Will Uber Win the Battle of the Taxi or Succumb to Business Regulation?

Uber records approximately one million ride requests each week and is now valued at an estimated $18.2 billion.

Despite its surging popularity with riders, the company continues to face strong resistance from regulators and traditional taxis over its novel business model, which uses a cell phone application to connect drivers using their personal vehicles with passengers who need a ride.

The debate largely centers on whether ride-sharing companies, which also include Lyft, Hailo, and Sidecar, should be required to follow the same rules as traditional taxis and car services. Ride-sharing companies maintain that they are simply technology companies that offer mobile applications connecting private drivers with passengers. Meanwhile, regulators and competitors argue that the tech companies essentially function as taxis and, therefore, should be subject to driver background checks, safety inspections, permitting, insurance minimums, and other legal requirements.

Some states and local governments have amended their regulations to allow for ride-sharing services. In New York City, Uber and other e-hail apps are authorized under a one-year pilot program, which was approved by the New York City Taxi and Limousine Commission (TLC) in 2013. Lyft may also soon hit city streets under an agreement reached with city officials. However, other municipalities have taken a more hardline approach by prohibiting ride-sharing services through cease-and-desist letters and threatening to suspend the licenses of participating drivers.

In the wake of its ongoing legal battles, Uber seems willing to tweak its business model to appease its critics. In response to liability concerns, the company now provides $1 million in commercial liability insurance per accident. In New York City, one of the most lucrative taxi markets, the company recently entered into an agreement with Attorney General Eric Schneiderman to comply with the state’s price gouging law. It prohibits businesses from charging “unconscionably excessive prices” for essential consumer goods or services during “abnormal market disruptions,” such as national disasters and states of emergency.

In the end, the taxi battle may come down to consumer demand. A TLC survey found that 70 percent of riders in New York own smartphones, and more than half would like to use those devices to hail a cab.

If you have any questions about this post or would like to discuss regulations impacting your business, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work.