Archive for the 'Business Law' Category

San Francisco Bay Area Airbnb Laws

With Super Bowl 50 just days away, many San Francisco Bay Area residents are looking to capitalize on the Airbnb market. Luxury hotels are practically booked. Rooms in the prestigious Fairmont Hotel range from $1,500 to $10,000 a day with a minimum stay of four days. Even lower-end hotels like Travelodge are charging $1,100 a night. In the alternative, approximately 75% of Airbnb listings in San Francisco bay area are asking more than $360 per night. Someone can even rent a tree house in Burlingame, California for $495 a night the five days leading up to the Super Bowl.

With so many people looking to Airbnb to make some easy money during Super Bowl week, it begs the question, what are the San Francisco laws pertaining to Airbnb?

What is Airbnb and How Does it Work?

Simply put, Airbnb is a room letting website. It allows people to list, find and rent lodging from all over the world, including popular destinations such as Paris, London, Berlin, and state side in cities such as San Diego, New York, and Miami. It is privately owned and is reportedly worth $25 billion. The primary source of Airbnb’s revenue comes from service fees from bookings.

What are the Airbnb Laws as They Pertain to San Francisco?

In October 2014, San Francisco Mayor Edwin Lee signed San Francisco Ordinance No. 218-14, thereby allowing some residential properties to conduct short-term residential rentals. Here are the basic rules:

Primary Residence Requirement. To register a listing, you must live in the residence for at least 275 days per year. If you haven’t lived there for an entire year, you must have lived in the specific residential unit for 60 consecutive days prior to your application. If you own a multi-unit building, you may only register the specific residential unit in which you reside.  For Rent

Liability Insurance. Hosts must maintain at least $500,000 of liability insurance or provide proof that liability coverage in an equal or higher amount is provided by the hosting platform (such as Airbnb).

Limits. You may only register one residential unit, and all residential units subject to the Affordable Housing Program or units designated as below market rate (BMR) are ineligible.

Why is Airbnb Controversial?

In November 2015, Proposition F, a measure that would have substantially curbed short-term rentals, lost by 55% to 45%. It was one of the most contentious issues on the ballot.

Opponents of Airbnb argue that using housing as hotels diverts scarce housing to lucrative but illegal all-year round hotels. San Francisco typically only sees 2,000 new units added to the housing market each year. A few hundred units off the market significantly impacts an already over-extended city.

Landlords are also largely against Airbnb. In San Francisco, most tenants are covered by rent control such that the rent can only be raised by a certain amount each year. So what are they upset about? Let’s say a tenant has been renting a one bedroom, one bathroom unit since 1980 and pays $800 a month due to rent control. If the tenant is able to get $500 a night the four days leading up to the Super Bowl, the tenant stands to make $2,000 on the transaction, pocketing $1,200 after she pays her monthly rent. Landlords believe this type of arrangement unfairly enriches the tenant. Many landlords include “no subletting” clauses in their residential leases to prevent their tenants from utilizing Airbnb.

And who is pro-Airbnb? Airbnb, which advertises their company as providing middle-class people a way to make ends meet. Tenants may see Airbnb as an easy way to make extra cash. Homeowners who elect to use Airbnb also believe they have a right to do with their property as they please, and utilizing Airbnb can help pay their mortgage. Many Airbnb users have great experiences and are able to visit places which would be prohibitively expensive if not for Airbnb.

Regardless of if you are for or against Airbnb, one thing is for certain – both hotels and Airbnb hosts stand to make a lot of money during Super Bowl weekend.

Appeals Court Denies “Uber” for Planes

If you want to get from Dallas to Washington, D.C. fast, wouldn’t it be nice to contact a pilot in an Uber-like plane service? Well, keep dreaming. In December 2015, the U.S. Court of Appeals for the District of Columbia Circuit struck down the idea.

Flytenow, Inc. developed a web-based service allowing private pilots to offer their planned itineraries to passengers. The itineraries were only given to passengers willing to share in the pilot’s expenses to fly to their destination. The company contacted the Federal Aviation Administration, or FAA, regarding the legal interpretation of its compliance with the Federal Aviation Act of 1958 and other FFA regulations.

A dispute arose when the FFA concluded Flytenow’s pilots needed a commercial license. Normally, pilots are considered common carriers. A common carrier offers its services to the general public. The services are offered in compensation of goods, property or messages over a defined route. Typical types of common carriers include mass transit, such as airlines, taxis, cruises, and ferries.

This means private pilots can’t use Flytenow to offer their services.

Flytenow Wanted the Court to Set Aside the FAA’s Interpretations because of Inconsistency

The company filed a lawsuit based on objections like:

  • The FFA misinterpreted its regulations when it decided passengers would be compensating the participating pilots
  • The FFA erred when it concluded pilots using would be holding out an offer transportation to the public

The Court found both objections unpersuasive.

By sharing expenses, private pilots are being compensated for their trips. If a person called a private cab service, the amount of gas is probably calculated into the amount paid to the driver. The same would have been true of Flytenow’s pilots. By getting paid a portion or half of their expenses, consumers would save money. Essentially, there’s an exchange of value.

Thus, they aren’t private pilots, but commercial pilots.  Plane

Another problem with Flytenow’s argument is trying to redefine “holding out.” According to FAA Advisory Circular, pilots are barred from advertising their services to the public. The company tried to argue its’ pilots don’t advertise to the public. They submit their flight plans to the Flytenow.

However, the FFA argued that by giving their flight plans to the company, they are advertising their services to the public. For example, an individual wanting to fly to California from Missouri could look at a flight plan on the company’s website. He could then decide to “share” the expenses of the flight with a pilot flying to California.

The Right to Sue

The court got it right. The company holding itself out as a professional service to the public does create a risk to unsuspecting passengers when its pilots are not in fact held to professional standards. Passengers are under the impression the company and its pilots are common carriers. Common carriers have the experience and credential to fly commercially. If Flytenow and its pilots were allowed to present themselves as commercial and a plane crashes, passengers and/or their family would have difficulty suing under common carrier negligence.

Negligence is the failure to act with reasonable care as another in a similar or same situation would. When transporting passengers from one area to another, common carriers have the duty to:

  • Provide reasonably safe vehicles fit for an intended purpose
  • Provide careful drivers or pilot of reasonable skill and good habits
  • Exercise all standard precautions for the safety of all passengers
  • Comply with all safety laws
  • Use vigilance and utmost care in transporting all passengers
  • Warn passengers of any potential dangers the common carrier knows about

A private pilot doesn’t have to do those things. So making the pilots commercial instead of private gives passengers more legal protection.

Maybe the public won’t have to imagine an Uber-like plane service for very long. Maybe the right company will hire commercial pilots willing to fly planes to destinations for pay. For now though, we can only dream of avoiding the long waits at airline terminals and trying to book the best flight at the best price.

Lesson From Pharmaceutical CEO Shkreli’s Outrageous Drug Price Increase

Turing Pharmaceuticals CEO, Martin Shkreli, made headlines when he raised the price of Daraprim, a prescription drug for a life-threatening parasitic infection that mainly strikes pregnant women, cancer patients and AIDS patients. Overnight, Daraprim went from $13.50 to $750 per pill, a 5000% price increase. Outrage from the public followed, making Shkreli “the most hated man in America.” Pressed with demand to lower the price, Shkreli announced that he would lower the costs. However, the flamboyant self-promoter later stated that he should have increased the price even more.

Last month, Shkreli was arrested and charged with securities fraud and wire fraud. So, the federal government is now looking into his alleged ponzi scheme. But, what about the 5000 % price gauging?

Profit-Making U.S. Health Care Industry

Shkreli’s unethical price gauging reflects the bleak truth of American health care system, so deeply rooted in capitalism. Let’s be honest. In the U.S., health is not a guaranteed right. Our country’s healthcare does not cover everybody. In most other developed countries, health care is a guaranteed right and everyone is covered. In the United States, health is a commodity for-profit private system with only limited control from the government. Martin Shkreli 2

T.R. Reid, in his comprehensive examination of the health care systems of France, Germany, Japan, the UK, and Canada comparing with the U.S. health care system, diagnosed the differences: “The United States is the only developed country that relies on profit-making health insurance companies to pay for essential and elective care. All other developed countries have decided that basic health insurance must be a nonprofit operation. In those countries, the insurance plans – sometimes run by government, sometimes private entities – exist only to pay people’s medical bills, not to provide dividends for investors.” The OECD statistics show that the U.S. is by far the world’s biggest spender on health care.

Shkreli’s action presents an example of manipulating the legal loopholes of the U.S. health care system. By charging an enormous price on a drug his company did not invent and unscrupulously profiting at the cost of those who need the drug, his gigantic price hike harms the public, providers, and the overall U.S. health care industry.

Unethical Drug Pricing

Surprisingly, Shkreli’s price gauging was legal. Shkreli defends himself, stating that he has a sworn duty to make profits for his shareholders and tells New York Times, “It really doesn’t make sense to get any criticism for this.” Granted, as a CEO for a for-profit corporation, he owes a fiduciary duty of care to his company and shareholders.

However, his fiduciary duty alone does not justify his outrageous actions. It’s because he shamelessly maximized profits while failing to uphold his ethical obligations. We are not talking about some price increase on a latest model of a smart phone. We are talking about treating sick patients and preventing life threatening diseases.

It’s disturbing to learn that his action is not an isolated incident. Other pharmaceutical companies have been engaging in the same type of hundred fold price hike. A news analysis by Hedge Clippers shows that at least 19 other drugs have experienced stunning price hikes of between 300% and 1,200% in the past two years. Rising cost of medicines raises insurance costs, medical bills, and the government expenditure that ultimately impact every one of us.

Why Isn’t a Price Increase from $13.50 to $750 Not Illegal?

People wonder how such gigantic price increase was possible without violating any laws or free of regulations. That’s because for profit U.S. health care industry has limited the government’s regulation over the industry. Unlike most of other developed countries, the U.S. government can neither set a standard fee schedule for medical care nor tightly regulates prices of drugs and medical devices. However, to ensure safe drugs on the market, FDA restricts its approval process and then only allows the approved manufacturers make the drugs.

Shkreli knew how to get around FDA rules. Usually, once the drug is approved, the drug price increases until the drug’s patent expires. After the expiration of the patent, the drug becomes generic drugs and any companies can make the drug leading the price to drop. But the government has placed restrictions on distributing some drugs that are dangerous if abused. Federal regulators approve only if the drugmaker agrees to tightly control their distribution — providing them only for hospital use, for instance.

As an old drug, Daraprim’s patent had expired decades ago. Shkreli’s strategy was to buy old neglected drugs and turn them into high-priced “specialty drugs.” There was hardly any R&D cost because Turing did not invent Daraprim. Turing bought rights to sell Daraprim and secured controlled distribution. Although anybody could conceivably make generic copies since the patent expired, Shkreli effectively foreclosed competition through controlled distribution. His controlled distribution prevented other manufacturers from obtaining sufficient supplies of samples for required testing to make copies. This allowed Turing to practically monopolize the market, discouraging other companies from manufacturing and going through FDA approval process.

His business maneuver of exploiting the loophole of the system legitimized his 5000% price increase without violating any antitrust law.

Government Should Regulate Drug Pricing

Americans seem to believe that the private sector can manage any type of business better than government can. For health care though, the government has an important role to watch for the common good thereby the public do not become the victims of capitalism. While allowing free competitions among insurers, health providers, and pharmaceutical companies, the government should be able to negotiate the cost and enforce cost control measures.  Shkreli’s case shows that a for-profit entity can raise prices of health care without limits. The recent debate over prescription drug pricing and pharmaceutical’s unethical price increase prompt the need for appropriate regulation. Had there been the government’s oversight over the price of prescription drug, Shkreli would not have been able to increase prices in the manner he did.

What we are not exactly aware, but is well known to the rest of the world, is that the U.S. health care is behind in many levels such as coverage, quality, and cost. The U.S. health care system is too complex and too fragmented. There is no price transparency and added administrative costs. We do not have a standard fee for a certain procedure or medicine where everyone pays the same price for the same treatment and same drug. Germany and Japan provide one of the world’s best health care. Their system resembles ours in that it is a multi-payer system where a number of providers compete for services and individuals are insured through private insurers. The difference is that, while private insurers freely compete against each other, the government tightly regulates cost.

The burden of health expenditure is on everyone in one way or the other, as patients, employers, hospitals, insurance companies, Medicaid (the government) and Medicare. Drug companies should continue to compete for business and should be held publicly accountable when prices increase a hundredfold with minimal R&D. To sustain a health care industry that is based on capitalism and motivated by greed, competition and control must coexist. Otherwise, our health care spending will continue to produce millionaires with no ethical principles while sick patients become sicker because they can’t afford the drug any more.

The Price For Privacy

Privacy has been a growing concern for everyone online. A recent Pew Research study found that 93% of the adults they surveyed said that being in control of who can get information about them is important.

However, most companies sell user data to third parties, who then use that data to create targeted ads. Although companies disclose that they engage in this practice in their privacy policies, most users are unaware of what specific groups have access to their information.

One remedy that companies may start using is the pay for privacy model. Since companies are paid by third parties for this data, the pay for privacy model would reimburse a company for the approximate difference if the company didn’t sell the consumer’s data. Consumers would instead pay a subscription fee for websites to ensure that companies won’t sell their information.

What Is Behavioral Targeting?

Many of the ads we see online today are placed through a technique called behavioral targeting. Advertisers work with companies to use technologies like clear gifs and cookies to track your web surfing behaviors online.  Chained Laptop

The data that is collected for behavioral targeting is not necessarily personally identifiable data such as your name or social security number. Instead, behavioral targeting focuses on data like the news articles you click on or the specific product you stare at while shopping on Amazon. The advertisers can then take this information and direct specific ads to you as an individual.

Would Paying for Privacy Work?

In early 2015, AT&T attempted to roll out a pay for privacy program with its high speed gigabit internet service. Users could either receive individually targeted ads or pay an extra $29 per month for a service with ads that don’t use behavioral targeting.

AT&T went under heavy criticism for this option, but it is not illegal. They make no promises that the number of ads would be reduced regardless of what choice consumers make. Moreover, to avoid liability of any state or federal privacy laws, AT&T’s website makes clear exactly what users are paying for if they choose to sign up for the premium option. AT&T continues to offer this option to their GigaPower subscribers.

Some consumers found a workaround through the use of other technologies like Virtual Private Networks. Others argue that as long as companies are transparent regarding their use of data, consumers are willing to make such exchanges for their data privacy.

In 2014, performance artist Risa Puno showed that people were willing to provide her with personal information like their social security number in exchange for a homemade cinnamon cookie.

Although many people have concerns over who has access to their private information, they may be more than willing to trade it for goods or services if presented the opportunity.

Should Companies Use the Pay for Privacy Model?

Pay for privacy models are new for social media websites, but exchanging your personal data for a benefit has been around for a long time. For example, grocery membership cards provide consumers a discount in exchange for personal information. In addition to the information you entered to sign up for the membership, grocery stores can also track and sell your purchase data to provide you with targeted ads at the checkout line.

When companies are earning additional revenue through the sale of consumer data (as well as the resulting targeted ads), pay for privacy may be the only solution companies are willing to try. With low subscription fees or an exchange of goods or services, consumers can agree to pay for their privacy now.

However, the slippery slope of pay for privacy is that privacy may become a luxury that can only be afforded by people who are able to pay. Consumers who are not able to afford an additional $29 per month charge to ensure their informational privacy may be stuck with directed advertisements and other intrusions into their privacy.

How Is Sexual Orientation Becoming A Protected Class?

Before the Civil Rights Act (CRA) became law, individuals faced discrimination based on race, sex, religion, and national origin. At first, the word “sex” was added to focus on discrimination against women.

Yet over the years, sex discrimination extended to gender discrimination. However, with the recent progression in LGBT rights, some courts interpret the protection to cover discrimination based on sexual orientation. Now, the courts are beginning to place LGBT individuals in a protected class.

But what if the CRA is not amended to prohibit sexual orientation discrimination? What basis can the courts use to extend protection? Can the courts extend protections in a state that does not enact protections for sexual orientation?

Why Is It Important To Be Considered A Protected Class and How Do You Become Protected?

A protected class is a group of individuals that have stronger legal protection against discrimination or retaliation. The right was hard earned over many years with violence and discourse.   Supreme Court

In the beginning, race and color were the only protected classes. Over time, women, the elderly, individuals with disabilities, and a slew of other classes gained protected. But, they were not all protected through the CRA. Groups such veterans, pregnant individuals, and disability became protected through other types of legislation without amending the CRA.

So, do you really need to amend the CRA?

There Is No Need For An Explicit Law. But To Begin, the First Step Was Basis Extend the Protection for Transgender Individuals.

The Equal Employment Opportunity Commission (EEOC) established Title VII of the CRA. It prohibits discrimination because of the individual’s sex. To discriminate because someone identifies as a gender other than assigned at birth, is to discriminate because of their sex. Discrimination against a transgender is gender identity discrimination and so is prohibited under Title VII.

The EEOC focuses on the precise wording of Title VII. The law “prohibits employers from discriminating against employees on the basis of sex….”. The conditional words are what the EEOC and the courts focus on for the basis of extending protection.

The courts applied the same reasoning used in sex discrimination cases involving heterosexual women. The courts found a demand for a female employee to “dress more femininely” to be “sex stereotyping.” The act of stereotyping because of sex violates Title VII.

Extending protection to transgender individuals was a first step in protecting sexual orientation as a class. Soon the courts applied “because of” and “sex stereotyping” to their reasoning.

Applying “Sex Stereotype” And “Because Of” Reasoning to Sexual Orientation Discrimination.

Due to the evolving and growing understanding of sex and gender, the courts apply the concept of “non-conforming gender behavior.” Describing situations like a heterosexual female employee who dresses in a masculine way to a male employee who exclusively dates other men.

Our understanding of sex and gender are evolving. Now, some courts apply the concept of “non-conforming gender behavior.” Like situations like a heterosexual female employee who dresses in a masculine way.  A male employee who exclusively dates other men.

If the employee faced discrimination because of the sex stereotype that women should wear feminine clothing and men should only date women, then they were discriminated because of their sex. If the female employee was male, then she would not have faced discrimination. The same logic applies to the male employee.

The majority of cases deciding that sexual orientation discrimination violates Title VII came in recent years. It was a long awaited step towards equality for individuals who have lived as second class citizens based upon who they love or what they feel.

In the End, the Courts Applied the Same Logic To Sexual Orientation Discrimination.

In 2015, the Supreme Court held that same-sex marriage is a constitutional right. The legal system filled with cases of individuals seeking protection from sexual orientation discrimination.

Since the Supreme Court found legal and statutory basis for same-sex marriage, the lower courts could find a basis for sexual orientation discrimination in Title VII. However, there is no federal statutory law that explicitly states there is a protected right for same-sex marriage. Due to the slow legislative process in Congress, it will may take years, or decades, before it becomes law.

Many argue that the CRA must be amended to make sexual orientation a protected class. But many accepted protected classes only reached that level after social acceptance. In the end, it is only a matter of time before sexual orientation becomes a protected class.