Is Uber accelerating away?

The German court has recently overruled the ban on drivers using the ridesharing app Uber. Despite this victory for Uber, it remains unclear where commercialised ridesharing fits into many of the world’s regulatory regimes.

Lexis®PSL Commercial has interviewed Nicola Fulford, privacy and data protection partner, and Alex Cravero, commercial technology associate at Kemp Little about the case. Here's what they have to say:

What’s the background to this case?

Uber, the ridesharing app connecting passengers and drivers for hire via their smartphones, has not had an easy ride recently. Although initially launched in 2010 with a sole focus on full-sized luxury cars, in 2012 Uber launched a low-cost offering (dubbed UberX) as an alternative to traditional taxi services. This solution proved popular among consumers and, having broken into the taxicab market, Uber has since undertaken a rapid expansion into over 200 cities in 45 countries as at the time of writing.While the taxicab industry is highly regulated in most countries around the world, it is unclear where commercialised ridesharing fits into these regulatory regimes. Operating on the basis that they are unregulated, Uber has met opposition from both taxicab operators and regulators across four continents. Taxicab operators in Germany, France, and England have undertaken mass protests, at the same time as regulators have battled to determine how ridesharing falls within their existing regulatory regimes.

Germany is proving one of Uber’s biggest challenges so far. Uber were banned from operating in Berlin earlier this year through cases brought by the Berlin Taxi Association. Taxi Deutschland then followed suit and last month obtained a temporary nationwide injunction against Uber’s low-cost UberPop service for failing to obtain the necessary licences under German law.

However, a little over two weeks after the initial ruling, the Frankfurt Regional Court revoked this injunction and reinstated Uber’s right to operate in Germany.

What led to the original decision being overturned?

In this instance, Taxi Deutschland simply failed to file its claim by the cut-off date. Under German law, a claim of this type must be brought within two months of the date on which the company (in this case Uber) commenced provision of the relevant service in Germany. Uber launched UberPop in Germany in April 2014, around four months before Taxi Deutschland filed its claim.

The merits of Taxi Deutschland’s case were not considered in this hearing, and the court did not make any judgment on whether or not Uber’s services were legal in Germany, although a spokesman for the Frankfurt Regional Court confirmed that the judges were sympathetic to Taxi Deutschland’s arguments that the service competed unfairly with local taxis. Taxi Deutschland has confirmed it will be appealing the court’s decision over the forthcoming month, though a successful outcome will require a good reason for filing out of time.

What is the significance of this decision?

This is a significant decision for Uber. The original judgment not only granted a temporary nationwide injunction, but also imposed:

  • a fine of up to €250,000 per trip if Uber eventually lost the claim, and
  • criminal liability leading to up to six months’ imprisonment for Uber’s German-based employees

In direct defiance of the German injunction and threatened fine, Uber not only continued to provide the UberPop service across Germany but even cut fares in Munich and Berlin by 30% in the days after the decision in order to drive demand—increasing fares and the potential fine. This possibly sizeable fine, along with the criminal liability, has been removed by the court’s overturning of the injunction.

This outcome may also comfort Uber’s drivers who expressed concern that they may be directly liable for the €250,000 fines in light of Uber’s ‘partner’ structure (under which they are not considered employees of Uber). This concern was allayed to an extent by Uber’s confirmation that the injunction targeted the company directly and not its ‘non-employee “partners”’ and that it would ‘stand behind its partners’, but the latest decision provides a conclusive position for the drivers.

The effect of this decision for taxicab operators in Germany, while less positive, is equally as significant. By overturning the original decision, Uber is free to continue its expansion outside of the burdensome regulatory regimes to which the taxicab operators are subject. In addition, the cases have raised Uber’s profile within Germany while simultaneously weakening the market position of taxicab operators—something which Uber is capitalising on to increase market recognition and share.

How does this impact the ongoing battle between taxicab operators and rideshare providers more generally?

Beyond the legal implications, the original decision held a degree of symbolic significance. Having been delivered shortly after Uber was banned and fined in neighbouring Brussels, the original German judgment lent to the view that a widespread shift in the way that regulators deal with rideshare service providers was in store. Serving as a much fought for step in the right direction, this was welcomed by taxicab operators globally.

However, while the latest decision does not address the legality of rideshare services and has not ruled out a shift in regulators’ attitudes, it is still a significant blow to the taxicab industry. Uber’s continued avoidance of meaningful regulatory opposition (and consequential subjection to the burdensome regulations and strict controls placed on traditional taxicab operators) means rideshare companies are able to continue to operate economically-efficient business models that undercut existing taxi services and encourage widespread disruption of the taxi market.

Perhaps the biggest impact, though, is simply that Uber’s unrelenting growth and success in Germany despite the original injunction highlights that there is truly a market for rideshares and other alternatives to taxis—constituting a significantly more sustained threat to the long-term viability of traditional taxicab operations. This will likely intensify the ongoing battle between taxicab operators and rideshare providers.

What does this say about wider legal issues with disruptive technologies?

New and creative technologies are being used to address consumer concerns and issues with existing markets. The taxi market, for example, is often viewed as saturated—monopolised by only a handful of service providers in certain cities. However, the advancement of technological development has meant that increasingly practical and simplistic solutions that utilise modern infrastructure (like Uber) have been able to satisfy consumer demand and disrupt these otherwise closed markets by reducing barriers to entry.

However, disruptive technologies bring with them certain problems. Saturation in markets is often reached as a result of high levels of regulation that make it challenging for new providers to either enter the market or, once entered, differentiate themselves to obtain the explosive growth necessary to break the saturation in any meaningful way. The advancement of technology creates gaps in laws and regulations, which often cannot keep up with the rapidity of such advancement. Products that are able to truly disrupt a market therefore often do so by taking advantage of these gaps, as we have seen with Uber in the taxi market.

A key issue with this is that often the regulations that are circumvented are put in place for the purposes of consumer protection. Taxicab providers in the UK are required to undergo criminal record and vehicle safety checks before being granted the necessary licences, and must ensure all taxicabs are fitted with a meter to ensure passengers are charged fairly. Similar positions are adopted under regulations across the United States and Europe.

However, despite companies like Uber considering themselves outside of the taxicab regulations, they are not necessarily unaffected by them. The service generally obtained by consumers using providers that are subject to regulations can create a widespread expectation from the public as to a minimum level of protection or service. Companies entering the market, even beyond regulatory scope, often therefore have to demonstrate to consumers that they operate at the same, if not higher, level than the regulations require in order to gain user trust and, ultimately, market share. Uber, for example, undertakes a rigorous three-step criminal background screening, provide end-to-end insurance coverage, and operate a clear metered charging structure (including providing fare estimates).

What should lawyers take from this latest development?

The obvious point arising from this case is simply that lawyers should always ensure deadlines for filing claims are known and met.

Lawyers should be watching this case for other reasons, though. It remains to be seen whether the world’s regulators will ultimately determine ridesharing apps fall within traditional taxicab regulations. In the meantime Uber is accelerating away. This is a situation where a new technological development has caused such widespread disruption that regulators of a specific industry, in numerous countries around the world, are having to take immediate action. The Uber cases are likely to demonstrate where countries stand in relation to disruptive modern technological solutions, providing a valuable insight that will aid with strategising and planning for market entrances (and the legal matters associated with such).

So what do you think?

Other disruptive business models are challenging regulatory regimes across the globe. Only yesterday, San Francisco voted to legalise homeowners renting out spare rooms on a temporary basis (by passing the 'Airbnb law’). Not surprisingly, Airbnb is somewhat chuffed at this development.

As for the UK, the UK is currently consulting on the 'sharing economy' and looking to make life easier for sharers in the near future: 'The sharing economy is estimated to reach 50% market share in key sectors such as holiday accommodation and car-sharing/car rental 2025.'

Do let us have your thoughts below.

Interviewed by Nicola Laver. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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