Uber Technologies, Inc. (“Uber”), a San Francisco start-up company founded in 2009, was one of the first electronic hailing (“e-hail”) applications introduced into the taxi industry in the United States. Uber connects fare-seeking passengers to freelance Uber drivers with regular passenger car licenses who provide services in their approved personal vehicles. This system essentially eliminates all the inconveniences of street hailing. Since Uber’s launch into the global market, it has successfully tapped into taxi industries in Australia, Canada, the United Kingdom and of course, the United States.
Despite its triumphs, the San Francisco start-up has also faced opposition from various local governmental agencies and transportation authorities attempting to ban its operations due to unfair competition, lack of proper licensing, insufficient insurance policies, and lack of required legal permits.
On August 25, 2014, the Frankfurt Regional Court issued a temporary injunction which imposed a nationwide ban on Uber’s operation in Germany. The ruling stated Uber is no longer allowed to offer its app-based services in Germany to connect freelance drivers to fare-seeking passengers, because the company’s network of drivers lacked proper commercial licenses to engage in passenger pick-up and drop-off services. Uber has faced similar regulatory setbacks and court injunctions in a number of major cities around the globe such as New York City, Washington D.C., London, and most recently in Berlin and Hamburg, all of which they have successfully dealt with. However, this could be one of the most difficult and severe roadblocks Uber has had to face since its launch in the global market.
Germany has some of the strictest regulations for new entrants into the taxi market, requiring drivers to obtain special commercial licenses and strict adherence to the fare structures laid out by regulations. The German law dictates that drivers without a commercial license are allowed to pick up passengers and provide transportation services if the charge is no more than the actual operating costs of the trip. Uber, being the middleman with a dispatcher-type role, takes a cut in the fare charged to every passenger the driver picks up using the Uber application, and therefore is clearly operating in violation of the law. Taxi Deutschland, a Frankfurt taxi firm, argued that Uber is undercutting established law-abiding taxi firms by circumventing licensing regulations designed to protect passengers. Furthermore, the court also found that Uber poses an unfair competition to the local taxi providers, while allowing freelance drivers to provide taxi-like services with improper insurance and licenses. Under the ruling of the Frankfurt Regional Court, Taxi Deutschland will monitor Uber’s operations, and they can to ask the court to impose a fine of up to €250,000 (roughly $330,000 USD) each time Uber violates the injunction. The court, unfortunately, has no enforcement capacity based on the initial ruling; therefore, each time Uber violates the injunction, a separate complaint must be filed to the court and only then will the court have grounds to ask the authorities to act.
Despite the set back, Uber continues to offer its service in Germany and plans to appeal the decision of the Frankfurt Regional Court.
While the opposition from the taxi industry remains strong, policy makers and consumers have criticized the court’s action in banning Uber for hindering innovative growth by reducing competition. Of course, from a policy and consumer standpoint, fair market competition should be welcome as the demand for convenient taxi services is always growing. Consumers benefit from competitive prices and the convenience of reserving a taxi for a specified time and place without the need to stand on a street corner to hail a cab. However, players in the taxi industry have an interest in maintaining their monopoly in the local taxi industry, and will go the length to protect their business and drivers from competition arising out of innovative growth and technological advancement.
I predict that prearrangement smartphone applications will be the “next big thing” in the transportation industry. While they may be a disruptive innovation on the existing taxi industry, which still relies heavily on street hails across the globe, e-hail applications will eventually be adopted and integrated into the existing industries– a process which has already begun.