Airbnb Reinvents Itself as Core Business is Halted by Regulations

In March 2017, Airbnb received more than $1 billion from investors and was valued at $31 billion. Airbnb was expected to continue its impressive growth, and several analysts anticipated that Airbnb would go public in 2018. However, increasing regulations stymied Airbnb’s momentum in the market, forcing the rental giant to reinvent itself. Airbnb responded to recent regulations in two ways: by focusing on margins and diversifying its services.


Airbnb is trying to increase margins by establishing a bigger presence in the luxury short-term rental market. On February 22, 2018, Airbnb launched “Airbnb Plus,” which includes properties that are inspected by Airbnb and guaranteed to have certain amenities, such as soap, shampoo, and empty cabinets. Concurrently, Airbnb launched “Beyond by Airbnb,” which is a tier beyond Airbnb Plus, and includes some of the most luxurious homes in the world.


In addition, Airbnb will place a greater emphasis on promoting “Airbnb Trips” in an attempt to diversify its services. This platform allows consumers to book experiences in conjunction with vacation housing. Airbnb’s biggest competitor in the space will be Viator, a TripAdvisor company. Airbnb is confident it is a more convenient platform for travelers who do not want to spend extensive time researching and want all of their vacation accommodations booked on a single website.


Many cities across the world – including New York, San Francisco, Los Angeles, and London – have regulated the market for short-term property rentals in order to restore the market for long-term housing. In unregulated markets, commercial operators tend to list real estate on Airbnb for short-term rental instead of making the real estate available for purchase. This makes it difficult for prospective property owners to purchase real estate, a critical resource; regulators insist this in turn inhibits social mobility.


Regulation presents many problems for Airbnb. First, the regulations curtail Airbnb’s core competency and most reliable revenue stream. For example, rentals in San Francisco decreased by 54% after the city instituted the regulations. In addition, the cities that have decided to regulate have done so in different ways. As a result, Airbnb must adapt itself to cities across the world based on local legislation, which is very costly. Lastly, short-term rental regulation continues to be a hot topic, even in cities that have already adopted legislation. According to one Senator, the issue is “not going away” any time soon. Thus, the future of short-term rentals is uncertain, and investors remain concerned about the prospects of Airbnb.


While Airbnb has been set back by regulations, it still seems to be well-positioned in the market. Airbnb has an opportunity to use its powerful brand in order to expand its footprint and become a more comprehensive platform to book travel. Nevertheless, with regulation often comes uncertainty; as a result, Airbnb’s plans to go public are on hold – at least for now.

Airbnb Reinvents Itself as Core Business is Halted by Regulations (PDF)

Waymo and Uber Reach Surprise Settlement

In day five of a trial expected to last at least two weeks, Waymo and Uber reached an unexpected settlement to end the trial that rocked the technology world for nearly a year. The final settlement saw Uber granting Waymo 0.34% of Uber’s equity, valued at approximately $245 million, and agreeing to measures to ensure that Uber does not incorporate any Waymo technology in the future. Uber expressed regret and noted that it still did not believe that it had used any of Waymo’s proprietary technology. While Travis Kalanick, the disgraced cofounder and former CEO of Uber, took the stand and gave stirring testimony, the trial ended before Larry Page, the billionaire cofounder and CEO of Alphabet, Waymo’s parent company, could testify.

The lawsuit began when Waymo engineers were accidentally CC’ed on an email involving Uber employees and a contracting firm that makes LiDAR, a critical technology for self-driving cars, which included schematics similar to proprietary technology developed at Waymo. The inventor of that technology, Anthony Levandowski, had left Waymo and started a new company called Otto, which was then acquired by Uber, thus raising suspicions that Uber had appropriated Waymo’s trade secrets.

The trial was dramatic, and as with any major lawsuit, surprising information came to light. It was revealed that Lyft almost bought Otto and that Waymo feared falling behind in the self-driving race. Shockingly, Otto’s technology may turn out to have been worthless. Otto was widely lauded in the press, but Lior Ron, Otto’s cofounder, only received $20,000 from the deal due to missing every benchmark for the acquisition. The settlement agreement implicitly revealed Uber’s valuation, $72 billion, which was kept under wraps during its most recent Softbank-led round.

Though a settlement was unexpected, in hindsight it is perhaps unsurprising. A study from 2008 showed that 82-90% of cases settle before the trial is concluded. Furthermore, despite the damning Stroz report alleging serious misconduct, Waymo suffered a series of setbacks over the course of the lawsuit, as previously reported by BBLJ. Waymo’s complaint was narrowed from over a hundred claims to merely eight by the time of the trial. During the trial, Judge Alsup criticized Waymo for showing little of substance, suggesting that there was little basis remaining in their stripped-down claims.

The settlement was widely considered a success for Uber’s new CEO and general counsel. Uber’s new CEO, Dara Khosrowshahi, previously of Expedia, has thus far spent his short tenure putting out the fires of previous leadership. A failure in this lawsuit could have resulted in a devastating blow to Uber’s self-driving ambitions and, consequently, possibly destroyed the company. Uber’s brand new general counsel, Tony West of Pepsico, negotiated the settlement down from a reported $1 billion in cash. Alphabet was already a significant investor in Uber.

Waymo and Uber Reach Surprise Settlement (PDF)

U.S. Financial Watchdogs Call for Federal Oversight of Cryptocurrency Trading

In a hearing on Tuesday February 6, 2018, U.S. regulators encouraged Congress to consider expanding federal oversight of cryptocurrency trading. The volatility of bitcoin and other cryptocurrencies has many banks and lawmakers apprehensive. Bitcoin increased in value by more than 1,300% last year, reaching a high of $20,000 in December. Early 2018 has seen that valuation fall by more than 50% to below $7,000 on Tuesday. The hearing was intended to discuss how virtual currency fits into U.S. financial regulation and how to best protect investors and consumers moving forward.


Jay Clayton, chairman of the Securities and Exchange Commission (SEC) testified that cryptocurrency is analogous to securities, commodities, and currency exchanges, which are regulated at the federal level with oversight by the SEC or the Commodity Futures Trading Commission (CFTC). U.S. cryptocurrency exchanges currently register as “money-transmission services,” which are regulated at the state level, often with great variation from state-to-state. Clayton stressed that replacing this patchwork approach with a federal regulatory framework will protect investors while continuing to foster innovation.


CFTC Chairman J. Christopher Giancarlo testified “appropriate federal oversight may include: data reporting, capital requirements, cyber security standards, measures to prevent fraud and price manipulation and anti-money laundering and ‘know your customer’ protections.”


Financial groups are eager to create bitcoin and general cryptocurrency-exchange-traded funds (ETFs) to make the currency more accessible to investors. Previous attempts at a bitcoin ETF were not approved by the SEC, but expanding regulatory authority and federal oversight could provide the foundation for cryptocurrency ETFs in the near future.


So far, the SEC has been focused on initial coin offerings (ICOs). An ICO enables a company to raise funds by offering investors virtual tokens in return for their cash or cryptocurrency, rather than obtaining shares in the company as in a traditional public offering. Investors are supposed to eventually be able to redeem the digital coins for goods and services. Clayton believes many ICOs have been done illegally. He says every ICO thus far has been a securities offering, with none of them registering with the SEC. Clayton warned that professionals structuring these transactions, namely lawyers and accountants, “are squarely in the cross-hairs of [the SEC’s] enforcement division.”


For its part, Giancarlo reported that the CFTC is preparing to bring more enforcement actions against fraudsters targeting investors through virtual coin scams.


The crypto industry’s response to the hearing has been overall positive. Jerry Brito, executive director of Coin Center, a blockchain think tank in Washington D.C., said the hearing demonstrated that lawmakers want to fight crypto frauds and scams while letting Americans exercise a right to own cryptocurrencies.

U.S. Financial Watchdogs Call for Federal Oversight of Cryptocurrency Trading (PDF)

Fox Upgrades its Offers to Win Bid Approval for the Fox-Sky Takeover

Showing no sign of backing down, 21st Century Fox Inc. continued its years-long efforts to acquire full control of British’s satellite broadcaster, Sky. As part of its latest effort, Fox pledges to extend the period of its guarantee to maintain and fund a fully independent news service at Sky for up to ten years, instead of five.


Fox’s extended guarantee period is a response to the concern raised by UK’s Competitions and Markets Authority (CMA), which found that Fox’s bid to take over the remaining 61% of Sky was not in the public interest. According to the CMA, this deal would give the Murdoch family too much control over news providers in the UK and therefore too much influence over public opinion and the political agenda. The Murdoch family already controls Fox and News Corp – the publisher of the Sun and the Times.


A 10-year funding guarantee itself is not actually a new strategy for Fox, as its Executive Chairman, Rupert Murdoch, had offered a similar guarantee when he bought a chunk of Sky News in 2011. However, the current offer is alleged to be weaker than the one in 2011 as Fox clarified that the funding for the second five-year period will be “determined at the time, taking into account market conditions and the level of investment required to maintain a Sky-branded news service.”


Along with the extended guarantee period, Fox also offered other remedies to address CMA’s concerns. One of the highlighted remedies is the requirement for Sky News’s board to prepare an annual statement confirming that the head of Sky News had escalated influence over the editorial output of Sky News.


The CMA must hand over the final report on this Fox-Sky deal investigation to the current Culture Secretary, Matt Hancock, by May 1. Hancock will then have 30 days to make a final decision on whether or not the deal may proceed.

Fox Upgrades its Offers to Win Bid Approval for the Fox-Sky Takeover (PDF)

Are Insurance Companies Financial Institutions in Garnishment Actions? Georgia Supreme Court Says No

In October 2015, Harold Blach filed a garnishment action against Aflac in the U.S. District Court for the Middle District of Georgia. He sought to garnish funds (to the tune of $160,000) from a judgment he had obtained against a former Aflac employee, Sal Diaz-Verson. Blach used the garnishment form applicable to general garnishments while Diaz-Verson argued that the form for financial institutions should have been used.


Why all the hang up over a form? Following a federal judge’s 2015 ruling that a Georgia garnishment statute was unconstitutional, Georgia’s state legislature amended the statute. In its amended form, the statute mandates different forms for general garnishments, which have a 29-day garnishment period, and garnishments on a financial institution, which have a 5-day garnishment period. The amended statute aims to provide added protections to garnishment actions directed toward bank accounts.


The judge in this action certified the question to the Georgia Supreme Court – are insurance companies financial institutions in garnishment actions? A plain meaning interpretation suggests that insurance companies are financial institutions, but the Supreme Court pointed to the legislative intent of the amended statute and came to a different conclusion. Instead, the Court relied on the definition of financial institutions, as companies that are held out to the public as institutions for depositing of funds, savings, and investments. Accordingly, the Court found that insurance companies are not classified as financial institutions within the context of garnishment actions.


This holding from the Georgia Supreme Court, though narrow within the context of garnishment actions, poses a unique question. Many insurance companies are transactional in nature, similar to traditional financial institutions like banks. Some insurance companies are even starting to define their businesses as technology and data companies.


As insurance companies’ institutionally shift the nature in which they identify in response to changes in technology, industry changes, and other internal and external factors, the courts may find the practice of categorizing insurance companies ambiguous within the context of different legal actions.

Are Insurance Companies Financial Institutions in Garnishment Actions? Georgia Supreme Court Says No (PDF)

ISS Faces Uncertain Future in the Commercial Space Age

The White House recently revealed in a NASA budget draft its plans to discontinue federal funding for the International Space Station (“ISS”) by 2025. This news comes on the tails of the administration’s plan to transition the ISS from NASA operation to one that accommodates competing commercial customers. While the White House has not yet released a concrete plan for what such an unprecedented transition would entail, the novelty of transforming an international, state-funded space research laboratory into a commercially available entity in low-orbit is sure to have a profound effect on international space law.


Recap: “BCLB Law Firm Hot Topic Lunch Talk: Kirkland & Ellis LLP – The Hunstman Merger”

On February 12th, 2018, the Berkeley Center for Law and Business welcomed attorneys Bill Sorabella and Shawn O’Hargan from Kirkland & Ellis LLP. Kirkland & Ellis LLP advised American chemical manufacturer Huntsman Corporation on its $20 billion merger with Swiss chemical company Clariant. Then, in the final stages of negotiations, there was an unexpected twist, as activist investors abruptly blocked the merger. Sorabella and O’Hargan led the team that crafted the deal, before that deal suddenly fell through.


Startup CEO Pleads Guilty to Defrauding Former Employees

Isaac Choi, the founder and CEO of WrkRiot, pleaded guilty to defrauding several former employees. He now faces up to 20 years in prison and a $250,000 fine.

When he pleaded guilty to one count of wire fraud, Choi admitted “he made false and misleading statements about various topics, including his educational and professional history, and the amount of his wealth” in an effort to recruit potential employees. He further admitted to emailing several employees forged documents reflecting salary payments that were never made.


Bush Security Advisor Warns Against Blockchain Cold War

Juan Zarate, who served former U.S. President George W. Bush as a former deputy assistant has been widely recognized as an important man who helped develop financial embargos that cut off terrorist funding after 9/11. He was also an early advocate of blockchain technology having been a counsel at Coinbase. Zarate’s financial instruments have been a widely-accepted tool in putting pressure on enemies of the state.

Zarate emphasized that not only can blockchain and crytocurrencies give greater autonomy to individuals, but they potentially can encourage commercial activities as well. He also told Coindesk his concern that blockchain technology is a double-edged sword that might also be weaponized to illicit ends.


Guess Inc. Investigates Allegations against Co-Founder, Paul Marciano

Paul Marciano, co-founder of fashion retailer Guess Inc., is under investigation for alleged improper sexual conduct. In a tweet late January, model Kate Upton accused Paul Marciano of sexual harassment and of using his power to intimidate her while she was 18 and working for a company campaign, tweeting: “It’s disappointing that such an iconic women’s brand @Guess is still empowering Paul Marciano as their creative director #metoo.” A week following the tweet, in an interview with Time Magazine, Upton detailed the harassment and stated that she was fired after refusing Marciano’s advances. Her allegations of Marciano’s lengthy misconduct were corroborated by the campaign photographer, Yu Tsai, who was also fired during Upton’s time at Guess Inc.