Legal Challenges of Ridesharing Companies

The Driving Force Behind an Emerging Industry: Legal Challenges of Ridesharing Companies

Elizabeth Reinecke*

I. Introduction

The advent of technology has made it possible for anyone who owns a smartphone to have his or her own personal driver through the use of a free application (app).  Ridesharing companies like Uber, Lyft, and Sidecar, allow users to enter their credit card information into the app, which will automatically be charged at the end of the requested ride.  This makes both requesting a ride and paying for a ride much easier than trying to hail a taxi.  Emily Dobson, Note, Transportation Network Companies: How Should North Carolina Adjust Its Regulatory Framework, 66 S.C. L. Rev. 701, 703-04 (2015) (citing Sara Silverstein, These Animated Charts Tell You Everything About Uber Prices in 21 Cities, Bus. Insider (Oct. 16, 2014), http://www.businessinsider.com/uber-vs-taxi-pricing-by-city-2014-10).

In the past few years, ridesharing companies have flourished all over the world.  These types of “alternative mode[s] of transportation” are referred to as “transportation network companies” (TNCs).  Id. at 703.  TNC drivers use their personal vehicles to provide rides to customers, and because the service is not provided with a commercially owned vehicle, TNCs are not subject to the same type of regulation like a taxi or limousine company.  Id. at 701–02.  Lyft, Sidecar, and Uber do not consider their drivers employees of the company, and the drivers do not need commercial driver’s licenses to become drivers.  Stephanie Francis Ward, ‘APP’ ME A RIDE Internet Car Companies Offer Convenience, but Lawyers See Caution Signs, A.B.A.J., Jan. 2014, at 13, 14.

II. Ridesharing Companies as Technology Companies, Not Transportation Services

Lyft and Uber consider themselves technology companies, not transportation services, which is why they cannot be held to comply with taxicab and limousine regulations.  Id.  The federal government has the authority to regulate TNCs through the Commerce Clause of the U.S. Constitution; however, local governments, as long as they have authority from the state, should be the ones to regulate TNCs because they are in the best position to adopt regulations to fit their “local circumstances.”  K. Casey Strong, Comment, When Apps Pollute: Regulating Transportation Network Companies To Maximize Environmental Benefits, 86 U.Colo. L. Rev. 1049, 1054, 1076 (2015).  Existing regulations on transportation services do not apply to the TNC model.  Id. at 1054.  Policy makers are struggling to determine whether to establish new regulations, or to require TNCs to comply with existing ones.  Id.

III. Local Cities Fight Back Against “Illegal” Ridesharing Companies

Government approval of ridesharing companies varies across the U.S.  In late 2014, Oregon banned ridesharing companies, like Uber, from the city of Portland with a cease-and-desist order.  Joseph Rose, Uber Back in Portland in a Matter of Days’? New Plan Up for City Council Vote, The Oregonian (Apr. 18, 2015),  http://www.oregonlive.com/commuting/index.ssf/2015/04/uber_in_portland_in_a_matter_o.html.  With rising pressure from the city’s residents, Portland established a 120-day pilot program that requires drivers to submit to a city-approved background check, grant access for disabled passengers, and have vehicles on the road around the clock.  Id. 

In Nevada, a district judge ordered a restraining order against Uber, which was lifted when lawmakers established regulations on the TNCs, which Uber agreed to abide by.  Richard N. Velotta, Uber, Lyft Face Steep Costs For Nevada Licensing, Las Vegas Rev.-J. (July 16, 2015), http://www.reviewjournal.com/business/uber-lyft-face-steep-costs-nevada-licensing.  The regulations allowed for the full operations of Uber so long as they obtained the required permits.  Id.

IV. Ridesharing Companies Have Faced Lawsuits for Their Alleged Failure to Comply with Local Regulations

In Boston Cab Dispatch, Inc. v. Uber Technologies, Inc., No. 10-10769-NMG, 2014 WL 1338148 at *1 (D. Mass. Feb. 28, 2014), Boston Cab Dispatch alleged that Uber violated various state and federal laws by failing to comply with Boston’s taxicab ordinances.  Boston Cab argued that Uber had an unfair advantage by “avoid[ing] the costs and burdens of complying with extensive regulations [that are] designed to ensure that residents of Boston have access to fairly priced and safe transportation options throughout the city and yet reaps the benefits of others’ compliance with those regulations.”  Id.  The court upheld the denial of Uber’s motion to dismiss the unfair competition allegation for not operating within state and local code, because there was sufficient evidence to hold that Uber exercises control of vehicles for hire “in the private transportation business.”  Id. at *6.

Many other taxicab companies have sued Uber for various violations of unfair competition, misrepresentation of association, and noncompliance with state transportation laws and regulations.  See Greenwich Taxi, Inc v. Uber Technologies, Inc., No. 14cv733 (AWT), 2015 WL 4774989, at *12 (D. Conn. Apr. 13, 2015) (granting defendant’s motion to dismiss); Manzo v. Uber Technologies, Inc., No. 13 C 2407, 2014 WL 3495401 at *5 (N.D. Ill. July 14, 2014) (granting defendant’s motion to dismiss on counts II and III which focused on the noncompliance with local taxicab ordinances).

Most of the lawsuits against ridesharing companies allege violations of the Lanham Act.  The Lanham Act makes it illegal for:

any person who . . . used in commerce any . . . false or misleading description of fact, or false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities.

Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484, 488 (1996) (quoting 15 U.S.C.  § 1125(a)(1)(b) (1994)).  In Dial A Car, Inc., the U.S. Court of Appeals for the D.C. Circuit found no violation of the Lanham Act, holding that the Act does not allow federal courts to enforce municipal regulations.  Id. at 490.  This reasoning has prevented taxicab and limousine services from successfully enjoining ridesharing companies.

V. Conclusion

Policy makers are struggling to find a way to regulate ridesharing companies due to their strategic business model.  So far, some cities and states have entered agreements with ridesharing companies that have allowed them to continue operations.  However, many other cities and states are struggling to reach similar agreements.  In upcoming years, it will be interesting to monitor whether courts will continue to hold TNCs to be technology companies, as they claim to be, or if courts will find they are transportation services, and thus are subject to taxicab and limousine regulations.

Elizabeth Reinecke is a second year student at the University of Baltimore School of Law. She is a staff editor for Law Review, 2L Representative for the Criminal Law Association, and a member of the Royal G. Shannonhouse III Honor Society. Ms. Reinecke is also currently a law clerk in a firm located in downtown Baltimore that specializes in civil litigation.