Part III - The Frontiers of Transnational Fiduciary Law

11 Transnational Law’s Legality

Evan Fox-Decent

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11.1 Introduction

I recently defended the grandiose claim that fiduciary principles and concepts, properly elaborated within the domain of public law, supply an interpretive theory of everything, which is to say, a theory capable of explaining the entirety of domestic, international, and supranational public law.¹ This is the scope and promise of what Evan Criddle and I call public fiduciary theory.² The key to the theory-of-everything claim is appreciating that fiduciaries and public authorities alike occupy other-regarding roles and hold other-regarding powers to be used exclusively on behalf of or in the name of the persons subject to them. In this chapter, I pile immodesty onto grandiosity. I argue that public fiduciary theory can explain the legal character of transnational legal orders (TLOs) composed of private actors that have no express public authorization to execute their mandates – that is, no delegated authority from either states or treaty-based international organizations.

In making this argument, I borrow and develop the illuminating idea of TLOs developed by Gregory Shaffer and a number of his coauthors.³ In Section 11.2, I summarize Shaffer’s socio-legal conception of TLOs, a conception that seeks inter alia to characterize and explain the processes of transnational legal norm creation and change. I then distinguish the socio-legal questions that Shaffer’s conception addresses from jurisprudential questions I intend to explore regarding the nature and legal credentials of transnational law. We shall see, for example, that the meaning of legitimacy within a jurisprudential inquiry is distinct from the concept’s meaning within a socio-legal framework. To bring this distinction between socio-legal and jurisprudential inquiries into focus, I discuss Thomas Schultz’s argument that the lex mercatoria is not really law at all,⁴ and Martin Loughlin’s claim that transnational law is merely a species of regulation that constitutes neither law nor legal order, properly so-called.⁵ I suggest that jurisprudential considerations must be adduced to answer Schultz’s and Loughlin’s arguments, since what is at stake is not the existence of transnational norms and institutions, but rather the significance of those norms and institutions to the question of whether the lex mercatoria or other areas of transnational law genuinely count as legal systems.

In Section 11.3, I offer a sketch of public fiduciary theory in the transnational context. I use the International Organization for Standardization (ISO) as a case study to illustrate how public fiduciary theory can reveal (i) the legal quality of norms produced by private transnational organizations, and (ii) the grounds for thinking that transnational law generally comprises a legal system and therefore is genuine law.⁶ Prominent among those grounds is transnational law’s claim to possess legitimate authority over its subjects and the presence of power-conferring rules that empower transnational actors to make, implement, and adjudicate transnational law.

In Section 11.4, I gather together various implications for jurisprudence of the foregoing analysis. I suggest that transnational law is akin to Dworkin’s hard cases in that both show what is there in the ordinary case. More specifically, the claim that transnational law is law implies that law is possible outside the sphere of national and international state regulation. Transnational law likewise suggests that coercion is not an essential element of law, and that private entities that abide by fiduciary principles can attain a measure of authority that either is or closely resembles public authority.

11.2 Transnational Legal Orders

Shaffer and others have developed an interlocking and mutually supportive conception of transnational law, transnational processes, and TLOs.⁷ Noting that transnational law has a close affinity to “global law” and “global administrative law,” Shaffer characterizes transnational law as a concept developed “to address legal norms that do not clearly fall within traditional conceptions of national and international law, but are not necessarily global in nature.”⁸ He offers as examples of the transnationalization of law the lex mercatoria (commercial law institutionalized by supranational arbitration) and common approaches to cross-border judicial and regulatory issues developing from transjudicial and transgovernmental dialogue.⁹

Shaffer observes that the concept of transnational law is commonly used to refer to law that addresses cross-border events or activities, and may include public and private international law, the development through caselaw of transnational legal rules and principles, and the eventual consolidation of those rules and principles into a relatively coherent body of law.¹⁰ But Shaffer’s socio-legal framework, which he calls “Transnational Law as Transnational Construction and Flow of Legal Norms,” has a different focus. Its concern is process-oriented, and seeks to assess “the transnational production of legal norms and institutional forms in particular fields and their migration across borders, regardless of whether they address transnational activities or purely national ones.”¹¹ In other words, the focus of this socio-legal approach is on how transnational legal norms are actually produced, their practical effects, and the means by which they travel across borders, where norm migration is typically part of an ongoing and dynamic process of norm creation and amendment. The framework takes an ecumenical approach to sources, which may be “an international treaty, international soft law, privately created codes or standards, a foreign legal model promoted by transnational actors, or a combination of them.”¹²

When transnational norms achieve a measure of acceptance, stability, and coherence within a given domain, Shaffer characterizes the domain as a TLO. He conceptualizes these orders generally as “a collection of more or less codified transnational legal norms and associated institutions within a given functional domain.”¹³ He and Terence Halliday have subsequently defined a TLO as “a collection of formalized legal norms and associated organizations and actors that authoritatively order the understanding and practice of law across national jurisdictions.”¹⁴ The boundaries of TLOs are differentiated by their legal scope. Scope is defined both by the legal subject matter of a given TLO and by its geographical scope, which is possibly but not necessarily global, and is always, in some way, transnational. Halliday and Shaffer posit that a transnational order is legal (rather than, say, social or religious) when “it involves international or transnational legal organizations or networks, directly or indirectly engages multiple national and local legal institutions, and assumes a recognizable legal form.”¹⁵ They attribute three constitutive properties to the legal aspect of TLOs.

The first is that “[t]he norms are produced by, or in conjunction with, a legal organization or network that transcends or spans the nation-state.”¹⁶ At the national level, these include state organs such as legislatures and executives, while at the international level they include formal treaty-based organizations such as those pertaining to the UN system, but also less formal organizations such as the International Competition Network (ICN).¹⁷

Their second feature is that “the norms, directly or indirectly, formally or informally, engage legal institutions within multiple nation-states, whether in the adoption, recognition, or enforcement of the norms.”¹⁸ These diverse norms include the Codex Alimentarius Commission’s food safety standards that the WTO promotes for national adoption, and human rights standards from the Paris Principles that the United Nations encourages states to implement. Halliday and Shaffer claim that these norms are not binding in themselves, but that “actors aim to catalyze through these instruments the adoption, recognition, and enforcement of binding, authoritative legal norms in nation-states.”¹⁹ They explicitly include private transnational lawmaking (e.g., contract) and the standard-setting of private organizations such as the ISO (discussed in Section 11.3) because the norms created through these practices shape regulation, liability, and ultimately adjudication.

Halliday and Shaffer’s third constitutive feature of “legal” within the concept of TLO is that its norms are produced in “recognizable legal forms.”²⁰ Here, again, the approach is broad, but limited to forms that are characteristic of legal texts, such as rules, standards, model codes, and judgments. They again emphasize that their approach includes hard law and soft law texts, and those developed by private as well as public entities. These texts, Halliday and Shaffer argue, shape and influence the production, interpretation, and implementation of binding national and supranational norms. In addition, they claim that private arbitration awards “although made outside the official public law system, are validated through the recognition and enforcement of arbitral awards by these systems … instantiating the transnational links between private transnational institutions and national legal systems.”²¹ This is an important insight with jurisprudential implications, as we will see when we turn later to the case of the ISO. Formal legal systems – national and international alike – are conceived in a manner that acknowledges both their permeability to private transnational norms and the legal quality those norms possess once they are recognized within a national or international legal order.

Within this socio-legal framework, the legitimacy of a TLO refers to “the subjective belief of actors that a rule or institution should be obeyed.”²² From this perspective, the question of a TLO’s legitimacy is a question about whether its subjects believe it possesses rightful authority or, to put the point slightly differently, whether its subjects believe or accept that its laws are worth obeying. If a regime enjoys significant legitimacy in this sense, there is a greater likelihood that its norms will be accepted and implemented without resort to coercion. If coercion is necessary for enforcement, then greater (sociological) legitimacy makes the success of coercion more likely, since recalcitrant actors will have more difficulty attracting third-party assistance. Also, bad actors may be less willing to resist sanctions if they themselves don’t believe in their cause.

From a jurisprudential perspective, however, legitimacy means something else. In the context of a philosophical inquiry into the nature and existence of law, the concept refers not to actors’ beliefs (though they are implicated) but to whether a regime in fact possesses rightful authority and that regime’s subjects in fact have a correlative (though defeasible) duty to obey the law.²³ To the extent a legal order in fact possesses rightful authority, it is legitimate, even if a significant number of its subjects do not believe in its legitimacy. And conversely, even if every subject of a legal order were to believe in its legitimacy, from this perspective that would not be conclusive. In principle, they could all be wrong or misguided: Hart’s “sheep to the slaughter.”²⁴ Most legal philosophers would allow that some significant measure of effectiveness or de facto authority is necessary for a purported authority to be an authority at all,²⁵ but none would count this as a sufficient condition of legitimate authority.²⁶

Just as legitimacy in the socio-legal sense has come to occupy an important role in that framework, legitimacy in the jurisprudential sense now commands a central place in philosophical writings on the nature and existence of law. The short reason for this is Raz’s claim that it is an existence condition of all legal systems that they claim to possess legitimate authority.²⁷ This claim and Raz’s own service conception of authority are perhaps his most significant contributions to the legal positivist project, since they offer an account of law’s normativity that Hart’s account lacked. On Raz’s view, a merely de facto authority that did not claim legitimate authority (legitimacy, in the jurisprudential sense) would not be a legal system. And, Raz says, for a putative legal system to claim legitimate authority, the claim must be made in good faith, and it must be possible for the system of rules to have legitimacy.²⁸ Raz is clear throughout that he is not talking about subjects’ perception or approval of their legal system, but rather is referring to legitimate authority as a moral feature of a legal system – that is, as a moral power of lawgivers to announce and interpret law their subjects have a defeasible duty to obey.²⁹

Of course, all of this is fully consistent with the socio-legal conception of legitimacy, so long as we bear in mind that the concept in that framework bears a different sense so as to address different questions. To see more concretely the kind of questions the jurisprudential approach is better suited to answer, consider the separate arguments from Schultz and Loughlin that transnational law is not really law.

Schultz is willing to admit that the lex mercatoria comprises a system of rules, but denies that it is law, properly so-called.³⁰ He claims that the lex mercatoria lacks autonomy to enforce its arbitral awards, relying on national courts to do so, and so does not constitute a legal system given its lack of autonomy.³¹ I will suggest in Section 11.4 that Schultz’s argument is unconvincing. At this juncture I merely wish to emphasize that to answer Schultz’s structural claim, it will not be enough to point out that transnational legal norms such as arbitral awards can attain binding status by being “downloaded” into a national context (though incorporating or implementing them into law at the national level will indeed bring them within a national legal order). Schultz concedes that transnational norms may be binding once downloaded but asserts that this shows only that these norms are not properly considered legal until they are converted into binding norms via incorporation into a national public law system.³² To answer Schultz’s jurisprudential argument persuasively, we need to explain why transnational arbitral awards have independent status as law before the download.

Loughlin is more skeptical still. He argues that the very idea of global or transnational law is “misconceived.”³³ On Loughlin’s view, there is a sharp distinction to be drawn between the concepts of law and regulation.³⁴ For Loughlin, “a legal order is, in essence, a concrete and effective unity and the norms generated by that legal order are derivative phenomena.”³⁵ He claims that transnational law, as depicted by fellow travelers of Shaffer such as Mattias Kumm,³⁶ Miguel Maduro,³⁷ and Neil Walker,³⁸ is replete with “norms or regulatory mechanisms,”³⁹ but because it lacks unified and effective institutionalization, it is not law, properly so-called.⁴⁰ Transnational norms and normative regimes, according to Loughlin, supply a transnational “administration of things” that is merely “the expression of a type of instrumental reason that informs the guidance, control and evaluation mechanisms of the many regulatory regimes that now permeate contemporary life.”⁴¹ By contrast, the modern idea of law, Loughlin suggests, consists in the institutional expression of a political community’s collective will, an expression of will that makes possible the solidarity of citizenship necessary to maintain relative political and social equality.⁴²

Like Schultz, Loughlin recognizes the existence of transnational norms,⁴³ and likewise acknowledges that these norms may supplement or even replace national legal norms.⁴⁴ His objection is to counting transnational norms and regimes as “law” and “legal orders,” respectively,⁴⁵ since they do not, in his view, carry the effective authority of a unified and collective will that the state and sovereignty make possible.⁴⁶ Because this is a conceptual claim about the nature of law and the grounds of the authority it asserts, jurisprudential considerations must be adduced to contest it. To set the backdrop to Section 11.4’s consideration of this jurisprudential question, I next offer a brief sketch of public fiduciary theory in the transnational context, using the ISO as a case study.

11.3 The ISO through a Transnational Fiduciary Prism

Public fiduciary theory takes its structure from the fact that fiduciaries and public authorities alike occupy a role to act in the name of or on behalf of others. Evan Criddle and I argue that this constitutive feature of fiduciary relations supplies a criterion of legitimacy that lets us test the legitimacy of state action: State action is legitimate vis-à-vis an individual only if the action is intelligible as conduct undertaken in the name of or on behalf of the individual.⁴⁷ The claim here trades on the idea of fiduciary representation and its implicit requirements. The thought is that law cannot authorize certain abusive actions that may be undertaken by the state, such as slavery or torture.⁴⁸ Those abuses are inconsistent with the idea of one person (the state) representing someone else (the subject) in a fiduciary capacity, which is to say, acting in the subject’s name or on her behalf.⁴⁹ But importantly, although the claim is conceptual, it is also practical in that it embodies a generalization derived from the fact situation characteristic of fiduciary law (one person authorized to act for another) and its governing norms (fiduciary power constrained by proscriptive and prescriptive duties).⁵⁰ Fiduciary power resembles public power in that both are quintessentially other-regarding and purposive.⁵¹ Within the domain of public law, public fiduciary theory can be a theory of everything from a conceptual point of view because every public authority stands in a fiduciary relationship with every person subject to its power.

Let’s consider now how this theory can be brought to bear on the TLO produced by the ISO and its standard-setting practices. Headquartered in Geneva, the ISO is a private network of national standard bodies from 164 countries.⁵² Since its founding in 1947, it has developed and published 22,766 commercial standards that harmonize product and business process rules globally.⁵³ When the ISO receives a request to produce a commercial standard, it consults industry representatives, academics, NGOs, government representatives, and consumer associations.⁵⁴ A final draft of the standard is submitted to members for a vote, which then produces an ISO standard if two-thirds vote in favor and not more than one-quarter vote against the proposed standard.⁵⁵

The ISO uses relatively open consultation and participation procedures. The fiduciary theory supplies a helpful analogy to explain why these procedures, or ones much like them, are legally obligatory. This is a challenge because the ISO’s standards are used on a voluntary basis. As it has no legal power to impose its standards, it is not obvious that the ISO, as a private entity, owes its stakeholders public law-like obligations regarding the development and dissemination of its standards. The fiduciary theory may appear to support this conclusion, as most fiduciary relations involve legal powers, and fiduciary obligations are typically understood as constraints on the fiduciary’s exercise of a legal power.

Some fiduciary relations, however, involve factual rather than legal powers. The classic case is the financial adviser–client relationship. Financial advisers give advice to their clients, but usually do not have legal power to invest their clients’ assets. Nonetheless, in light of the client’s dependence on the financial adviser’s advice, courts have found that advisers have a fiduciary obligation to disclose any conflict of interest they may have in relation to investment advice they give their clients.⁵⁶ In the standard case, the client entrusts the adviser with factual discretionary power over her because the client lacks the specialized knowledge possessed by the adviser and thus – practically speaking – commits her investment decisions to the adviser’s discretionary judgment. Thus, adviser and client stand in a fiduciary relation, and therefore the adviser owes the client a fiduciary duty to disclose any conflict.

A similar account can be given of the ISO’s relation to its stakeholders and the wider public affected by the adoption of its standards. The stakeholders most affected by the development of a standard entrust its development to the ISO, and ordinarily the ISO accepts this charge. Notwithstanding the private constitution of its organization, the ISO’s mission is avowedly public in nature, as it involves resolving transnational coordination problems over standards that will subsequently apply to parties who did not participate in the creation of those standards. In undertaking a public mission, then, the ISO enters into a public fiduciary relation with stakeholders and the wider public affected by its development of a new standard. The ISO’s overarching fiduciary duty is to develop such standards impartially, through the use of a transparent, responsive, and participatory institutional framework.

Opportunities for stakeholder participation and responsiveness within the ISO process are similar to the opportunities for participation embedded in notice-and-comment procedures governing rulemaking in some national jurisdictions. In effect, notice-and-comment procedures are to rulemaking what due process is to adjudication.⁵⁷ In both national and transnational contexts, subjection to a notice-and-comment duty allows the relevant rulemaking entity to claim credibly that it speaks on behalf of those affected by its determinations. The legitimate rulemaking of the ISO is necessarily regulated by such a duty because it is only through this regulation that the ISO can be understood to develop standards on behalf of all who are affected by them. In other words, the ISO’s subjection to duty allows it to satisfy the fiduciary theory’s criterion of legitimacy. The legal source and basis of the ISO’s public law-like obligations, then, is its public fiduciary relationship to stakeholders and the affected public.

The ISO’s legal authority to develop standards is constituted in part by its subjection to a fiduciary duty to exercise its rulemaking power impartially and within a transparent, participatory, and responsive institutional framework. The key difference between the financial adviser’s power and the ISO’s is that one is public in nature, whereas the other is not. By “public” I mean that the ISO’s power is constituted to resolve a certain kind of coordination problem over an indefinite range of actors. To act consistently with its fiduciary duty, the ISO must take into account all potentially affected parties, including stakeholders with divergent interests and future stakeholders who do not take part in the creation of standards that subsequently apply to them.⁵⁸ The public nature of the ISO’s rulemaking power triggers a public – not private – fiduciary obligation, and subjection to this public fiduciary duty lends the exercise of the ISO’s rulemaking power a limited and very particular kind of legal authority.

Because, strictly speaking, subscription to its standards is voluntary, the ISO does not have authority to impose duties on firms to adopt its standards. The content of its authority, rather, derives from its rulemaking capacity to resolve coordination problems between firms through the development of standards. Firms are under a liability to lose the benefits of cooperation if they choose to behave as voluntary outcasts by declining to use ISO standards.⁵⁹ To the extent this loss of benefits entails a change in the firm’s legal position (e.g., through the loss of property or contractual entitlements that depend on the firm’s adoption of an ISO standard), the liability is legal and not merely factual or prudential.

Although it is true that a firm’s rejection of ISO standards would be a sufficient cause of the firm’s loss of benefits, that hypothetical causal story must be interpreted within the context of the ISO’s dominance of the transnational standard-setting domain. The ascendant position of the ISO in this domain entails that in practice a transnational firm – an entity created for the purpose of lawfully maximizing profit – could not be a transnational firm without adopting ISO standards. There is, in practice, no exit from the ISO regime that is consistent with a transnational firm being a transnational firm; that is, an entity dedicated to maximizing profit lawfully and transnationally.⁶⁰ In a good sense, then, the “choice” of a firm to adopt ISO standards is existential: to be a transnational business capable of engaging in commerce, a firm must use ISO standards for the production and distribution of goods, and those standards therefore are partially constitutive of the legal framework of transnational commerce. It follows that the liability of firms to the exercise of the ISO’s rulemaking power is a legal liability of a very comprehensive kind, for the firms’ very ability to operate within the legal framework of transnational commerce (i.e., their ability to buy and sell goods transnationally) depends on their adoption of ISO standards. The ISO achieves legal authority to subject firms to this liability through the dutiful exercise of its rulemaking power. The ISO’s subjection to and compliance with its fiduciary duty to stakeholders and others, then, is constitutive of its rulemaking authority.

I have selected the ISO as a case study because formally it is a private institution whose origins and salience as a legal person do not trace back to a statute or treaty. Thus, any legal authority it can claim cannot by derived from an express delegation of legal power within its founding charter from states or public international organizations, since there never was such a delegation. But the ISO is far from an isolated case of an institution that creates and regulates transnational norms, including within the expansive field of standard-setting.

For example, the Euro-Retailer Produce Work Group (GLOBALG.A.P. (formerly EUREPG.A.P.)) sets food safety and agricultural practice standards in more than 135 countries worldwide.⁶¹ GLOBALG.A.P. also sets standards related to environmental protection and worker health and safety.⁶² It uses much the same open and participatory method that the ISO uses.⁶³ One of its signal innovations has been Hazard Analysis and Critical Control Point (HACCP) management systems, which involve proactively seeking out, analyzing, and mitigating threats to safety.⁶⁴ The ISO uses an HACCP framework for its “22000 standard” for food safety management systems, and the United States has required use of HACCP systems in meat and poultry plants since 1996.⁶⁵ As Errol Meidinger points out, transnational food and agricultural safety regulation involves a myriad of private and public actors that frequently have overlapping and intertwined mandates.⁶⁶

Criddle and I have argued that the ISO can be conceived as the authorized occupant of a public office notwithstanding its private constitution.⁶⁷ There are precedents for this idea in both international law and legal theory. In cases of belligerent occupation, international law will confer on the (illegitimate) occupier a temporary authority to establish and maintain legal order.⁶⁸ In the absence of the rightful sovereign, the occupier is recognized to have a mandate to rule.⁶⁹ Arguably closer still to the case of the ISO is Hobbes’s treatment of a private party who steps into a public role. Hobbes claims that the “presumption of a future ratification is sometimes necessary … as in a sudden rebellion any man that can suppress it by his own power … without express law or commission, may lawfully do it, and provide to have it ratified or pardoned whilst it is in doing or after it is done.”⁷⁰ When the actions of a private party serve a public purpose, the possibility of their contemporaneous or subsequent public ratification entails that in these circumstances a private actor may be understood to hold a public office or warrant that authorizes her acts. In other words, if a legal framework includes provision for the ex post ratification of private acts such that a private actor is treated as an authorized public actor, then in that context the apparently private actor was, from a legal perspective, a public actor all along. The actor’s public status is a direct implication of the actor’s implicit authorization to act in a public capacity.

In the case of the ISO, it is significant that its standards are recognized ex post as authoritative in decisions of international regulatory organizations such as the WTO.⁷¹ This recognition by international public institutions is arguably a form of public ratification of the ISO’s standards and standard-setting process. The WTO’s recognition of ISO standards is, at the same time, an implicit recognition of the authoritative role they play in resolving coordination problems. Public recognition of ISO standards is not surprising given their heavy and ubiquitous use in commercial practice, including in contracts that are potentially subject to adjudication and thereby inform arbitral lawmaking.⁷² Widespread use of ISO norms in commercial practice and WTO ratification of them helps explain how international law distributes to the ISO legal authority to set transnational standards,⁷³ notwithstanding their nonbinding nature and the ISO’s private constitution. This is not to say that the ISO has a monopoly on standard-setting. In principle, any number of transnational standard-setters could develop standards and enjoy public ratification. Thus, a plurality of private-cum-public institutions with overlapping mandates is fully conceivable. Generally, we might imagine the norms and standards of private transnational regulators to comprise a form of nonbinding transnational common law or lex mercatoria. Entry into this pantheon would be guided by the fiduciary principle’s criterion of legitimacy, which always asks whether a norm, standard or body of soft law that purports to be made on behalf of everyone subject to it has in fact been so made.

The fiduciary principle’s criterion of legitimacy, then, is a representational standard of adequacy. It supplies content to a purported legal system’s claim to possess legitimate authority by insisting that the regime’s norms be intelligible as norms announced and implemented on behalf of all who are subject to them. Because the ISO’s standards plainly meet this requirement – in part because the ISO abides by public law-like norms of due process and consultation – the ISO’s commercial standards qualify as legal standards before migrating to national or international public law systems.

11.4 Implications

An important implication of the foregoing fiduciary/jurisprudential analysis is that it bolsters the socio-legal claim that private TLOs, such as the ISO’s, really are legal orders. Like the socio-legal approach, jurisprudential fiduciary theory helps itself to ex post ratification of private transnational norms, but with an important difference. Under the socio-legal theory, transnational norms must migrate to a formal national or international legal system to become fully legal. Under the fiduciary theory, ratification of transnational norms through their use in national or international legal systems merely confirms what was true of those norms all along – that is, that they were legal in nature from the moment they were produced in accordance with the fiduciary criterion of legitimacy and the public fiduciary duties that attend actors who take on substantively public roles.

As noted with reference to transnational food safety regimes, this analysis extends to hybrid transnational entities that are part public, part private. Rather than insist that the private actor piggy-back on the public for its legal credentials, the fiduciary theory releases the private actor’s jurisgenerative potential by enabling the actor to adopt a limited public role.⁷⁴ In the case of lex mercatoria, this consists mainly in the determination of arbitral decisions and awards. Contra Schultz, lex mercatoria is a legal system because it makes a claim to legitimate (arbitral) authority, its officials generally respect the norms of due process and treat the parties impartially, and therefore they can be said to act (within their role) on behalf of the parties and the wider commercial public ultimately affected by their decisions. And contra Loughlin, transnational regimes can qualify as legal orders, properly so-called, because at the heart of their claim to legitimacy is the fiduciary claim that their institutions serve all who are subject to them, as well as the wider public, in a representational capacity. As fiduciaries of humanity or significant transnational parts thereof, transnational institutions engage matters of common concern on behalf of all stakeholders and affected parties. The unity of legal subjects within these regimes is not determined by state borders or nationalist ideology, but by the jural equality of persons understood as coequal beneficiaries of transnational institutions. The will of legal subjects is expressed in these institutions’ mandates and the discretionary but fiduciary means at their disposal to implement them. To think that law’s authority – and so law itself – was born and forever delimited with the advent of the nation-state is to adopt a radically parochial conception of law.

A further implication of the fiduciary model, and also contra Schultz and Loughlin, is that coercive enforcement of law is not essential for a normative order to count as a legal order. Transnational law is fully intelligible as such by dint of a fiduciary power-conferring rule which allows for norm creation, amendment, and adjudication. Here too the fiduciary/jurisprudential view makes common cause with the socio-legal approach. On the fiduciary view, what is key is that transnational norms are created in a manner consistent with fiduciary principles that call for representative and fair procedures, and that they take the legitimate interests of relevant actors seriously. As the discussion of the ISO revealed, even if centralized coercive authority were available to transnational institutions, in many cases it would be neither desirable nor necessary. The subjects of transnational commercial regimes generally have strong reasons to belong to them. Exit is typically costly and impractical. And of equal or greater importance, transnational rulemaking, standard-setting and impartial adjudication resolve problems of indeterminacy and unilateralism that would prevail in the absence of TLOs. By providing common solutions to matters of common concern, transnational regimes let their subjects interact with one another on terms of reciprocal and equal freedom, knowing where they stand and to whom they may be held accountable. Transnational subjects can thus enjoy governance under a rule of law that is intelligible without the state.

11.5 Conclusion

I began by noting that much of the literature on transnational law adopts a socio-legal perspective. Within this framework, a legal regime’s legitimacy refers to its sociological legitimacy, that is, whether those subject to the regime accept it as worth obeying. By contrast, I said, from a jurisprudential perspective, a legal regime’s legitimacy consists in it living up to whatever normative standard of adequacy is appropriate for assessing whether a regime in fact possesses legitimate authority (i.e., a legitimate right or power to rule and represent its people). My argument has been that a jurisprudential approach can complement the socio-legal framework, and in particular can help transnational law scholars answer sceptics such as Schultz and Loughlin who claim that transnational law is not really law at all.

More specifically, I argued that public fiduciary theory can supply a jurisprudential framework congenial to this task. Fiduciary theory is helpful in this context because it takes seriously the idea that all legal regimes claim to possess legitimate authority. Public fiduciary theory interprets this idea to mean that all legal systems, to be legal systems, must undertake the project of law-giving in a manner that is intelligible as an undertaking made on behalf of or in the name of those affected by the relevant legal norms or decisions. Generally speaking, TLOs satisfy this demand, even where the main institution involved is formally private, as in the case of the ISO. By putting substance before formal status, the fiduciary theory shows that transnational regimes and regulation have a genuine legal quality.

12 The Fiduciary Role of Access Platforms

Shelly Kreiczer-Levy

12.1 Introduction

Peer-to-peer platforms are becoming an important force in today’s economy.¹ Companies such as Airbnb, Turo, Eatwith, and Uber are global market actors, generating millions of transactions, in multiple jurisdictions across the globe.² These companies connect individuals and small businesses and mediate transactions between owners and renters, service providers and service recipients.³ Owners rent out their homes, cars, bikes, and personal possessions to renters who prefer access to ownership, and people offer nonprofessional services, including driving and cooking meals, as an alternative to established industries. These transactions do not simply happen. Instead, they are rather heavily controlled by the platform itself.⁴

Despite their clear importance and their market influence, the legal role of peer-to-peer platforms (or access platforms as I refer to them) remains elusive. What is the function of access platforms as private law actors? How should private law jurisprudence conceptualize their role? I argue that access platforms are best conceptualized as market-constituting fiduciaries, a term I introduced before⁵ and develop in this chapter.

Access platforms operate as a global, transnational market, and the conceptualization of their legal role is a transnational legal problem.⁶ However, the current legal response remains sporadic. Most often, regulation occurs at the local level, focusing on the characteristics of a particular town or city, and generally addressing the social impacts of access economy activity. Other legal questions that scholars address include industry-specific regulation, taxes, antidiscrimination law, and employment law.⁷

Yet, questions of regulation remain partial and incomplete without a prior conceptualization of the legal role of these platforms in their relations to their users. It is a global and normative challenge. What role do platforms serve in transactions among peers? What responsibilities does this role entail? In the absence of a legal conceptualization, access platforms self-regulate and opt for minimal duties set in their terms of service. The emerging processes of transnational legal ordering thus mix self-regulation with sporadic, concrete state or local regulation in several jurisdictions.⁸ This mixture of hard and soft law does not constitute anything like a settled transnational legal order, but rather reflects ongoing disputes about how to conceptualize and respond to companies that create a transnational regulatory challenge. In this chapter, I address the jurisprudential challenge of how to conceptualize the problem that access platforms pose, assessing the normative consequences of framing this transnational problem in fiduciary terms.

Relatively few works focus on the responsibilities of platforms toward their users. Some have argued that access platforms mediate transactions, much like real estate brokers.⁹ The parties to the transaction transfer a resource, be it property or a service, and the platform simply facilitates the transaction by lowering transaction costs. Platforms should thus be accountable only in their function as brokers.¹⁰ However, this conceptualization does not account for the various additional functions performed by these platforms, including developing search algorithms, creating and enforcing rules of conduct, overseeing activity, establishing categories for action, and affecting prices. Put differently, it does not account for the power of access platforms in shaping transactions and creating market norms.

A different set of arguments engages with the power of platforms more fully, but these accounts do not account for the conceptualization of access platforms’ role in private law. Moreover, these accounts typically group access platforms in peer-to-peer markets together with other online giants such as Facebook, Google, and Amazon.¹¹ Indeed, access platforms share important attributes with online platforms that serve as a digital infrastructure for activity. All these different platforms – Google, Facebook, Airbnb, and Uber – control a virtual space and access to an activity. Yet, there are important analytical differences. Facebook and Google involve content creation and users’ information, but they do not involve the transfer of a resource, property, or service, in the real, offline world. Access platforms, on the other hand, create the infrastructure for offline trades and effectively constitute new forms of markets that are based on disaggregated consumption.¹² These platforms mediate transactions, and redefine consumption of goods and services.

Against this background, I argue that access platforms are best characterized in private law as market-constituting fiduciaries. The argument relies on new developments in the theory of fiduciary law – in particular, the idea of a fiduciary relationship as a category for thinking through problems arising from the entrustment of discretionary authority.¹³ The market-constituting fiduciary concept provides a normative solution to a transnational problem that could apply in various common law and civil law jurisdictions.

Moreover, the concept responds to the double function of access platforms: They perform services for both service users and service providers. Following the distinction by Paul Miller and Andrew Gold, this role resembles traditional service platforms,¹⁴ though it is not a perfect fit as I explain in Section 12.3. In addition, access platforms create a market and shape its norms. This role generates responsibilities to the participants in this market, and explains why, for example, the platform should be responsible for the discriminatory actions of its participants. Some scholars have argued in favor of such a responsibility, and this chapter provides a much-needed legal basis for this obligation. Other obligations include the duty to give prior notice before pulling out from an area of activity, and the duty to create and maintain fair entry and exit rules. All these implications of the duty of loyalty are discussed in Section 12.3.

The chapter continues as follows. Section 12.2 presents access platforms and their impact on transnational markets. It also discusses the most notable attempts to conceptualize their legal role, and it argues that these conceptualizations are either too narrow or do not account for the full set of activities and functions of access platforms. Section 12.3 discusses fiduciary law, its expansion in recent years in common and civil law jurisdictions, and the possible problems with applying fiduciary law to access platforms. Section 12.4 develops the concept of market-constituting fiduciaries and details its legal and transnational implications. Concluding remarks follow.

12.2 Access Platforms

Access platforms are a particular type of an online platform. Online platforms are broadly defined as a digital infrastructure that enables different groups to interact with one another.¹⁵ This broad definition includes peer-to-peer access platforms, such as Airbnb and Uber, along with other powerful digital platforms, most commonly Google, Facebook, and Amazon.¹⁶ Platforms function as intermediaries that host users’ activities. They are therefore in a unique position to collect, record, and store data. In addition, platforms actively dictate the rules of interaction (like cancellation policies or prices), set up a reputation system, manipulate products, and manage services.¹⁷

Access platforms are a particular type of platform. They mediate transactions that take place offline among peers. These platforms represent an important part of the sharing economy. The sharing economy is defined as collaboration in the use of products and services, simplified and redefined by technological advances.¹⁸ It creates peer markets that allow owners to rent out assets such as cars, homes, bikes, or offer services to strangers.¹⁹ This type of consumption pattern has turned into a global, billion-dollar industry that has been described by proponents as being “as big as the industrial revolution.” Access platforms include giants like Airbnb and Uber, as well as other peer-to-peer platforms such as Eatwith, Taskrabbit, Turo, and the like.

Access platforms are transnational companies; they operate in a variety of legal jurisdictions.²⁰ Although their activity is comparable throughout jurisdictions, their policies are occasionally adaptable to local regulation requirements, ranging from local government to state regulation.²¹ A prominent example is Airbnb’s cooperation with local governments in collecting and remitting tourist taxes across the globe.²² In other instances, when the access activity is deemed illegal, the activity may still continue but in the shadow of the law and be subject to a fine.²³

Most jurisdictions are interested in the social impacts of the activity. There is very limited interest in platforms’ obligations toward various users. One of the main questions that have occupied courts is whether Uber is an employer of its drivers.²⁴ The French labor department addressed similar problem by introducing corporate social responsibility guidance rules for platforms.²⁵ In another context, the US Court of Appeals for the Third Circuit determined that Amazon is a seller for the purpose of product liability law in Pennsylvania.²⁶ The case was later granted rehearing en banc but finally settled out of court. Although Amazon is not an access platform, the ruling may be further extended to other platforms. Nonetheless, these are sporadic rulings designed to address a concrete issue.

In the absence of a legal conceptualization, the relationship between access platforms and their users, of both parties to the transaction, is dominated by the platform’s terms of service. In effect, access platforms self-regulate this relationship.²⁷ Considering their global reach, one might argue that they effectively engage in transnational legal ordering whenever a concrete regulatory rule does not apply.²⁸

Access platforms hold considerable power over their users, both casual and frequent. They employ a unique position to manipulate transactions and frequency of use. Consider, for example, Airbnb’s recommendations to its hosts that they “show personality, not personal items.” Airbnb blog explains to hosts that personal items and personal photos will not make a guest feel comfortable.²⁹ Airbnb also nudges hosts to become more professional. Take the case of Jill Bishop. Jill only enjoyed hosting guests who were willing to interact with her, but Airbnb began requiring her to host people who were just looking for a place to stay.³⁰ These policies nudges users into a particular form of property use and property design.

In addition, there are significant information asymmetries between the platform and its users. Various rules of conduct are enforced by strict, algorithmic enforcement.³¹ Users cannot negotiate with the platforms. Another feature of access platforms’ activity involves the reputation mechanism. Reviews by users and owners are the backbone of access platforms. Nonetheless, reviews are highly sensitive to manipulation. They are not only susceptible to bias by other users, but also vulnerable to algorithmic manipulation by the platforms.³²

Furthermore, users are dependent on the ability to continue to use a given platform. While some users only use a platform rarely, others are frequent users who depend on its continued activity. They are thus exposed to immediate changes, making access an inherently risky choice. The case of Uber’s and Lyft’s operation in Austin, Texas, provides a good example. Once the city decided to maintain strict regulation of ridesharing businesses, Uber and Lyft pulled out of the city immediately, within a couple of days.³³ Users, both drivers and passengers, who were dependent on the activity for their livelihood or day-to-day operations had no time to adjust to the change. In this particular case, though, market forces prevailed, and alternative platforms quickly stepped in.³⁴ Nonetheless, this example exposes the risk that every user undertakes in choosing to participate in a peer-to-peer market dominated by a powerful platform.

A final concern involves the network effect. Platforms rely on two-sided network effects: The more owners or service providers use a platform, the higher is the value of using the platform for the users.³⁵ As the platform gets stronger, users are less likely to exit the service and choose a competitor.

All these problems point to the power imbalance between platforms and their users (both parties to the transaction), and to an inherent dependency of the latter on the former’s services. The legal relations between the platform and its users are governed by a standard contract, the terms of service offered by the platform to which the user simply agrees.³⁶ The contact is nonnegotiable. This framework characterizes the platform as a mere service provider, and it does not sufficiently account for the significant power of the platform to shape transactions and set market norms.

Indeed, access platforms shape norms in the labor, real estate, and hospitality markets. They present a clear example to the dominance of a private actor that shapes market norms across various jurisdictions through the use of contract law and through the design of the market itself. In this sense, they are creating legal orders³⁷ – that is, access platforms are generating norms that may be formalized into legal texts and that affect legal practice. These legal orders may span state boundaries, as access platforms constitute and govern transnational markets through contract. Thus, platforms are not merely hosting a market for services that (potentially) are regulated; instead, they are norm creators in their own right.

Some argue that platforms serve as the employers of service providers, and in particular, that Uber is the employer of its drivers.³⁸ This characterization is only applicable to service-oriented (rather than property-oriented) platforms, and it only addresses the role of the platform toward one party of the transaction, service providers, and not toward users of the platform more generally.

A different characterization of platforms has its foundation in administrative law. Sabeel Rahman argues that certain platforms function as public utilities because they hold private power over a vital service that makes our social infrastructure. This definition groups access platforms with other internet platforms such as Facebook, Google, and Amazon.³⁹ The public utilities approach argues in favor of imposing public law duties on certain platforms. In particular, Rahman characterizes access platforms as marketplaces or clearinghouses that influence wages, prices, and standards, and should therefore be regulated as public utilities.⁴⁰ Indeed, access platforms hold the power to regulate transactions, determine entry and exit, and manipulate use. However, not all access economy platforms offer an essential service that is part of our social infrastructure. Airbnb offers guests a luxury service, and they have other available choices. Rahman indeed acknowledges that access economy platforms are only partial utilities.

Another approach works within private law. Jack Balkin has famously argued that Google, Facebook, and Uber are information fiduciaries. An information fiduciary is “a person or business who, because of their relationship with another, has taken on special duties with respect to the information they obtain in the course of the relationship.”⁴¹ Balkin argues that users entrust platforms with sensitive information because platforms present themselves as trustworthy. These platforms take on fiduciary responsibilities regarding this information.⁴² Balkin’s analogy to a fiduciary relationship is incredibly helpful.⁴³ However, it does not account for the particular role of access platforms in creating a market and shaping its norms. The information fiduciary argument has been criticized as ambiguous, failing to address structural power and abandoning more robust public regulation.⁴⁴ Balkin’s argument and its corresponding critique target information fiduciaries, platforms that offer a service in exchange for the user’s information.⁴⁵ While this discussion is extremely important, when it comes to access platforms, it fails to engage with their market-constituting function and the duties it entails in private law. Furthermore, unlike Balkin’s claim, my argument is not skeptical of public regulation as an important, additional tool in the legal treatment of platforms.

Both of these important approaches, the public utilities and the information fiduciary conceptualization, address power relations, and both group access economy platforms together with other online platforms such as Facebook and Google. In what follows, I seek to expand on the idea of power in private law, and the use of the fiduciary concept.

12.3 Fiduciary Relations

Fiduciary law is a complex legal field. Its definition and boundaries are controversial. At its core, fiduciary law concerns discretionary power that the fiduciary holds over the interests of another party, the beneficiary.⁴⁶ Power and vulnerability are thus the foundation of the fiduciary relationship. Beneficiaries are vulnerable because someone else acts in their name, for which purpose they must pass on their autonomy, at least partly.⁴⁷ This power imbalance may deter beneficiaries from entering into fiduciary relationship. The law thus regulates these relationships in order to provide protection and make sure these important social relationships exist and succeed.⁴⁸ Although its legal foundation differs, the concept of fiduciary applies both in civil law and in common law systems.⁴⁹ For this reason, it is a particularly promising venue for normatively conceptualizing platforms that operate in global markets.

The source of a fiduciary authority may be contractual and based on consent, or otherwise legally mandated based on the particular kind of relationship.⁵⁰ The most important normative implication of a fiduciary relationship is the duty of loyalty imposed on the fiduciary.⁵¹ This duty often means that the fiduciary has to promote the beneficiary’s interests and not her own,⁵² or at least prioritize their interests.⁵³ More specific requirements of fiduciaries include deliberation, conscientiousness, and responsiveness to new information.⁵⁴

The concept of a fiduciary relationship is traditionally applied to trusts, an agency, or a corporation and specifically to professionals who control others’ interests such as lawyers, doctors, and investors.⁵⁵ Nonetheless, this concept has been steadily broadened to account for new types of power-centered relationships.⁵⁶ As Tamar Frankel argues, recognizing new fiduciary roles depends on “the terms of their services, their entrustment of property or power, the temptation that they face, and the ability of individuals and institutions as well as the market to control these power holders and their temptation to abuse the trust in them.”⁵⁷ Two of the most familiar, and controversial, developments include the fiduciary role of the state and the fiduciary role of parents.⁵⁸

Fiduciary roles may differ. Paul Miller and Andrew Gold distinguish between two types of fiduciary relationships: service and governance. Whereas traditional service fiduciaries “manages the affairs or property of persons,” governance fiduciaries advance abstract purposes.⁵⁹ The latter includes, but is not limited to, charitable trusts and state-owned public purpose corporations.⁶⁰ In these cases, according to the argument, there is a duty of loyalty to purposes, and not to people.⁶¹ I will return to this distinction in Section 12.3.

Access platforms share important similarities with fiduciaries, but they do not comfortably fit the category. Indeed, access platforms hold considerable power over their users. They broker transactions, consult over terms of agreements, and provide a matching algorithm that connects the parties, and manages the type of transactions performed. Platforms also manipulate use, nudge the behavior of users, and offer safety measures and a reputation system. These functions affect users’ choices and limit their autonomy. Despite these high levels of involvement, access platforms are different from traditional fiduciaries in two key ways. First, access do not act in the users’ name.⁶² Unlike lawyers and investors, platforms do not make the decision for their users; they only structure, oversee, advise, and nudge choices. Second, platforms currently promote their own interests first and foremost, and do not prioritize the interests of users.⁶³

Access platforms therefore perform the function of service fiduciary to some extent, but they also perform additional functions that are not currently captured in scholarship. They create the platform that hosts the activity, the acceptable norms, the rules of exit and entry to the activity, and guide the level of participation. Consequently, I argue that the best conceptualization for role of access platform is as market-constituting fiduciaries.

12.4 Market-Constituting Fiduciaries

The distinction between service fiduciaries and governance fiduciaries mentioned earlier is important, as it recognizes the different functions that fiduciaries perform.⁶⁴ An additional function that is not captured by this distinction is the particular role of access platforms in creating a market and regulating its activities. This function represents a unique position of power in private law, one that controls the interests of participants on both ends of the transaction. This function includes promoting purposes, the purpose of creating, maintaining and regulating the market. However, unlike governance fiduciaries, the purpose is not detached from the interests of concrete individuals who participate in this market. It is not an abstract purpose.⁶⁵

Participants in peer-to-peer markets hosted and created by access platforms have two types of interests. They have specific interests regarding the service they receive and more general interests concerning their continued participation in the market.

I, therefore, suggest conceptualizing access platforms as market-constituting fiduciaries.⁶⁶ This concept unites two distinguishable roles that respond to the double function of access platforms. The first role responds to the service-performing function of access platforms. Platforms give advice to users on how to present their service or property, offer a search engine, and provide the matching algorithm. In this sense, access platforms function as the new professionals and therefore owe a duty of loyalty to users at both ends of the transaction. Section 12.4.2.1 explains the legal implications of this role.

The second role responds to their function as creators of the market, or in other words, market-constituting fiduciary. Peer to peer transactions took place even before the access economy.⁶⁷ People gave each other rides; carpooled, borrowed, and loaned cars; spare rooms, books, and drills.⁶⁸ However, the activity was on a much smaller scale; it was based mostly on familiar social networks or other search conventions. In contrast, platforms in the access economy provide an organized system that facilitates multiple transactions among strangers. The platform not only provides the search algorithm, but also enforces rules of conduct and creates certain standards. Standards are technologically enforced, either strictly or by nudging users. Platforms constitute the market: the infrastructure for engaging in the activity, the code of acceptable behavior, and the rules of participation in this activity. Access platforms thus owe a duty of loyalty toward all market participants.

One could argue that these features establish public law obligations. An access platform is a private actor that creates a space for economic activity that it controls and dictates its conditions. According to this view, the platform creates legal norms and establishes a legal authority as a public fiduciary.⁶⁹

In contrast, my argument relies on the conceptualization of market-constituting actors as private law fiduciaries. The fiduciary concept deals with authority-related power relations in private law. As such, private law allows us to think of this kind of dominance that the role of constituting a market creates. Hanoch Dagan suggests we conceive of fiduciary law as a category of thinking that includes very different fiduciary types, but that “their structural similarities could facilitate learning and cross-fertilization.”⁷⁰ These similarities are relationships of dependence and vulnerability that are legally constituted or facilitated, wherein “one party is subject to the authority entrusted to another.”⁷¹ Viewed as a category of thinking, private fiduciary law addresses power and vulnerability in authority relations, such as the market-constituting fiduciary. In this sense, fiduciary law serves as a normative concept that fills gaps; legal gaps, not just regulatory gaps, and more importantly, conceptual gaps.⁷² It allows us to think about the duties of actors who constitute a market. Section 12.4.2 explains the legal implications of this role.

12.4.1 The Service Role of Access Platforms

Platforms perform services for users, both owners and renters, service providers and service receivers. They control or provide advice on central aspects of the transaction. Uber sets the price for each ride, and it obligates the driver to use a mapping service in determining their routes.⁷³ Airbnb guides hosts and allows them to choose from a list of options regarding their cancellation policy.⁷⁴ Some of the terms of the transaction between the parties are thus structured by the platform. In addition, platforms are involved in the frequency of use,⁷⁵ and the type of transaction the user chooses.⁷⁶ Airbnb pushes hosts to operate like hotels.⁷⁷ Uber manipulates access to a service. As Ryan Calo and Alex Rosenblat explain:

Uber may also be manipulating consumer access to various tiers of service. Uber offers a variety of services under its umbrella, with variations in price and quality of service. Anecdotally speaking, for some consumers, the cheaper service uberPool appears as a default, requiring the consumer to overcome default bias in search of another option. For other consumers, perhaps those that Uber somehow understands to be better resourced or who potentially have a habit of preferring one tier of service to another, the more expensive uberX appears as a default.⁷⁸

Access platforms thus hold systematic power over their participants.⁷⁹ This power builds on the contract that all users simply accept when they first sign into the platform.⁸⁰ Participants grant the company authority over various terms of their own transactions with others. Indeed, as previously mentioned, in many cases, participants still make their own choices, unlike beneficiaries in a trust, for example.⁸¹ However, this choice is structured; access platforms consult, nudge, and oversee activity.

Access platforms are responsible for a service based on the reasonable expectations of the users when entering the service. Users, on both sides of the transaction, trust the platform to present them with the most suitable search result, allow them to determine the use of their property within reason, and craft a transaction that is reasonable to both parties.⁸² Users, both the owners-providers and the users-consumers, are vulnerable because the platform controls all aspects of their participation in the given market, including entry and exit. These platforms have the expertise and control of the process that the user simply does not possess, and they thus hold discretionary power over their interests.

A possible concern of this function is the multiple beneficiaries’ problem. This problem was first voiced against the use of the fiduciary concept in public law, and more specifically, against the claim that public officials are fiduciaries.⁸³ In a nutshell, the claim is that the duty of loyalty does not allow a fiduciary to serve two beneficiaries with conflicting interests. Access platforms, if perceived as fiduciaries, serve multiple beneficiaries. First of all, directors of access platforms owe a fiduciary duty to their shareholders.⁸⁴ Shareholders’ interests often conflict with the protection of users and the market-constituting role.⁸⁵ Indeed, this potential conflict is quite common in more traditional fiduciary relations. Banks, for example, may owe a fiduciary duty not only to shareholders but also to those who use their services.⁸⁶ To address this problem, the legislature can create a new category of companies where certain purposes and roles are prioritized against certain shareholders’ interests.⁸⁷

Second, and more importantly, if platforms were fiduciaries of both providers and users, they would be torn between conflicting interests. Providers and users have different agendas. In matters of profit, frequency of use, cancellation policy, safety and oversight, these two groups may have different and conflicting interests.

The most important response to this critique is that applying the fiduciary concept to access platforms is not designed to address possible conflicts between users and owners, service providers and service receivers. It is not designed to address conflicts over prices, the safety of the property or service, or the need to compensate for damages. Rather, the argument focuses on consumers: All possible users, including owners’ or providers’, are vulnerable to platform power. There are shared interests to both groups that involve their dependency on the platform’s activity, including the matching algorithms, search results, and the structure of the reviews. These interests take precedent over any concrete conflict and are the core concern of platform power. Consider an analogy to the problem in public fiduciary law. Supporters of public fiduciary theory argue that conflicts among beneficiaries frequently occur in the context of more traditional fiduciaries.⁸⁸ Moreover, as opposed to public authorities, platforms are private actors, much like administrators of pension funds that may serve diverse classes of beneficiaries.⁸⁹ Evan Criddle and Evan Fox-Decent explain that in public fiduciary theory, “the fiduciary owes not only discrete ‘first-order’ duties to the beneficiary, but also wider ‘second-order’ duties to the broader public or to public purposes.”⁹⁰ The dual commitment argument successfully navigates possible conflicting interests. In this respect, protecting all users’ vulnerabilities could be construed as the second-order duties of all platforms. These second-order duties lead us directly to the most important function of access platform as fiduciaries: the constitution of the market.

12.4.2 The Market-Constituting Role of Access Platforms

Access platforms do not simply provide a service of brokering, consulting, and constructing the terms of the transaction. They constitute the market itself, structure its activity, determine its rules, and manage its participants. Peer-to-peer platforms create a marketplace for the exchange of goods or services. Yet, unlike eBay where the good is sold, these exchanges are based on short-term rentals and require more coordination and often face-to-face interaction.⁹¹ These platform-hosted markets employ their own rules and conventions that may differ from traditional markets. Some of the rules are governed by the platforms’ terms of service that are nonnegotiable and must be accepted when entering the market.⁹² Other rules are fashioned as recommendations and suggestions,⁹³ and yet others are conventions of use that develop over time.

The platform creates and controls the market in several important ways. First, the platform can withhold entry and force exit from its activity. It controls participation in the market through its terms of service.⁹⁴ Second, the market is defined and structured by the platform. Access platforms determine the mechanism for closing a deal, and the terms that the parties can and cannot negotiate. They nudge users into a desired level and frequency of use.⁹⁵ Access platforms also create the evaluation mechanism by establishing and managing a system of reviews.⁹⁶ Third, platforms affect the style and marketing of products and services in the market. Airbnb influences hosts’ behavior in their home, the house’s style and décor, and their interactions with guests.⁹⁷ It therefore impacts the level of intimacy and privacy in property use.⁹⁸ Fourth, access platforms create the conditions that shape users’ behavior by controlling and designing the review mechanism. Because reviews (of both parties to the transaction) are important for future transactions and affect profitability,⁹⁹ participants will likely adopt the behavior and manners that will be best perceived and appropriately ranked by the other party to the transaction.

Creating and managing the market yields responsibility and accountability toward participants. In this capacity, platforms exercise discretionary control over the interests of market participants. Access platforms control participation, performance, and level of use in the market. This control is both general and specific. Platforms control the market for all participants with its general rules of conduct, reputation mechanism, and manipulation of use. This control creates a general responsibility for its role as a market constituter. Platforms also control individuals and may determine an individual’s ability to enter and exit the activity, or influence an individual or group’s participation. This control constitutes a more specific responsibility toward concrete participants. Based on this concept, then, access platforms represent a fiduciary-type, and they owe users of both ends of the transaction a duty of loyalty.

The concept of market-constituting fiduciary can be placed between two competing understandings of access platforms. The platforms typically argue that they are merely technological companies, offering the innovative tools that allow users to connect.¹⁰⁰ This understanding reduces the role of access platforms to mere facilitators. A slight variation of this position, which was declared by Airbnb, is that the platform creates a community of hosts.¹⁰¹

At the other end of the spectrum, some argue that access platforms are heavily involved in the transaction to the extent that some of these companies are de facto employers of service providers.¹⁰² This argument is only relevant to some of the access platforms, and it applies to the legal relationship between the platform and service providers, and not to the service recipients.

In similar vein, a ruling by the Third Circuit determined that Amazon is a seller for the purpose of product liability law.¹⁰³ The court supported its decision by emphasizing Amazon’s control over the transaction between the vendor and the customer. However, it is clear that the platform does not actually sell the product. A better conceptualization relies on platforms’ responsibilities in creating and managing the market.

This is the contribution of the market-constituting fiduciary concept. It does not contend that platforms control users’ activity entirely, as the employer or seller conceptualization may suggest, nor does it belittle the role of the platform, as the technological-facilitation argument implies. Instead, the conceptualization discerns the concrete function of access platforms and draws the normative implications of this control.

The market-constituting fiduciary structures the market and controls its features, but it also works under the implied agreement of market participants. As participants have no control over the conditions and market and very little knowledge of its design, the implied agreement between platforms and their users is that the fiduciary will construct a market that is stable, open, and fair. The main implication of the duty of loyalty of market-constituting fiduciaries is that access platforms have to respect the interests of their users and their expectation of a stable, open, and fair market for all participants. There are three concrete implications to the duty of loyalty: the duty to mitigate discrimination, the duty to provide prior notice before pulling out from a given area, and the duty to create fair entry and exit rules.

12.4.2.1 Discrimination

The first implication concerns the access platforms’ legal responsibility for the discriminatory choices of their users. There are numerous reports of racial and gender discrimination in collaborative consumption enterprises. Airbnb opens up the home to strangers, enabling people to engage in interactions with individuals from different backgrounds. However, studies have found that users with names that sound African American were 16 percent less likely to be accepted as guests than users with names that sound white.¹⁰⁴ There is additional anecdotal evidence of cases where a host rejected a guest based on discriminating factors.¹⁰⁵ Airbnb is not alone. There are reports of discriminating practices in other sharing economy platforms.¹⁰⁶

The first question is whether discrimination in the sharing economy is legally prohibited. According to American law, businesses that are open to the public cannot discriminate against protected classes.¹⁰⁷ However, renting out private and personal possessions on occasion may not be an instance of public accommodation. This argument builds on the distinction between places that are personal and private, and places that are open to the public.¹⁰⁸ Sharing personal possessions can be legally classified as working within a personal, private sphere and therefore remain unaffected by antidiscrimination laws. In previous work, I have argued in favor of amending antidiscrimination laws and expanding their scope to sharing economy projects.¹⁰⁹

This chapter involves a different question. It asks whether access platforms have a responsibility to oversee, control, and mitigate discrimination practiced by their users through elements of design. There is no easy or obvious answer. In order to establish such a legal duty, one must first conceptualize the legal role of platforms, and explain how this legal role entails responsibilities in the realm of discrimination. Some scholars argue that Airbnb is in fact a de facto real estate broker¹¹⁰ or a chain of hotels.¹¹¹ Others argue that platforms are responsible for the discriminatory choices of their users simply because they have the ability to control discrimination.¹¹² These characterizations are rather narrow in scope. They either avoid the legal foundation for the platforms’ responsibility altogether or circumvent the challenge by equating companies with familiar industries. The legal foundation is important. The conceptualization of platforms must address the new activity and inner workings of these markets, and provide a broad conceptualization that fits a category of access platforms, rather than one single example.

Platforms’ role as market-constituting fiduciaries explains why platforms should be involved in antidiscrimination regulation in the first place. Although the platform itself may not discriminate, it does have a responsibility toward users, market participants, to create an open and fair market, and mitigate discrimination among its users. As access platforms constitute a market through their algorithm design and terms of service agreement, they control users’ behavior to an extent. Users have reasonable expectations that platforms will create the conditions of an open market that is a viable option for users from different backgrounds. It is the control over the various elements of users’ behavior and over the structure of the market itself that creates a duty to constitute a fair market. The duty of loyalty thus ensures that users, both active and potential users, may fairly participate in the market. Access platforms can use the design of certain features in order to mitigate discrimination.¹¹³ A possible technique (that I do not necessarily endorse) is to close off the option to rent out a home, once the host has refused to rent it to a guest from a protected class. Using its design to mitigate discrimination is the platforms’ responsibility toward market participants.

Moreover, the markets constituted are often characterized and branded as promoting diversity and openness.¹¹⁴ These markets have distinct features that create alternatives to property ownership, and create new opportunities in other industries. Discrimination excludes protected classes from participation in these alternative markets. In addition, peer-to-peer markets become a significant economic phenomenon and are beginning to transform traditional transactions in established industries.¹¹⁵ Commercial companies are attempting to mimic the types of transaction, the structure of the market, and forms of engagement in an effort to capitalize on the current momentum. Norms that are shaped and formed in peer-to-peer markets thus trickle to traditional markets. For this reason, constituting a market demands wider social and economic responsibility.

Access platforms have already assumed responsibility in response to public opinion, and they have implemented several voluntary steps that address discrimination. Airbnb commissioned a report to review its policies and suggest ways to address these problems.¹¹⁶ The report suggested a new “Community Commitment” policy, declaring: “By joining this community, you commit to treat all fellow members of this community, regardless of race, religion, national origin, disability, sex, gender identity, sexual orientation or age, with respect, and without judgment or bias.” This commitment went into immediate effect. Similarly, Uber released a community commitment that states that “when you use Uber you will meet people who may look different or think differently from you. Please respect those differences. We want everyone to feel welcome when they use Uber.”¹¹⁷ It also prohibits discrimination.¹¹⁸

A community commitment is important, but it is does not effectively curtail discrimination on its own. Airbnb’s commissioned report also recommended reducing the prominence of personal photos and replacing them with objective information.¹¹⁹ In addition, it encourages increasing the “Instant Booking” feature that does not require the host’s approval prior to the booking.¹²⁰ Airbnb did not endorse these latter steps. These suggestions conflict with other features of the market, and they merit a holistic discussion that exceeds the scope of this chapter.¹²¹

12.4.2.2 Prior Notice

Participants in peer-to-peer markets are dependent on the access platform for their continuing activity. They expect a certain level of stability in the market. If the platform relocates, ceases to exist, or bars entry, users will lose the ability to continue to use the platform that serves as a steady source of income or as an alternative form of consumption. Let us revisit the case of Uber’s and Lyft’s operation in Austin, Texas. After the residents voted to maintain strict regulation of ridesharing businesses, both companies withdrew from activity in the city at once.¹²² Drivers and riders lost, almost immediately, a source of income and a valued form of transportation.¹²³

I argue that access platforms owe a weak form of market stability to their users. The duty of loyalty includes the obligation to give proper notice before shutting down the platform’s activity in a given area. This is a reasonable expectation of a market constituter. This obligation provides a safety net that protects users from a sudden change of practices. However, this is not an obligation to continue an activity when it is not profitable, but rather to give prior notice of a few weeks so that users can prepare themselves and search for an alternative. Although this requirement will probably result in a higher premium for consumers, it is required in order to allow users to plan ahead and make peer-to-peer markets a more secure choice.

12.4.2.3 Fair Entry and Exit Rules

The duty of loyalty of market-constituting fiduciaries includes fairness in fashioning entry and exit rules. A fair and stable market is not defined simply by the continued activity of the platform. It is more important to provide individual stability. In other words, it is important to ensure that individual users or groups will not be arbitrarily banned from activity. Platforms may decide to suspend or ban users that do not comply with its policies. Users risk losing access to a market, a pool of resources, if the platform bars entry or forces exit.

The duty also includes transparency of practices and decision-making processes of exit-forcing decisions. Before an access platform decides to bar a user from participating in its market, it has to conduct a fair process, one that allows the user to be heard. Remember the problem of discrimination. If a platform concludes that a user discriminates against a protected class, it may decide to ban the user from further activity. It is definitely important to protect against antidiscrimination, as I argued in Section 12.4.2.2. Nonetheless, in the realm of algorithmic governance and regulation, platforms have tremendous power to control participation and exclude individuals and groups. Some level of procedural justice is required, including the right to be heard and the duty to provide a detailed explanation for the decision to exclude.¹²⁴

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Market-constituting fiduciaries owe a duty of loyalty to market participants, one that is tailored specifically to their function of creating and maintaining the market. The three obligations discussed here: Fair entry and exit rules, prior notice, and antidiscrimination policies are all examples of the kind of implications that this duty of loyalty entails. These obligations build on users’ expectation of a fair, open, and stable market. This rationale may support additional obligations. The implications of the duty of loyalty will be developed over time and hopefully respond to new challenges.

Access platforms shape market norms across the globe. State and local governments in common and civil law target their activity when it affects the community, but their legal obligations toward various users has not been properly discussed and developed. The market-constituting fiduciary presents a normative legal construct that fits different jurisdictions.

12.5 Conclusion

Access platforms are transnational firms with a growing impact on markets and social interactions. While markets are changing and expanding, the law seems to lag behind. In lieu of traditional legal institutions, access platforms begin to develop their own rules and self-regulate their relations with users. This chapter suggests a normative solution to this problem, one that can be adopted and implemented in various jurisdictions.

This chapter builds on fiduciary law’s focus on power and vulnerability as a category of thinking, and it promotes a new concept: the market-constituting fiduciary. This concept accounts for access platforms’ function as creators of the markets, responsible for shaping, constructing, and executing its rules. The market-constituting fiduciary concept responds, first and foremost, to the dependence and vulnerability of market participants on both ends of the transaction to platform power. Their participation in the market depends on the access platform. This concept presents a normative solution to a transnational problem that can be implemented through private law rules of different legal systems. It conceives of a new form of fiduciary duty that can be applied transnationally to transnational actors. It can be supplemented by other regulatory and conceptual efforts to address all of the implications of access platforms’ activity.