Taxi or techie?

Taxi or techie? EU courts will decide on Uber’s identity crisis
by Leonid Bershidsky
An important trial started this week at the Court of Justice of the European Union, the EU’s top judicial authority. The judges are trying to determine whether Uber is a taxi company or merely a tech platform that enables customers to find drivers, and the decision, which is not likely to come before April, will serve as a precedent for other sharing economy companies.
The first day of hearings in the case referred to the ECJ by a Barcelona court last year showed that while Uber sticks to its self-description as an enabling platform, the other parties’ stances are diverse and nuanced.
The original plaintiff, the Associacion Profesional Elite Taxi, which represents Spanish taxi companies, says Uber is a transport company because customers pay it for transportation rather than a tech service. Spain as a nation backs the industry group. The Netherlands, where Uber’s European holding company is incorporated, tends to agree with Uber that two services are being provided – an intermediation one and a transport one. Ireland and France say Uber works “in the field of transportation” but is not necessarily a transport company: These countries don’t want to be seen as unfriendly towards tech platforms, since France is home to the long-distance ride-sharing firm, BlaBlaCar, and Ireland is the European domicile of Google, Twitter and Facebook.
This set-up is typical of the European dilemma when it comes to technology-enabled business models. On the one hand, Europe wants to safeguard its labour market models that are more protective of workers than the American one. On the other hand, European countries would like to profit from the success of agile US firms directly or learn from it and compete. They also want to guard labour market models that are more protective of workers than the US one.
That creates a climate of political uncertainty for the US tech leaders. But the matter of the tech firms’ identity as service providers or mere intermediaries can be argued on the merits, too – something the ECJ will attempt to do.
The matter of Uber’s identity as a tech company or a taxi one arose because in the former case, Uber must be allowed to operate unhindered throughout the EU, and in the case of a taxi company, a country can make it subject to an “authorisation scheme”. Uber began to operate in Spain in 2014 without asking the local regulators’ permission, and the taxi association, whose members are subject to strict regulation, took exception to that. So with its ruling, the ECJ won’t kill off the “sharing economy” in Europe – it will simply make its evangelists subject to national regulations, whatever they may be. Some countries may decide that Uber and, say, Airbnb merely provide an “information society service”. Others will treat one as a taxi operator and the other as a hotel chain.
‘Indirect network effects’
In a paper discussing the case, Damien Geradin of Tilburg University in the Netherlands argued that Uber is an intermediary. He wrote:
“Uber does not create value by performing transport services, but by enabling direct interactions between two distinct categories of users. Like other platforms, such as eBay or Airbnb, Uber’s platform is also two-sided in that the two sides that the platforms connects (partner-drivers and riders) are linked by “indirect network effects” in that a large number of drivers benefits riders, and vice-versa. Traditional taxi companies hold none of these features.”
The Spanish argument, however, is no less convincing, and not just because Uber charges customers for transportation rather than intermediation. In the US, there’s a tendency to regulate Uber and its competitors as transportation companies, requiring that they obtain the appropriate licences and insurance. California, for example, has created a special regulatory category of “Transportation Network Companies” for “companies that provide prearranged transportation services for compensation using an online-enabled application (app) or platform to connect passengers with drivers using their personal vehicles.”
The US way of dealing with matters of tech company identity is less bureaucratic than the European one: Regulators and judges try to go to the heart of the matter, the intent of a business model rather than its formal attributes. The 2013 Supreme Court case American broadcasting Cos. v. Aereo is a good example.
Similar argument
Aereo was a company that rebroadcast TV shows on demand to its subscribers. Each of them was sold an individual antenna, kept in the company’s warehouse. The customer selected a program from a list on a website, that triggered the antenna to begin receiving the show, and an Aereo server streamed it to the customer with a few seconds’ delay. The company’s founders thought this was a legally airtight scheme to circumvent copyright laws: Aereo only sent the content to individual customers, and it didn’t do so simultaneously with the original broadcast. Aereo made an argument similar to Uber’s – that it was merely enabling customers to access programming that was already publicly available. In the same way, Uber’s technology provides customers access to drivers whom they otherwise couldn’t get.
The Supreme Court, however, ruled that Aereo was essentially providing the same service as a cable company, just without the costs associated with producing content. The ruling destroyed the company’s business.
Uber, too, provides the same service as a taxi company, only without most of the associated costs. The US Supreme Court hasn’t had a chance to rule on Uber’s elusive nature, but there’s a chance it might take the same approach as with Aereo.
Clearly, it benefits Uber to ignore local taxi regulations: Rapid global expansion is one of the few positive stories the huge money-shredder can sell to investors. Besides, the service is easy to duplicate, and many local competitors have already done so. Time is of the essence.
Leonid Bershidsky is a Bloomberg columnist.

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