UBER and Air BnbAt the end of 2014, Google (GOOG)pulledits news service out of Spain in response to a government order to pay content providers. This, after Germany attempted the exact same thing, received the exact same response from Google, and Spain quicklybacktrackedafter realizing it had a lot more to lose from Google pulling its news service than it would gain from Googles compliance with its law.Here, we have a classic case of short-sighted law makers and greedy lobbies that did not recognize the hugebenefitsthat technology could bring them.Sadly, the same cannot be said of the legal problems that young upstarts likeAirbnbandUberare facing. Touted as the mostdisruptivetech companies around, the reality is that their legal troubles over the last few years are significantly different from the example aboveand do warrant a degree of attention from the state.THE DISRUPTORSBoth products of thesharing economy,Airbnb is a web portal that allows one to "list, discover and book unique accommodations around the world. Sounds like any other booking portal, but the key difference is the fact that none of the properties listed are hotels, and are instead rooms or entire homes that private citizens like you and I can rent out.But wait, isn't thatCraigslist?Unlike a pure classifieds site, Airbnb also acts as the payment intermediary, processing the transaction through its own website and making its money by taking a cut from every transaction. That the company is currently valued at$13 billiontells us that the sense of security introduced by Airbnb and the promise of something different appeals to a lot of people.Uber takes the same sharing principle and applies it to cars. By registering with Uber and downloading an app, any driver with a car can become a taxi service and find the places with the highest demand, courtesy ofUber's proprietary algorithms. From the passengers point of view, Ubers app provides a very convenient GPS-enabled taxi service that always finds the nearest cab and brings it straight to their location. As with Airbnb, Uber does not actually own any of the taxis, the drivers are not full-time employees of Uber, and it makes its money by charging fees for the service it offers. Ubers$41 billionvaluation suggests it has been even more successful with its interpretation of the sharing economy than Airbnb.THE OTHER DISRUPTORWhile Googlesself-driving carsare not quite ready to prompt our own version of thered flag lawsthat early motorists faced,AirbnbandUberhave certainly managed to draw quite a bit of attention from lawmakers around the world.The first major contention is on the tax front. Both companies provide the same service as many other traditional companies but paynone of the taxes. Hotels and bed and breakfasts are regulated and pay a variety oftaxesthat Airbnb has mostly been able to bypass by claiming to be a technology company. Uber, too, gets away with bearing none of the fiscal responsibilities that its traditional brethren in the yellow cab and limousine companies do. For every happy customer that these companies acquire, the state becomes unhappieras it loses revenue.Unfortunately, tax evasion is just the tip of the iceberg. The next major objection comes from the licensed hotels and taxi companies which contend that these so-called technology companies are able to undercut them on prices by engaging in unfair trade practices. Since this emergingsectorhas next to no regulations and the overhead caused by compliance is so low, these companies can offer significantly cheaper prices and still be just as, if not more, profitable.While Airbnb and Uber can certainly make the claim that these new ideas from the sharing economy will ultimately prove to be positive, the fact remains that when billions of dollars are involved, only the free market exists; and in so far as the market is free, a lack of regulation only enables exploitation and abuse, not empowerment and goodwill. Reports of landlordsevictingpoor tenants to get more for their square footage, as well as the news thatmini conglomerationsare turning entire buildings into Airbnb rentals, bolster the claims ofunfair trade practices. In Ubers case, non-existentlaborlaws and unclear conditions of employment mean plenty of opportunity to engage in exploitative practices.WHAT ABOUT DEMOCRACY?Both companies have been so successful that they are on IPOwatch-listseverywhere. Their immense popularity with the people must surely mean that the political will exists to get them through these teething problems. Unfortunately, both companies have faced severe problems on this front too. Neighbors and other tenants of Airbnb properties have complained about issues ranging fromnoise and disorderly conducttoburglaries and vandalism, and evenbrothelsandsex partiesin their buildings. Put simply, in community living of any kind, people have the right to demand that their peaceful residential spaces not be turned into a tourist playpen.Though the only direct opposition Uber faces on the roads is from drivers who work for the competition, the company gets into far deeper problems indirectly. Questions of liability and accountability are huge sore spots for Uber. When a regular taxi driver gets into an accident, there is a generally clear chain ofaccountabilityand insurance procedures, but with Uber, there are more questions than answers. Making an already murky situation even murkier is the issue of liability when the Uber driver is not actively running a fare.As though this was not enough to drive home the real need for legal intervention, Uber faces even bigger issues with its, for lack of a better word, driverenablingpolicies. Claimsof rape and sexual assault have been filed against Uber drivers inmultiple countriesand questions have been raised about the precise nature of theallegedlysophisticated background checks they conduct on their drivers.The latest case inIndiareally makes one wonder where Ubers priorities lie, for one would expect a smart and dedicated service provider to have updated protocols to prevent repeated occurrences after the first incident. Yet, despite having faced the same problem in the U.S. many months before it occurred in India, the company somehow failed to anticipate another case of rape, and in Delhi, which has emerged as the poster child for rape and violence against women in recent years.THE BOTTOM LINEThe sharing economyis not such a bad idea, especially in these troubled times. The problems faced by Airbnb and Uber are not products of this alternate economic paradigm, but instead a result of their attempts tosuperimposeconventional economic ideas on an idealistic economic precept.To be fair, there is nothing wrong with this, and the fact that even charging a $1safe rides feefor conducting background checks hasnot dissuadedthe masses from using Uber is a testamentto the relative importance of the convenience and novelty that these services provide. Bans will soon be condemned as Luddite behavior,and in timeclear and friendly laws will be established, allowing them to clean up their act.Until then, Airbnb, Uber and others of their ilk only need to weather the storm and ensure that their purses dont run dry before the seas calm. For the investor, the challenge is to figure out what the cost of compliance will be at that point and if these companies can maintain their price advantage once the convenience becomes a standard offering and the novelty wears off.