulatory system. Under this system, agencies may be less prone to regulatory capture236 because rather than enforcing stagnant rules available for manipulation, they create and adapt living documents, more easily amenable to change.
D. How Implementation of Design Thinking Could Address Harms Caused by Culture Clash
As described in Part II, regulators were often playing catch up to Uber and Airbnb as the innovative business models evolved and the companies’ use of technology pivoted. Regulator’s limited access to resources, along with the inherent nature of traditional bureaucratic processes, curbed their ability to address new challenges brought about by innovation. Yet, despite this, regulators and innovative companies share a common goal: expanding access through transportation and accommodation. Unfortunately, the initial negative interactions pitted the regulators against the platform companies, and muddled any opportunity to recognize these commonalities. Overall, each stakeholder impacted by the emergence of Uber and Airbnb incurred harms that arose during the regulatory battles.
Design thinking has the potential to alleviate these harms. Below, we posit how the design-thinking framework could alter outcomes for all stakeholders:
1. To Citizens
The present regulatory system harms the public by not providing a method by which citizens can be protected while innovative companies test their products with early adopters.237 The iterative steps in a design-thinking-based regulatory process would allow regulators to issue temporary safety rules and assign liability while products and services are in the beta-testing stage. The beta test itself could be limited by restricting the number of users to reduce the extent of potential harms. In this new process, stakeholders would convene regularly throughout the technology’s life cycle to reevaluate it. In addition, regular communication and collaboration may allow regulators to anticipate harms before they arise, and platform companies to address larger crises before they occur.238
2. To Cities
Both Airbnb and Uber have disrupted large incumbent industries and, in doing so, have fundamentally changed the way cities function. For example, public transit systems have been impacted by the significant portion of citizens who now rely on ride sharing companies as their primary method of transportation.239 Similarly, consumers rely on Airbnb as an affordable alternative to costly hotels. As a result, both platform companies have had unforeseen effects on the city’s economy, ecosystem, and environment, such as pressure on the real estate market, increased traffic, diminished air quality,240 and increased signs of wealth inequality.241 In a regulatory process that follows the design thinking method, the inclusion of all stakeholders increases the likelihood that these sorts of potential impacts will be identified early in the process. The collaborative aspects of design thinking methods could also facilitate data sharing between platform companies and regulators without resorting to the costly lawsuits described in Part II.242 In this way, a process that mandates collaboration early on could turn regulations into mechanisms that meet the diverse goals of urban planners, politicians, law enforcement, and platform companies.
3. To Micro-Entrepreneurs243
In 2014, Airbnb CEO Brian Chesky aptly noted that the rise of platform companies created a third category of commercial activity—one that describes people in their individual capacity functioning like businesses.244 Initially, drivers and hosts bore all the costs for the services they provided through Uber and Airbnb; the press is full of stories of guests trashing Airbnb rentals and passengers damaging the backseats of the cars belonging to their Uber drivers.245
The platform companies are able to collect considerable amounts of data on where and when the micro-entrepreneurs on their platforms are providing services.246 This data is valuable to regulators and other government officials as a means of understanding and predicting how to make their localities function better for their citizenry.247 As was made clear in the regulatory battles of Uber and Airbnb described in Part II, the platform companies are reluctant to share this data, claiming that the privacy of their users is at issue.248 As part of the settlements that Airbnb eventually reached with the state of New York and the city of San Francisco, the company agreed to share some of its data with regulators. Uber has agreed to share some aspects of its data, but not all.249
In a design-thinking-based regulatory process, data sharing would no doubt be one of the aspects of the early solutions offered in return for regulations that enabled new innovative businesses to operate, both in beta-testing phases as well as long-term. This kind of early collaboration would avoid the expenses wasted on confrontations that eventually resulted in exactly this sort of data-sharing, and could also address some of the privacy concerns that the micro-entrepreneurs have voiced in these battles.250 With early beta-testing data, both regulators and innovators would be better able to see how consumers, micro-entrepreneurs, and others were at risk from this new business, and could collaborate on how regulation could allocate or protect against those risks.
4. To Platform Companies
In Part II, we examined the costly battles Uber and Airbnb have waged around the world. In mid-2016 Uber was fighting more than 70 lawsuits in U.S. federal court.251 Those costs are likely to continue until Uber is more willing to compromise with regulators.252 In some cities—notably Vancouver and Austin—Uber has been banned for good.253 Airbnb has suffered a ban in the major market of New York and a faced legislative attack in San Francisco.254 Further, after spending countless hours and an exorbitant amount of money fighting required data-sharing with San Francisco regulators, Airbnb not only agreed to share data from its platform but also accepted the potential for criminal liability should it fail to comply with regulation.255 Criminal liability was not mentioned prior to Airbnb’s resistance to San Francisco’s 2015 regulations that required data sharing. Arguably the city would not have created, nor Airbnb accepted, such a severe penalty if collaboration had begun earlier.
The companies in our case study burned through investment dollars and revenue in their regulatory battles,256 were distracted from growing their business in competitive markets,257 and lost investor confidence—an important asset for a pre-IPO company.258 A design-thinking-based regulation process would make these harsh punitive measures (such as cease-and-desist letters, fines, and litigation) a final option instead of an initial contact, and would provide regulators with the most appropriate tools available to meet their goals. In addition, this process would allow platform companies to make functional changes to their products without public relations crises because regulators and innovators would convene regularly as markets and technology changed.
A collaborative and iterative process that enables regulators and innovators to communicate often will slow punitive practices, since both regulators and innovators would have a better understanding of mutual expectations. We should not force innovators to conform to old rules written to apply to different ways of doing business—regulators must also innovate. In return, platform companies must be more collaborative. Innovators must recognize that regulators serve an important purpose, and that the safety of their cities should be their goal as well.259
The Benefits of a Design-Thinking-Based Regulatory Process
The impact of regulatory capture and other barriers to entry created by traditional regulatory processes can be seen in both the taxi and the hotel industries. In the taxi industry, the practice of limiting the number of licensed drivers260 allowed demand to swell far past supply. This permitted taxi companies to get lazy and not innovate with new technology (no reason to create an expensive online demand system) or upgrade the rider experience (cars were dirty, drivers were rude, minority riders were routinely not picked up).261 This happened in cities around the country and created a pain point that the ride-sharing companies exploited to rapidly build a large user base. That large base was then used as leverage when state and local governments attempted to regulate the companies.262
Similarly, the hotel industry complied with regulations to protect guests and employed union workers on their properties. This resulted in expensive rates that were acceptable in the world of business travelers, but ignored the desires and financial realities of those who wanted to travel for fun and adventure, who desired uniqueness in accommodations and could not or did not want to pay for the same room in the same hotel room everywhere they went. The hotel industry’s blindness to this type of user permitted the home-sharing companies to explode on the scene, offering a unique experience at any price.263
Thus, the failure of various industries to accommodate users limits growth and innovation. Stagnant regulations then artificially protect companies from outside pressures that would otherwise force them to reinvent their business models as technology and populations change. Nevertheless, the importance of regulations cannot be denied. Without such protections, consumer harm is more likely. This is not just an abstract concept—harm occurs often when regulations don’t exist or are not sufficiently stringent. For example, lax regulations were largely blamed for the Grenfel Tower fire in London, where flammable materials were used as exterior siding, resulting in more than 70 deaths in a fire that quickly exploded out of control.264 In the ride-sharing space, the lack of adequate insurance was ignored until a little girl was run over by an Uber driver.265As a result of that accident, the California Department of Insurance worked with private insurance companies to develop a product that would cover a driver engaged in commercial activities. Airbnb had a similar issue when a guest trashed a host’s property before leaving and now guarantees hosts $1,000,000 in insurance to protect against such damage. These sorts of insurance policies might well have been developed within a design-thinking collaborative process with all stakeholders contributing their expertise to foresee possible problems.
These examples point out another issue with respect to the current regulatory regime. It is a reactive system in which regulators generally wait for a problem to arise before getting involved. The reactive deliberative process of traditional regulation may have been appropriate when product and service development cycles were slower and user uptake gradual. In such a system, regulators could be informed of problems before users were harmed. With fast-paced, innovative companies, regulators need to be educated and informed about what is taking place in the industries they regulate so that issues can be spotted in advance and dealt with in a timely and thorough manner. In order for that to happen, the regulatory process must be nimble, flexible and user-focused. In the past, that has not been the approach and it has led to much money, time and effort being wasted by both regulators and entrepreneurs. However, with the future of driverless cars arriving quickly some regulators have adopted new procedures and proactively issued rules or at least principles to guide these cars as they are developed.266 Of course, more must be done to ensure that driverless cars and their passengers are safe on our roads, but there is hope for thinking that traditional patterns of regulation may be open to change when guidelines have been issued by the federal government as well as state government years before the products are ready to be launched publicly.
A new regulatory process using design thinking to create new rules for an industry that is about to be disrupted would have many advantages. Any jurisdiction utilizing such an approach would have an advantage recruiting new companies to the area because founders would know that regulators want to find a way to support their businesses and that the municipality or region is itself innovative and thus likely to be good place to launch new ideas.267 Regulators would be happy with the process because they would not have to wait for a consumer harm or public outcry shaming their lack of effective response before being able to investigate the issue.268 Moreover, a pilot regulation designed by all stakeholders is likely to include more data and information so that a regulator would have ways to measure the impact of the rules. In this way, regulation would become performance-based and data-driven. Overall, the economy of the area would be more efficient, with less time and money spent on confrontation, with a level playing field for old and new companies in an industry, and with the private and public assets of the community better utilized. For these reasons, design thinking can produce a regulatory process that is a winning situation for everyone involved.
Alice Armitage, Andrew K. Cordova, and Rebecca Siegel
Alice Armitage is Associate Professor & Director, Startup Legal Garage, Institute for Innovation Law, University of California Hastings College of the Law. At the time of the writing of this article, Andrew K. Cordova was Executive Director of the Institute for Innovation Law. He is now an employee of Stripe in San Francisco. Rebecca Siegel is Program Associate at the Institute of Innovation Law of the University of California Hastings. © 2017, Alice Armitage, Andrew K. Cordova, and Rebecca Siegel.