75
COMMENT
Uber’s Loophole in the Regulatory System
I. INTRODUCTION .................................................................. 76
II. SUITS BY CUSTOMERS AND UBER’S LIABILITY FOR ITS
DRIVERS ............................................................................. 78 A. Uber’s Avoidance of Liability for its Drivers ........... 78 B. Uncertainty About Insurance Coverage ................... 79 C. Surge Pricing Controversy ........................................ 80
III. SUITS BY DRIVERS AND UBER’S DUTY TOWARDS ITS
DRIVERS ............................................................................. 82 A. Violations of Wage and Hour Laws.......................... 83 B. Misrepresentation of Gratuity .................................. 84 C. Misclassifying Drivers in Order to Avoid Expenses 85
IV. SUITS BY COMPETITORS AND UBER’S DUTY TO THE
TRANSPORTATION INDUSTRY ............................................ 86 A. False Advertising.......................................................... 87
1. Lanham Act ........................................................ 87 2. Misleading Customers to an Association
Between Uber and Cab Companies................... 88 3. Misrepresenting Certain Features of Its
Service ................................................................. 89 B. Unfair Competition ................................................... 91
V. REGULATORY SPLIT ........................................................... 94 A. Regulatory Changes In Favor of Ride-Sharing
Companies ....................................................................... 94 B. Regulatory Action Against Ride-Sharing Companies 95
VI. CONCLUSION ...................................................................... 96
This Comment received the Akin Gump Strauss Hauer & Feld LLP Award for
Best Paper in Corporate, Securities, or Business Law. I would like to thank the editors of
the Houston Law Review for their diligent work in preparing this Comment for publication.
76 HLRe: OFF THE RECORD [6:1
I. INTRODUCTION
With the advent of GPS technology, smart phone applications
and zero-contact transactions, ride-sharing services have exploded
onto the scene, displacing traditional taxi and livery services
around the world.1 The draw of ride-sharing services is that they
offer choice and control that taxicab companies cannot at typically
lower rates and faster service times.2 The leading ride-sharing
company this Comment will focus on is Uber Technologies
(“Uber”), a company founded by eccentric tech entrepreneur Travis
Kalanick in 2010.3
Uber drivers often aren’t subject to municipal insurance
standards established for transportation companies.4 Many
cities, regulatory authorities, local cab and livery services, and
customers have fought back against the entry of ride-sharing
services and the legalization of their operation through lawsuits
and regulatory fines against both the companies and their
drivers.5
Uber attempts to avoid liability from these claims by claiming
to be a technology platform, rather than a transportation
company, because they connect people who need rides with
independent contractors who can provide them.6
1. See Boston Cab Dispatch, Inc. v. Uber Technologies, Inc., Civil Action No. 13–
10769–NMG, 2014 WL 1338148 (D. Mass. March 27, 2014) at *2 (discussing the differences
and similarities between Uber’s services and traditional taxicab services).
2. Nick Judd, A Recent History of Uber: Lobbying, Lawsuits and a ‘Scuffle’, VICE
(July 18, 2014), http://www.vice.com/read/a-recent-history-of-uber-lobbying-lawsuits-and-
a-scuffle-718.
3. Alyson Shontell, All Hail the Uber Man! How Sharp-Elbowed Salesman
Travis Kalanick Became Silicon Valley ’s Newest Star, BUSINESS INSIDER (Jan. 11,
2014), http://www.businessinsider.com/uber-travis-kalanick-bio-2014-1; Richard
Feloni, How Uber CEO Travis Kalanick Went From A Startup Failure To One Of The
Hottest Names In Silicon Valley , BUSINESS INSIDER (Sept. 24, 2014),
http://www.businessinsider.com/uber-ceo-travis-kalanicks-success-story-2014-
9#ixzz3HTlurMXY.
4. Dara Kerr, How risky is your Uber ride? Maybe more than you think, CNET (Oct. 8,
2014), http://www.cnet.com/news/how-risky-is-your-uber-ride-maybe-more-than-you-think/.
5. See Yellow Group LLC v. Uber Technologies Inc., No. 12 C 7967, 2014 WL
3396055, at *4 (N.D. Ill. July 10, 2014) (describing plaintiffs ’ arguments that Uber’s
false advertising practices are injuring local taxicab companies by harming their
reputation and sales); see also Manzo v. Uber Technologies, Inc., No. 13 C 2407, 2014
WL 3495401, at *2 (N.D. Ill. July 14, 2014) (describing plaintiffs ’ allegation that Uber
“misrepresents its rates, misidentifies itself as a transportation company, and illegally
operates in violation of Chicago Municipal Code provisions”).
6. Richard N. Velotta Uber fight with taxi regulators headed to court Wednesday,
LAS VEGAS REVIEW-JOURNAL (Oct. 27, 2014), http://www.reviewjournal.com/news/traffic-
transportation/uber-fight-taxi-regulators-headed-court-wednesday; Uber, The Company,
https://www.uber.com/about; Cassandra Angel, What’s Next in Uber Litigation, GORDON-
CREED KELLEY, HOLL & SUGERMAN (Jan. 13, 2014), http://www.gkhs.com/whatsnext-uber-
litigation/ (describing Uber’s assertion that its terms of service absolve it of liability for torts
committed by drivers).
2015] UBER’S LOOPHOLE 77
Uber should absorb the same liabilities and legal duties that
cab companies are subject to under state and federal law.7
Although some state authorities have chipped away at Uber’s
efforts to avoid liability, uncertainty remains for passengers hurt
by Uber drivers.8 Similarly, Uber has avoided many obligations
owed to its own drivers such as minimum wage, fair tipping
policies, and respondeat superior duties.9 Further, Uber has
enjoyed an unfair advantage in the transportation service industry
by ignoring certain industry regulations and practices, including
false advertising and unfair competition laws.10 Legislators must
take action to update outdated regulations and explicitly apply
them to Uber and other ride-sharing companies in order to protect
customers, drivers, competitors, and the future of tech innovation
in the transportation industry.11
This Comment proceeds in six parts. Part II will focus on suits
by customers and Uber’s liability for its drivers. Part III will
explore suits by drivers and Uber’s duty towards its drivers. Part
IV will discuss suits by competitors and Uber’s duty to the
transportation industry. Part V will analyze the jurisdictional
split in the regulatory action taken in response to Uber. Part VI
concludes with proposed legislative solutions to better control
Uber’s method of operations.
7. Sam Frizell, A Historical Argument Against Uber: Taxi Regulations Are There for
a Reason, TIME (Nov. 19, 2014), http://time.com/3592035/uber-taxi-history; Vauhini Vara,
Uber, Lyft, and Liability, THE NEW YORKER (Nov. 4, 2014),
http://www.newyorker.com/business/currency/uber-lyft-liability (identifying that
lawmakers are becoming aware of the “ambiguous state of affairs” regarding internet-based
companies and the need for regulation).
8. Mike Isaac & Natasha Singer, California Says Uber Driver Is Employee, Not a
Contractor, N.Y. TIMES (June 17, 2015), http://www.nytimes.com/2015/06/18/business/uber-
contests-california-labor-ruling-that-says-drivers-should-be-employees.html; Daniel
Fisher, The Big Question with Uber, Airbnb and the Rest of the ‘Sharing Economy’: Who to
Sue?, FORBES (March 25, 2015), http://www.forbes.com/sites/danielfisher/2015/03/25/the-
big-question-with-uber-airbnb-and-the-rest-of-the-sharing-economy-who-to-sue/
(describing the uncertain state of the law with respect to Uber’s liability for its drivers’
actions); Joe Fitzgerald Rodriguez, Uber Settles Wrongful Death Lawsuit of Sofia Liu, SAN
FRANCISCO EXAMINER (July 14, 2015), http://www.sfexaminer.com/uber-tentatively-settles-
wrongful-death-lawsuit-of-sofia-liu/ (describing California state regulations that have
arisen after the death of a pedestrian caused by an Uber driver); Kate Williams & Kurtis
Alexander, Uber sued over girl’s death in S.F., SAN FRANCISCO CHRONICLE (Jan. 28, 2014),
http://www.sfgate.com/bayarea/article/Uber-sued-over-girl-s-death-in-S-F-5178921.php;
Vara, supra note 7 (discussing Uber’s liability for its drivers).
9. Cotter v. Lyft, Inc., 60 F.Supp.3d 1059, 1061 (N.D. Cal. Aug. 7, 2014) (arguing
that wage hours and laws should apply to ride-sharing drivers just as they apply to taxicab
drivers); see infra Part III (discussing Uber’s duty towards its drivers).
10. See Yellow Group, 2014 WL 3396055, at *4 (describing plaintiffs’ false advertising
claims); see also Manzo, 2014 WL 3495401, at *2 (N.D. Ill. July 14, 2014) (recounting
plaintiffs’ unfair competition claims); see infra Part IV (discussing Uber’s duty to the
transportation industry).
11. Vara, supra note 7.
78 HLRe: OFF THE RECORD [6:1
II. SUITS BY CUSTOMERS AND UBER’S LIABILITY FOR ITS DRIVERS
Operating as a technology company with “contractors” instead
of employees has given Uber an argument against application of
typical respondeat superior rules.12 Uber considers its drivers
“hired contractors,” when in actuality they operate exactly like
employees who provide services and reputational foundation for
the company in return for compensation — an arrangement that
should undoubtedly give rise to respondeat superior liability.13
This loophole has caused many difficulties in litigation against the
company and could result in under-compensation of harmed
customers.14 This Section discusses the negative consequences of
Uber’s business model for consumers, including the difficulty in
suing and collecting from Uber for its drivers’ negligence and
criminal activity, insufficient insurance coverage for accidents,
and price gouging caused by the company’s “Surge Pricing”
policy.15
A. Uber’s Avoidance of Liability for its Drivers
When the actions of Uber drivers cause harm to passengers,
Uber denies all liability for the harm.16 Without respondeat
superior liability, plaintiffs can be left without adequate recourse
in the inevitable event that one of the thousands of Uber drivers
commit a tort.17 In Oklahoma City, a driver allegedly verbally
assaulted a woman and punched a man during an Uber drive.18
12. Mazaheri v. Doe, 2014 WL 2155049 (W.D. Okla. May 22, 2014), appeal dismissed
(10th Cir. 14-5189) (Nov. 20, 2014) (acknowledging Uber’s argument that its driver is not
an employee, but declining to address the issue); Search v. Uber Technologies, Inc., 2015
WL 5297508 (D.D.C. Sept. 10, 2015) (citing Uber’s argument that it has no respondeat
superior liability); Judd, supra note 2; Julie Zauzmer & Lori Aratani, Man Visiting D.C.
Says Uber Driver Took him on Wild Ride, WASHINGTON POST (July 9, 2014),
http://www.washingtonpost.com/blogs/dr-gridlock/wp/2014/07/09/man-visiting-d-c-says-
uber-driver-took-him-on-wild-ride; Jordan Novet, Uber and its driver are sued after fatal
New Year’s Eve Accident, VENTURE BEAT (Jan. 27, 2014),
http://venturebeat.com/2014/01/27/uber-and-its-driver-are-sued-after-fatal-new-years-eve-
accident.
13. Judd, supra note 2.
14. Id.; Williams & Alexander, supra note 8; Fisher, supra note 8.
15. Compare Williams & Alexander, supra note 8 (discussing a lawsuit’s attack on
Uber’s distracted driving practices, state oversight in regulating Uber, and the gaps in
insurance coverage for ride-sharing services) with Vara, supra note 7 (scrutinizing Uber’s
current insurance policy coverage and illustrating the need for required expanded
insurance coverage for drivers); see Alana Horowitz, Uber Gets Failing Grade From Better
Business Bureau, HUFFINGTON POST (Oct. 11, 2014),
http://www.huffingtonpost.com/2014/10/11/uber-better-business-bureau-f-rating_n_59698
94.html (criticizing Uber’s surge pricing policy).
16. Williams & Alexander, supra note 8; Angel, supra note 6.
17. Fisher, supra note 8.
18. Doe, 2014 WL 2155049; Judd, supra note 2.
2015] UBER’S LOOPHOLE 79
Another Uber driver took passengers along on a high-speed chase
in Washington DC.19 In Los Angeles, an Uber driver was arrested
on suspicion of kidnapping for purposes of sexual assault, and
there is currently an ongoing sexual assault investigation of an
Uber driver in Seattle.20 These lawsuits have illuminated Uber’s
efforts to find loopholes, such as classifying drivers as independent
contractors or classifying the company as a technology company,
to avoid liability for its drivers’ actions.21
It is important that legislators clarify that Uber and other
ride-sharing companies are in fact transportation companies and
will be held liable for the drivers that they choose to hire and allow
to operate under their name.22 Otherwise, Uber is being unjustly
enriched by benefitting from the asset of their drivers’ services
while not being burdened by their liabilities, and innocent victims
are undercompensated for damaging and traumatic events.23
B. Uncertainty About Insurance Coverage
The lack of clarity on Uber’s liability for its drivers also leads to
uncertainty about the reach and coverage of their insurance.24
California recently passed new rules requiring ride-sharing
companies to carry commercial liability insurance (a minimum of $1
million coverage per incident) regardless of whether the driver is
personally insured when in transit or during trips arranged by the
Uber app.25 It is unclear, however, whether the rule covers other job-
related activities in between rides, such as checking on fares.26
Therefore, Uber drivers are often backed by commercial insurance
only while carrying passengers.27 This situation presents a huge gap
in insurance coverage when drivers are actively using their wireless
devices but are not technically driving customers.28 For example, an
Uber driver involved in an accident resulting in a child fatality was
19. Id.; Zauzmer and Lori Aratani, supra note 12.
20. Judd, supra note 2.
21. Colton Lochhead & Ricardo Torres, Nevada puts stop to ridesharing Uber for now,
LAS VEGAS REVIEW-JOURNAL (Oct. 24, 2014), http://www.reviewjournal.com/news/las-
vegas/nevada-puts-stop-ridesharing-uber-now.
22. See Lochhead & Torres, supra note 21; Laurie Segall, Uber CEO: Our Growth is
Unprecedented, CNN (June 12, 2014), http://money.cnn.com/2014/06/12/technology/
innovation/uber-ceo-travis-kalanick.
23. See Novet, supra note 12.
24. Vara, supra note 7; Williams & Alexander, supra note 8.
25. Vara, supra note 7.
26. Id.; Williams & Alexander, supra note 8 (identifying California’s oversight in
passing the law and the need for a rule to sufficiently address the ambiguities).
27. Vara, supra note 7 (showing that Uber could provide up to a million dollars in
liability insurance if a driver is involved in an accident while there was a passenger in the
car, but denies any liability if there is no passenger in the car).
28. Id.
80 HLRe: OFF THE RECORD [6:1
logged into the Uber app at the time of collision, but was between rides
and not driving customers.29 For this reason, Uber claims that
insurance won’t cover the accident.30 While this suit was settled out
of court for an undisclosed sum, it has motivated newly proposed
California legislation that would raise insurance requirements for
drivers in between fares.31 It is important that such requirements are
aggressively pursued in California and in other states. Such a gaping
loophole encourages Uber to avoid liability through technicalities and
turns relatively straightforward insurance claims for vehicle
accidents into legal nightmares.32
C. Surge Pricing Controversy
Finally, customers have repeatedly complained that Uber’s
“Surge Pricing” policy takes advantage of uninformed passengers.33
Under its Surge Pricing policy, Uber charges a higher rate during
busy hours such as storms, holidays, or weekends.34 The app notifies
the passenger of the surge price and asks them to accept that price
before accepting the ride.35 Uber defends this policy under the theory
that surge pricing gets more drivers on the road during the busiest
times, which eventually brings prices back to normal levels because
there is more supply to meet the increased demand.36
Consumers across the country have complained they were
told the final cost of the service through the app, the driver, and
the consumer’s receipt, and were then charged a substantially
29. Novet, supra note 12; Williams & Alexander, supra note 8.
30. Williams & Alexander, supra note 8 (alleging that Uber denied insurance
protection that would have covered Sophia’s family’s injuries and the driver).
31. See Rodriguez, supra note 8; Vara, supra note 7 (explaining that California
Governor Jerry Brown signed into law “new requirements requiring that ride -sharing
companies provide at least secondary insurance (which would supplement driver’s
primary coverage) from the moment the app is turned on, rather than only when the
drivers have accepted or are transporting passengers” in September 2014); see also
Josh Richman, New Uber, Lyft, Sidecar Insurance Rules Signed Into Law by Gov. Jerry
Brown, (Sept. 17, 2014), http://www.mercurynews.com/business/ci_26554062/new-
insurance-rules-uber-lyft-and-sidecar-into (stating “once again California is leading
the way in forging public policy to meet the needs of new innovations”).
32. Vara, supra note 7.
33. Horowitz, supra note 15; Caroline Moss, 26-Year-Old Successfully Crowd Funds
to Pay for Her $362 Halloween Uber Ride, BUSINESS INSIDER (Nov. 2, 2014),
http://www.businessinsider.com/women-raises-362-to-pay-for-uber-ride-2014-11; Annie
Lowrey, Is Uber’s Surge-Pricing an Example of High-Tech Gouging?, N.Y. TIMES (Jan. 10,
2014), http://www.nytimes.com/2014/01/12/magazine/is-ubers-surge-pricing-an-example-
of-high-tech-gouging.html?_r=0.
34. Horowitz, supra note 15.
35. Id.
36. Id. (arguing that airlines and hotels use the exact same concept); What Is Surge
Pricing?, https://help.uber.com/h/6c8065cf-5535-4a8b-9940-d292ffdce119 (defining surge
pricing and explaining that the purpose is to “ensure reliability” during the busiest times).
2015] UBER’S LOOPHOLE 81
larger amount.37 One customer was recently charged $362.57 (9x
surge price) for a 22 minute Uber ride on Halloween night, costing
her about 80% of the funds in her account.38 While the woman was
aware of the surge pricing policy, she was completely unaware of
the extreme level to which it would be taken, and felt that a ride
at this rate “should never be justified, even on Halloween.”39
Uber’s surge pricing policy has also come under fire following
significant price spikes during emergency situations. Uber charged
four times the usual rate during the recent Sydney hostage siege.40
In December 2014, a gunman took several hostages in downtown
Sydney, Australia.41 Uber charged customers a minimum of A$100
($82) for a ride out of the area as a result of their automatic surge
pricing policy.42 Similarly, Uber doubled prices following Hurricane
Sandy’s destruction of public transportation in New York and the
resulting high need for ride services.43 In response to these publicity
nightmares, Uber promised that it would cap surge prices in
northeastern cities during the impending blizzards of early 2015.44
Prices will still be extremely high during the storms, however, with
the ceiling fixed at 2.8 times the normal price in New York and 2.9
times in Boston.45
Many customers who have been subjected to the horrific
surprise of surge pricing after merely looking for a safe ride home
feel “taken advantage of and cheated by the Uber name.”46 Uber
users often have no other viable alternatives in such
circumstances, whether it be because they don’t have their wallet
on them or because they don’t feel safe waiting extended periods
37. Horowitz, supra note 15; contra Dan Kedmey, This is How Uber’s ‘Surge Pricing’
Works, TIME (Dec. 15, 2014), http://time.com/3633469/uber-surge-pricing/ (alleging that the
Uber app is very clear about the level of surge pricing, requiring users to agree to pay that
level and never charging any more than what the customer initially agreed to).
38. Moss, supra note 33.
39. Id.
40. Naina Bajekal, Uber Charged 4 Times Its Usual Rate During Sydney Hostage
Siege, TIME (Dec. 15, 2014), http://time.com/3633304/uber-sydney-hostage-surge-pricing.
41. Id.
42. Id.
43. Shara Tibken, Storm Surge: Uber just doubled car service pricing in NYC, CNET
(Nov. 1, 2012), http://www.cnet.com/news/storm-surge-uber-just-doubled-car-service-
pricing-in-nyc.
44. Ben Geier, Uber caps price hike during blizzard, FORTUNE (Jan 26, 2015),
http://fortune.com/2015/01/26/uber-cap-prices-storm.
45. Id.
46. Moss, supra note 33; Jason Knowles, Uber Ride to Airport Costs Rider $277 with
Surge Pricing, ABC 13 (Feb. 12, 2014), http://abc13.com/archive/9429903/; Dug Begley,
UPDATE: Almost $250 for 13 miles: Uber’s ‘surge pricing’, THE HOUSTON CHRONICLE (Dec.
30, 2014), http://blog.chron.com/thehighwayman/2014/12/almost-250-for-13-miles-ubers-
surge-pricing (quoting a disgruntled user’s opinion that Uber’s “price gouging needs to be
brought to people’s attention”).
82 HLRe: OFF THE RECORD [6:1
for other transportation services.47 Uber hides under an image of
low prices and convenience and takes advantage of passengers
when they need ride services most.48 While it is the simplest
economic principle that prices rise when demand increases, no
company should be able to use that theory as an excuse to exploit
their own customers.49
In order to control such astronomical prices, legislators should
limit the amount of money Uber may charge at peak times.50 There
are similar regulations that limit the prices that taxi drivers may
charge, regardless of the date or level of demand.51 While the surge
pricing framework operates slightly differently from ordinary taxi
pricing policies by basing prices on current demand rather than
consistent profit models, legislation is still necessary to limit the
amount that may be charged per mile driven.52 After all, fares
increase substantially faster when automatically multiplied by a
certain factor than when adding a few more cents per mile.53
Therefore, it is even more necessary to regulate the prices charged
by ride-sharing companies, and Uber should be held to standards
equal to those that taxi companies are held to.54
III. SUITS BY DRIVERS AND UBER’S DUTY TOWARDS ITS DRIVERS
Uber’s policy of treating its drivers as independent
contractors instead of employees is not only detrimental to the
customers who interact with Uber drivers, it is also detrimental to
the drivers themselves.55 Drivers are deprived of employee
47. See Bajekal, supra note 40 (describing the Sydney hostage situation and
customers’ efforts to get out of the danger area); see also Tibken, supra note 43 (explaining
the increased need for transportation services during and after natural disasters).
48. Horowitz, supra note 15; Begley, supra note 46.
49. Lowrey, supra note 33 (suggesting that “[m]arket efficiency is not always the
same thing as consumer benefit” and that Uber’s surge pricing policy might “work in the
short term but alienate customers in the long term.”).
50. Horowitz, supra note 15; Eric Roper, Taxi Companies Want Limits on Lyft, UberX
Pricing, STAR TRIBUNE (July 2, 2014), http://www.startribune.com/local/
blogs/265440131.html (suggesting the “complete absence of the City’s knowledge about or
oversight on [transportation network company] fares raise serious concerns that the [Uber]
model is quite simply one where technology is used to sell rides to the highest bidders, and
to de facto refuse rides to lower-fare passengers”).
51. City of Chicago Business Affairs & Consumer Protection (BACP), Passenger
Information,
http://www.cityofchicago.org/city/en/depts/bacp/supp_info/2012_passenger_information.ht
ml (explaining that the BACP oversees taxicabs in Chicago and listing approved taxicab
fare amounts).
52. Roper, supra note 50.
53. Id. (explaining that “[u]nlike taxis, which are limited to charging the meter rate,
Lyft and UberX increase rates based on demand.”).
54. Id.
55. Cotter, 60 F.Supp.3d at 1061; Judd, supra note 2.
2015] UBER’S LOOPHOLE 83
benefits and full gratuity.56 They are also forced to cover operating
expenses and to continuously update and improve their vehicles.57
The IRS identifies individuals as independent contractors if “the
payer has the right to control or direct only the result of the work
and not what will be done and how it will be done.”58 In other
words, workers are not independent contracts if the employer has
the “legal right to control the details of how the services are
performed.”59 Uber controls the details of its drivers’ services
through its company policies for driver and vehicle standards, its
defined payment structure, and its prescribed method of
operations for engaging and transporting customers.60 Therefore,
Uber drivers are clearly not independent contractors under the
IRS definition of such.61
By passing legislation that forces Uber to recognize its status
as a transportation company, drivers will have access to the
support and benefits that they deserve.62 This Section will
examine the detrimental effects that Uber’s wage and hour law
violations, gratuity policy misrepresentations, and efforts to avoid
paying expenses have on the company’s drivers.63
A. Violations of Wage and Hour Laws
Uber’s policy of treating its drivers as independent
contractors presents many employment law issues.64 Drivers are
deprived of minimum wage and other employee rights.65 Minimum
56. Cotter, 60 F.Supp.3d at 1061; Judd, supra note 2.
57. Cotter, 60 F.Supp.3d at 1061; Judd, supra note 2.
58. Independent Contractor Defined, IRS.GOV (last visited Sept. 9, 2015),
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-
Contractor-Defined.
59. Id. (clarifying that even if a worker is given freedom of action, they are not an
independent contractor if their services are controlled by an employer).
60. See Uber, Uber Background Checks, http://blog.uber.com/driverscreening
(detailing Uber’s screening process for drivers and vehicles); see also Boston Cab, 2014 WL
1338148, at *2 (describing Uber’s standardized method of operations); see also Judd, supra
note 2 (providing Uber’s payment structure of 80% of the fare going to the drivers while
Uber collects a 20% commission).
61. Independent Contractor Defined, supra note 58.
62. Judd, supra note 2.
63. See id. (illustrating the burdens and costs that Uber passes on to its drivers); see
also Cotter, 60 F.Supp.3d at 1061 (reflecting plaintiffs’ allegation that Uber drivers are
deprived of minimum wage and hour laws).
64. See Velotta, supra note 6 (stating that Uber does not consider its drivers as
employees, but rather as independent contractors that the application connects with willing
customers).
65. Cotter, 60 F.Supp.3d at 1061; contra Ellen Huet, Uber’s Newest Tactic: Pay Drivers
More Than They Earn, FORBES (July 7, 2014),
http://www.forbes.com/sites/ellenhuet/2014/07/02/ubers-newest-tactic-pay-drivers-more-than-
they-earn (raising the idea that Uber drivers could potentially take home more than the revenue
collected on their fares due to a new pricing structure, which would result in very high wages).
84 HLRe: OFF THE RECORD [6:1
wage and other employment laws are beneficial to the health and
success of society.66 Furthermore, the IRS requires independent
contractors to pay a Self-Employment Tax in order to receive
Social Security and Medicaid benefits.67 This tax can be quite
expensive and can quickly deplete drivers’ already unregulated
wages.68
For these reasons, drivers in California and other areas of the
country have filed class action suits to require Uber to classify all
drivers nationwide as employees and not independent
contractors.69 In one such case, Cotter v. Lyft, the court sidestepped
the issue, leaving room for further suits demanding a change in
classification and for regulatory action.70 If regulators took action
to force Uber to classify their drivers as employees, the drivers
would have access to the rights and benefits that they deserve and
avoid paying taxes they shouldn’t be responsible for.71
B. Misrepresentation of Gratuity
Due to the nature of Uber’s pricing policy, there is a common
misconception that Uber rides are gratuity-free.72 In actuality, the
fare that Uber charges has a 20% gratuity automatically included.73
This gratuity, however, does not belong solely to the driver but is split
between the company and the drivers.74 The vast majority of
customers are unaware of this split.75 Drivers argue that if customers
were informed that not all of the gratuity was going towards the
driver, they would be more likely to give an additional tip to the driver
66. Frances Coppola, Why We Need Minimum Wage, FORBES (Jan. 13, 2014)
http://www.forbes.com/sites/francescoppola/2014/01/13/why-we-need-a-minimum-wage
(discussing the benefits of minimum wage on workers, taxpayers, firms, and society as a
whole).
67. Independent Contractor Defined, supra note 58 (explaining that if an employer-
employee relationship exists, regardless of what the relationship is called, the employee’s
earnings are not subject to Self-Employment Tax).
68. Id.
69. Id.
70. Cotter, 60 F.Supp.3d at 1061 (holding that where the work at issue is performed
primarily outside of California, California’s wage and hour laws do not apply).
71. Id.
72. See Do I Have to Tip my Driver?, https://help.uber.com/h/1be144ab-609a-43c5-
82b5-b9c7de5ec073 (outlining Uber’s policy that “there’s no need to tip”); see also Maya
Kosoff, Uber’s Drivers Say They Don’t get Any Money From All-Inclusive Fares – And They’re
Furious, BUSINESS INSIDER (Sept. 17, 2014), http://www.businessinsider.com/ubers-
drivers-say-they-dont-get-any-tip-money-from-all-inclusive-fares-2014-9 (describing
customer’s’ confusion about Uber’s tipping policy and the lack of options for willing
customers to add a tip to their fare).
73. . See Yellow Group, 2014 WL 3396055, at *2 (discussing Uber’s gratuity policy);
see also Change UberTAXI Tip Amount, https://help.uber.com/h/8fafa355-c0cb-4fc4-b094-
b5894004ff33 (providing Uber’s explanation for the hidden gratuity).
74. Judd, supra note 2; Yellow Group, 2014 WL 3396055, at *2.
75. Yellow Group, 2014 WL 3396055, at *2.
2015] UBER’S LOOPHOLE 85
for his performance.76 Thus, the pricing policy deprives the driver of
wages that rightfully belong to him as payment representing the
customer’s appreciation for the performance of a safe and efficient
job.77 Just as employees in the service industry are entitled to accept
the full gratuity that a customer is willing to offer, Uber drivers
should be able to receive the full amount of gratuity for their services,
and customers have a right to know what they’re paying for.78
C. Misclassifying Drivers in Order to Avoid Expenses
Because Uber drivers are classified as independent
contractors and not employees, they are responsible for paying
expenses that would normally be covered by an employer.79 These
expenses include gas and vehicle maintenance, which can become
very expensive.80 Uber is benefitting from the use of these vehicles
without compensating drivers for depreciation and other expenses
of vehicle use.81 Due to the lack of minimum wage restrictions, the
compensation drivers do receive for their services are hardly
enough to cover such expenses, let alone compensate them for their
time and efforts.82 Forcing Uber to consider drivers as employees
and the vehicles as company assets would cause the company to
take responsibility for the expenses it is entitled to and allow the
drivers to act as normal employees.83
Whether it’s hours, wages, gratuity, or expense coverage, the
treatment of Uber drivers comes down to their classification as
independent contractors instead of employees.84 By changing their
classification, regulation will change the rules on how they must
76. Manzo, 2014 WL 3495401, at *1.
77. Id.
78. Id.; Manzo, 2014 WL 3495401, at *1.
79. Judd, supra note 2.
80. See Kate Rogers, Lawsuits Facing Uber, Lyft could Alter Sharing Economy, CNBC
(Feb. 20, 2015), http://www.cnbc.com/id/102435316# (describing two separate class-action
lawsuits faced by Uber and Lyft filed in San Francisco seeking a ruling on full employee
status for Uber and Lyft drivers and reimbursement for expenses including gasoline and
car maintenance costs, which they would normally receive if they had employee standing
in California).
81. See Judd, supra note 2 (describing how Uber’s frequent changes in policies put “a
strain on drivers’ wallets”).
82. Id.
83. Id.; see Frizell, supra note 7 (alleging that “a big reason Uber has “grown so
quickly” is that it’s not regulated the same way that traditional taxi services are.”); see
Rogers, supra note 80 (explaining the legal implications of drivers achieving full employee
status).
84. See Judd, supra note 2 (discussing an Illinois state bill that sets new rules
for Uber such as prohibiting drivers from working more than 10 hours a day); see also
Velotta, supra note 6 (explaining how Uber vows to provide legal support and financial
resources to drivers who have received citations from the City of Las Vegas yet still
refuses to recognize drivers as employees and offer support for other employment
purposes).
86 HLRe: OFF THE RECORD [6:1
be treated, and consequentially force Uber to operate as a
standard transportation company.85
IV. SUITS BY COMPETITORS AND UBER’S DUTY TO THE
TRANSPORTATION INDUSTRY
The most active opposition to Uber’s method of operations has
come from other transportation companies that provide similar
taxi and livery services.86 The companies claim that Uber is
allowed to operate “above the law” and is given an unfair
advantage over other transportation services by operating under
basically no regulation.87 This allows Uber to misrepresent its
services, mislead its customers, and charge prices that other
transportation companies can’t compete with.88
Courts have been reluctant to find that taxi and livery
companies are directly and substantially injured by Uber’s
practices.89 Absent any current solution in the common law, it is
necessary to act through regulation in order to protect competition
in the transportation industry.90 This Section will analyze the false
advertising and unfair competition claims raised by competitor
transportation companies against Uber and the need for
standardized regulation.91
85. See Vara, supra note 7 (identifying a new trend of Web site companies that
consider their service providers to be contractors and lawmakers’ attempts to gain control
over their growth); see also Rogers supra note 80 (quoting a plaintiff’s attorney who said
that “[t]here are basic labor protections in place to ensure companies do not take advantage
of their workers” and that Uber should have to abide by such protections that “society [has]
deemed important”).
86. See Yellow Group, 2014 WL 3396055, at *2 (suing Uber for false advertising and
misrepresentation of services); see also Manzo, 2014 WL 3495401, at *1 (citing plaintiffs’
allegation that Uber misrepresents its rates, misidentifies itself as a transportation
company, and illegally operates in violation of local laws); see Boston Cab, 2014 WL
1338148, at *2 (citing plaintiff’s allegation of unfair competition and false association claims
against Uber).
87. Yellow Group, 2014 WL 3396055, at *2; see Boston Taxi Owners Association, Inc.
v. City of Boston, Civil Action No. 15–10100–NMG, 2015 WL 505397, at *1 (D. Mass. Feb.
5, 2015) (asserting that Boston and Massachusetts have arbitrarily violated drivers ’
constitutional rights to just compensation, equal protection, and due process by “applying
burdensome and costly taxi regulations to them, while allowing [Uber] to compete without
complying with those requirements or incurring the very large costs the City imposes on
plaintiffs”).
88. Yellow Group, 2014 WL 3396055, at *2; Manzo, 2014 WL 3495401, at *1.
89. See, e.g., Yellow Group, 2014 WL 3396055, at *2 (holding that plaintiffs did not
allege a direct injury from Uber’s actions); see also, e.g., Manzo, 2014 WL 3495401, at *5
(finding that Uber’s alleged misrepresentations were not substantially harming plaintiffs’
business).
90. Frizell, supra note 7; Vara, supra note 7.
91. See Yellow Group, 2014 WL 3396055, at *1 (raising false advertising claims by
competitor taxi companies); see also Boston Cab, 2014 WL 1338148, at *2 (addressing unfair
competition claims by competitor companies).
2015] UBER’S LOOPHOLE 87
A. False Advertising
Competitors have raised federal trademark claims under the
Lanham Act as well as general claims against Uber for misleading
customers to an association between Uber and other companies and
misrepresenting certain features of Uber’s service.92 The following
Section will discuss the substance of such claims and the impact of
Uber’s false advertising methods on the transportation industry.
1. Lanham Act. Many taxi and cab companies have filed
false advertising claims against Uber under the Lanham Act.93
Congress used its Commerce Clause power to enact the Lanham
Act in 1946 in order to provide a national system of trademark
registration.94 The Act protects owners of federal trademarks from
the use of similar marks for advertising if that use will result in
customer confusion.95 Since its’ enactment, the Lanham Act has
produced conflicting court decisions that have resulted in an
unsettled and inconsistent body of law.96
Most courts recognize five elements of a Lanham Act false
advertising claim:
(1) The defendant made a false or misleading statement of fact in a commercial advertisement about a product; (2) the statement either deceived or had the capacity to deceive a substantial segment of potential consumers; (3) the deception is material, in that it is likely to influence the consumer’s purchasing decision; (4) the product is in interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the statement.97
92. See Yellow Group, 2014 WL 3396055, at *1 (citing plaintiffs’ allegation that Uber
competes unfairly by “misrepresenting certain features of its service, misleading customers
as to an association between Uber and Plaintiffs, and encouraging taxi drivers to breach
their agreements with Plaintiffs.”); see also Manzo, 2014 WL 3495401, at *1 (citing
plaintiffs’ argument that Uber “misrepresents its rates, misidentifies itself as a
transportation company, and illegally operates in violation of Chicago Municipal Code
provisions regulating the taxi and livery industries”).
93. 15 U.S.C. § 1051 (codification of the Lanham Act); see, e.g., Manzo, 2014 WL
3495401, at *2 (stating that the plaintiffs were suing under the Lanham Act); see also, e.g.,
Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484, 490 (D.C. Cir. 1996) (analyzing
antitrust and Lanham Act false advertising actions brought by a limousine service against
taxicab companies).
94. 15 U.S.C. § 1051; Lanham Act, LEGAL INFORMATION INSTITUTE,
http://www.law.cornell.edu/wex/lanham_act.
95. Lanham Act, supra note 100 (explaining that the purpose of the Lanham Act was
to establish a uniform system that would protect owners of federally registered
trademarks).
96. Courtland Reichman & M. Melissa Cannady, False Advertising Under the
Lanham Act, 21 AMERICAN BAR ASSOCIATION FRANCHISE L. J. 187, 187 (2002)(discussing
the inconsistent and often contradictory approaches taken by the circuit courts to construe
false advertising law under the Lanham Act absent an opinion by the Supreme Court).
97. Reichman & Cannady, supra note 96 at 187.
88 HLRe: OFF THE RECORD [6:1
The Supreme Court has made it clear that a plaintiff suing for
false advertising under the Lanham Act must allege an injury to a
commercial interest in reputation or sales that flows directly from
the defendant’s deceitful advertising.98 Consequently, many of the
federal suits filed by taxicab companies alleging false advertising
practices by ride-sharing companies under the Lanham Act follow
two common legal theories.99 First, that Uber’s creation of a false
association between Uber and other cab companies have
encouraged customers to choose Uber’s services based on the cab
company’s reputation.100 Second, that Uber’s misrepresentation of
certain service features have caused consumers to refrain from
using their dispatch services.101 These suits will be discussed in
the following section.
2. Misleading Customers to an Association Between Uber
and Cab Companies. Courts are very hesitant to recognize an
injury sufficient to state a claim under the Lanham Act in
competitor false advertising suits against Uber.102 In many
circumstances, Uber drivers also work for other dispatch
services.103 In Boston Cab Dispatch, Inc. v. Uber Technologies, Inc.,
Boston Cab alleged that Uber’s use of Boston Cab’s colors and
markings could suffer damage to their reputation and goodwill
because Uber cars lacked the safety features required for taxicabs
under Boston law.104 Harm to goodwill or reputation is sufficient
to establish the injury element under section 43(a) of the Lanham
Act.105 The court held, however, that there was no reasonable
98. Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 U.S. 1377, 1391
(2014)(applying a “zone of interest” test to the Lanham Act’s statement of purposes codified
as 15 U.S.C. § 1127 in order to identify the interests protected by the Lanham Act and
concluding that the statute aimed to protect against injuries business reputation and
present and future sales).
99. Yellow Group LLC v. Uber Technologies Inc., No. 12 C 7967, 2014 WL 3396055,
at *2-5 (N.D. Ill. July 10, 2014).
100. Id.
101. Id.
102. See, e.g., Boston Cab Dispatch, Inc. v. Uber Technologies, Inc., Civil Action No.
13–10769–NMG, 2014 WL 1338148, at *4-5 (D. Mass. March 27, 2014) (holding that any
harm caused to plaintiffs lacks the “requisite causal connection” to Uber’s use of plaintiff’s
marks); see also, e.g., Manzo v. Uber Technologies, Inc., No. 13 C 2407, 2014 WL 3495401,
at *5 (N.D. Ill. July 14, 2014) (dismissing plaintiff’s claim that Uber misrepresents that its
livery rates are “priced at or below the market price for livery services” because he did not
allege that the statement harms his taxi business); see also, e.g., Yellow Group, 2014 WL
3396055, at *5 (rejecting that Uber’s illegal existence creates a claim under the local
equivalent of the Lanham Act because the Act does not allow federal judges to enforce
municipal regulations).
103. Boston Cab, 2014 WL 1338148, at *4.
104. Id.
105. Beacon Mut. Ins. Co. v. OneBeacon Ins. Grp., 376 F.3d 8, 15–16 (1st Cir.
2004)(explaining that commercial injury actionable under § 43(a) of the Lanham Act is not
restricted to loss of sales and includes harm to the trademark holder’s goodwill and
2015] UBER’S LOOPHOLE 89
inference that a customer would hold the lack of safety features in
Uber vehicles against plaintiffs and, therefore, plaintiffs did not
adequately prove injury under the Lanham Act.106
Under a similar claim, approximately thirty plaintiffs
comprised of taxi medallion (license) owners, taxi affiliations, and
livery service providers in the Chicago area sued Uber for
deceptively associating itself with cab companies by referring to
them as “fleet partners,” using yellow-colored SUVs in
advertisements, and using vehicles that bore the taxi companies’
registered trademarks.107 In this case, the court found that only
the Taxi Affiliation plaintiffs successfully alleged the elements of
a claim because the “very nature of [Uber’s] service” would likely
confuse customers into an association between Uber and the cab
company and that confusion would harm the company’s dispatch
business.108 Conversely, the taxi medallion owners and livery
service providers failed to state a claim because they did not
adequately prove injury caused by Uber’s alleged
misrepresentations as required by state law and the Lanham
Act.109
3. Misrepresenting Certain Features of Its Service. The
plaintiffs in Yellow Group also alleged that Uber unfairly competes
under 15 U.S.C. § 1125(a)(1)(B) by misrepresenting certain
features of its service.110 Alleged misrepresentations include a
statement in an Uber blog that all Uber vehicles are “licensed by
the city of Chicago and driven by a licensed chauffeur” and
misrepresentation about the scope of the insurance coverage for
Uber drivers.111 Plaintiffs allege that Uber falsely represents that
its insurance coverage is $1 million when in fact Uber does not
provide any insurance coverage to drivers and passengers.112 Taxi
and livery drivers have also alleged that Uber misrepresents its
rates by stating that the company charges “standard taxi rates”
when riders are actually charged the meter fare plus an additional
reputation); 15 U.S.C § 1125(a).
106. Beacon, 376 F.3d at *15–16; see Cashmere & Camel Hair Mfrs. Inst. v. Saks Fifth
Ave., 284 F.3d 302, 318 (1st Cir. 2002)(requiring causal connection between alleged
violation and harm to prove false advertising claim under § 43(a) of Lanham Act).
107. Yellow Group, 2014 WL 3396055, at *5.
108. Id.
109. Id.; See Bell Atlantic Corp. v. Twombly, 127 U.S. 554, 562 (2007)(stating that a
complaint “must contain either direct or inferential allegations respecting all the material
elements necessary to sustain recovery”).
110. Yellow Group, 2014 WL 3396055, at *2; 15 U.S.C. § 1125(a)(1)(B)(creating a civil
cause of action for any person who is damaged by misrepresentation “in commercial
advertising or promotion”).
111. Id.
112. Id.
90 HLRe: OFF THE RECORD [6:1
20% “gratuity” split between the driver and the company.113
Competitors further claim they are injured by Uber’s
misidentification as a transportation service because if passengers
knew that Uber did not take control or responsibility for the
“suitability, safety and quality” of its drivers and passengers, they
would probably choose conventional taxis instead.114 While these
claims describe real and significant injuries to Uber’s competitors,
courts have not accepted them as enough to establish actual
injury.115
Along with their Lanham Act claims, taxicab companies have
also tried to bring misrepresentation claims under local laws and
regulations.116 Courts have barred these claims under the
precedent that a plaintiff cannot use a Lanham Act claim to
declare the defendant’s conduct unlawful under a local taxicab
regulation when the taxicab commission has not yet done so.117
The court in Dial A Car took the position that the plaintiff should
take its argument to the Taxicab Commission and lobby to crack
down on activities it deems unlawful rather than immediately
resorting to litigation.118
Clearly, the court system is not the best solution to controlling
Uber’s controversial advertising practices.119 Common law is often
slow to respond to new and changing practices.120 The more
efficient and practical means is to use regulatory power to require
Uber to comply with the same advertising practices as the rest of
the industry.121 Uber must then be held to these standards
through substantial penalties such as high fines or temporary
113. Id.; Manzo v. Uber Technologies, Inc., No. 13 C 2407, 2014 WL 3495401, at *2
(N.D. Ill. July 14, 2014) (presenting Manzo’s claim that he was injured by Uber’s
misrepresentation of its fares as “standard” because the statements drew customers away
from his taxi service).
114. Manzo, 2014 WL 3495401, at *3.
115. See Manzo, 2014 WL 3495401, at *4 (dismissing all claims premised on Uber’s
violation of local ordinances or Uber’s failure to inform customers of any violation).
116. See, e.g., id. at *3 (claiming that the use of a metering device to determine the
fare rather than a fixed rate was a violation of the Chicago Municipal Code).
117. Manzo, 2014 WL 3495401, at *3; see Dial A Car, Inc. v. Transportation, Inc., 82
F.3d 484, 490 (D.C. Cir. 1996) (holding that “it is not within the province of a federal court,
under the guise of the Lanham Act, to preempt the decision of local authorities by allowing
an action in federal court that local authorities decline to pursue”).
118. Dial A Car, 82 F.3d at 490.
119. See id. (barring plaintiff’s Lanham Act claim); see also Boston Cab Dispatch, Inc.
v. Uber Technologies, Inc., Civil Action No. 13–10769–NMG, 2014 WL 1338148, at *3 (D.
Mass. March 27, 2014) (holding that there is no reasonable inference that a consumer would
hold the lack of safety features in Uber against plaintiffs).
120. See Dial A Car, 82 F.3d at 490 (taking the stance that plaintiffs should be forced
to lobby to local legislature in order to crack down on unwanted activities before bringing
their claims in court).
121. Cf. Vara, supra note 7 (providing an example of proposed California legislation
that would hold car-sharing companies to the same requirements as taxi companies).
2015] UBER’S LOOPHOLE 91
injunctions.122 Without enforcement of the regulations, Uber will
continue to mislead customers through deceptive advertising.123
B. Unfair Competition
Many competitors have also claimed that Uber enjoys an
unfair competitive advantage over traditional taxicab dispatch
services because it “avoids the costs and burdens of complying with
extensive regulations while reaping the benefits of others’
compliance with those regulations.”124 Courts have been more
willing to entertain these unfair competition claims than false
advertising claims.125
For example, the court in Boston Cab found that Uber was
illegally avoiding financial obligations by not complying with
Boston ordinances.126 Taxicab drivers in Boston are required to
possess a license known as a “taxicab medallion,” obtained through
satisfying certain driving and criminal history criteria as well as
paying for the medallion itself.127 Further, Boston Police
Department Rule 403 requires that all taxicab operators belong to
an approved dispatch service or “radio association.”128 At the time
the plaintiffs filed the suit, Uber was not complying with either of
these rules.129 By avoiding the medallion and dispatch service
122. See Yazhou Sun, Uber and Lyft Face First-Ever Fines in the United States,
ABCNEWS (June 11, 2014), http://abcnews.go.com/US/uber-lyft-face-fines-united-
states/story?id=24089617 (illustrating potential fines faced by Lyft ($130,000) and Uber
($95,000 or $1,000 per day) levied by the Pennsylvania Utility Commission for operating
illegally in Pittsburgh).
123. See Boston Cab, 2014 WL 1338148, at *2 (describing Uber’s use of competitor cab
companies’ colors and markings in order to attract customers); see also Yellow Group LLC v.
Uber Technologies Inc., No. 12 C 7967, 2014 WL 3396055, at *3 (N.D. Ill. July 10, 2014)
(discussing Uber’s use of taxi or livery vehicles that bear the use of competitor cab companies’
trademarks and Uber’s misrepresentation in advertising of its rates and gratuity).
124. See Boston Cab, 2014 WL 1338148, at *1 (alleging that Uber “unfairly
competes by operating its service without the expense of compliance with
Massachusetts law” and by keeping revenue for credit card processing that plaintiffs
contractually have to pay to the credit card processor); see also Yellow Group, 2014
WL 3396055, at *6 (arguing that Uber should have to comply with the same
regulations as taxicab companies in order to achieve fair competition in the
transportation industry).
125. See Boston Cab, 2014 WL 1338148, at *6–7 (agreeing with the magistrate judge
that plaintiffs have sufficiently stated a claim for unfair competition); see also Yellow
Group, 2014 WL 3396055, at *6 (holding that plaintiffs “plausibly allege that losing
customers from their dispatch service to Uber causes . . . economic and reputational
damage” and there is a valid cause of action); see also Manzo v. Uber Technologies, Inc., No.
13 C 2407, 2014 WL 3495401, at *7 (N.D. Ill. July 14, 2014) (stating that Taxi Affiliation
and Limousine Plaintiffs have valid statutory claims for unfair competition).
126. Boston Cab, 2014 WL 1338148, at *1.
127. Id.
128. Id. at *1-2; Boston Police Dept. Rule 403(3)(c)(5) (describing the requirements to
register a specific vehicle as a Hackney Carriage in the City of Boston).
129. Boston Cab, 2014 WL 1338148, at *2
92 HLRe: OFF THE RECORD [6:1
obligations, Uber avoided legal and financial burdens that the rest
of the Boston transportation industry was held to.130
Uber argued that it should not be held liable under the Boston
ordinances because it does not own any cars or medallions and
does not employ drivers, so any unlawful conduct is attributable
only to the drivers and not to Uber.131 This argument is consistent
with Uber’s continuous efforts to avoid liability by distancing itself
from its drivers.132
Applying a broad conception of the term “operating,” the court
found that Uber exercises control over vehicles-for-hire that
compete with plaintiffs and sets policies for its drivers that go
against the local regulations, including the use of mobile
telephones while driving.133 This benefit—without—the—burden
argument is prevalent in almost every city that Uber operates in
and Boston Cab provides precedent in favor of asserting such a
claim in the future.134 The decision provides a foundation for
passing concrete legislation that requires Uber to comply with all
existing and future ordinances regulating the transportation
industry.135
Uber has also been accused of encouraging taxi drivers to
breach their agreements with taxicab, livery, and other ride—
sharing companies.136 Breaches include violating trademark
clauses in driver’s contracts by presenting Uber hangtags in
rearview mirrors, using cell phones while driving against contract
clauses, and violating agreements to not work for competing
dispatch services.137 Ride-sharing competitor, Lyft, has actively
accused Uber of poaching drivers by compensating Uber drivers
for recruiting a Lyft driver to the Uber service and intentionally
130. Id. at *1-3.
131. Id. at *6-7.
132. See Lochhead & Torres, supra note 21 (asserting that Uber management claims
not to be a “transportation company” and that their drivers “are independent contractors
who sign an agreement that enable them to use the company’s app.”); see also Williams &
Alexander, supra note 8 (explaining that Uber denied insurance coverage for an accident
caused by an Uber driver because he was between fares).
133. Boston Cab, 2014 WL 1338148, at *6-7.
134. Id.
135. See id. at *5 (reasoning that plaintiffs could be harmed because “Rule 403 forbids
mobile phone use by taxi drivers and yet drivers who contract with Uber, including those
who use the Boston Cab colors and markings, are required to use mobile telephones to
communicate with Uber and Uber customers”).
136. See Yellow Group LLC v. Uber Technologies Inc., No. 12 C 7967, 2014 WL 3396055, at
*6 (N.D. Ill. July 10, 2014) (entertaining a cause of action by Taxi Affiliation Plaintiffs for tortious
interference with contractual relations); see also Douglas MacMillan, Tech’s Fiercest Rivalry: Uber
v. Lyft, WALL ST. J., Aug. 11, 2014, http://www.wsj.com/articles/two-tech-upstarts-plot-each-
others-demise-1407800744 (discussing the rivalry between the ride-sharing market leaders Uber
and Lyft and the actions taken by each to gain market share).
137. Yellow Group, 2014 WL 3396055, at *6.
2015] UBER’S LOOPHOLE 93
slowing Lyft’s system by repeatedly ordering Lyft drivers to drive
passengers aimlessly for a couple of blocks.138
While it is customary for industry rivals to borrow best practices
and ideas from each other, purposeful sabotage opens the door to
increased litigation and a potential loss of reputation and goodwill.139
Allowing Uber to pursue these kinds of competitive practices
encourages the belief that it can walk over whoever gets in its way.140
It is necessary to protect the integrity of competition in the
transportation industry in order to promote fair prices and ethical
practices.141 Without holding Uber to the same standards as the rest
of the industry, Uber could eventually gain enough market share to
control prices and exploit customers.142 It is equally important to
protect existing transportation companies because they benefit
society by providing jobs, stability, and customer choice.143 Forcing
Uber to comply with transportation regulations maintains order
within the industry and promotes positive competition.144 The most
effective way to achieve this compliance is by explicitly defining Uber
as a transportation company that is governed by these regulations
and by diligently enforcing the regulations.145
138. MacMillan, supra note 136.
139. See id. (describing how Lyft borrowed the real-time map concept from the Uber
app as well as “prime time” prices as a variation of Uber’s surge pricing while Uber followed
Lyft’s carpooling model where strangers can share rides and split the costs).
140. See id. (illustrating how Uber and Lyft are ignoring the rules and
“undercutting . . . prices, poaching drivers and co-opting innovations” in order to get ahead).
141. See Federal Trade Commission, Guide to Antitrust Laws, FTC.GOV (last accessed
Sept. 9, 2015), https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws
(stating that a main mission of FTC anti-competitive legislation is to stop and prevent
unfair business practices that are likely to reduce competition and lead to higher prices,
reduced quality of service, or less innovation).
142. See MacMillan, supra note 136 (alleging that with all the money that Uber has
raised, it could afford to buy largest rival Lyft and any other ride-sharing startup that joins
the market).
143. See Frizell, supra note 7 (asserting that “taxis are
pretty much a public utility. Like subway and bus systems, the electric grid or the sewage
system, taxis provide an invaluable service to cities like New York, and the government
should play an important role in regulating them”).
144. See id. (stating that transportation service regulations are a “necessary part of
urban transportation” and ensure that drivers can make a decent living, customers know
that they are getting in a safe vehicle, and riders are assured that drivers have had a
background check).
145. Daniel Terdiman, Uber and Lyft Slam California Ruling that Drivers must have
Commercial Plates, VENTURE BEAT (Jan, 23, 2015, 9:48 AM),
http://venturebeat.com/2015/01/23/uber-and-lyft-shun-california-ruling-that-drivers-must-
have-commercial-plates/ (providing that California law defines services like Uber and Lyft
as a “transportation network company,” stating that they are an “organization, including,
but not limited to, a corporation, limited liability company, partnership, sole proprietor, or
any other entity, operating in California that provides prearranged transportation services
for compensation using an online-enabled application or platform to connect passengers
with drivers using a personal vehicle”).
94 HLRe: OFF THE RECORD [6:1
V. REGULATORY SPLIT
While regulatory mobilization has been somewhat slow in
addressing the problems presented by Uber, some cities have
taken action.146 A few cities have responded favorably to Uber’s
lobbying tactics, while the majority of cities have taken action
against Uber.147 This Section discusses jurisdictions that have
taken actions to expand the reach of Uber, jurisdictions which
have taken actions to restrict Uber and the need for more uniform
regulation.148
A. Regulatory Changes In Favor of Ride-Sharing Companies
One example of a jurisdiction that is making changes to expand
the reach of Uber is Milwaukee, which is currently working on a bill
to allow ride-sharing companies to operate within city limits.149 In
allowing such operations, the city still wants some control over
background checks, vehicle inspections, and insurance provisions.150
The city also wants suitable third parties to handle things like vehicle
inspections, rather than simply relying on the company’s reports.151
Similarly, Seattle, which was on the verge of issuing a cease and
desist letter to Uber, brokered a deal earlier this year to revise
previous legislation that set a cap on the number of drivers each
company could have on the road.152 In 2014, California fined Lyft,
SideCar, and Uber $20,000 each for illegal operations, and it recently
issued regulations allowing ride-sharing companies to operate.153
The purpose of regulatory action is not to stop ride—sharing
companies such as Uber from existing.154 The companies’ services are
146. See Velotta, supra note 6 (detailing a Las Vegas court battle between Uber and
taxi regulators); see also Judd, supra note 2 (offering examples of new regulation such as
Illinois state legislature setting new rules for ridesharing services and Milwaukee officials
proposing regulations for safety standards).
147. See Velotta, supra note 6 (exemplifying some cities’ resistance to Uber); see also
Lochhead & Torres, supra note 21 (providing an example of a district judge taking action
against Uber’s operations).
148. See Judd, supra note 2 (discussing various jurisdictions that have acted in favor
and against Uber’s operations); see also Donne Tam, Uber launches in Beijing, eye more
growth overseas (Q&A), CNET (Apr. 23, 2014, 6:00 PM), http://www.cnet.com/news/uber-
launches-in-beijing-eyes-more-growth-overseas-q-a/ (describing Uber’s recent international
growth and its plans for further expansion in the future).
149. Judd, supra note 2.
150. Id.
151. Id.
152. Id.
153. Id.
154. See id. (explaining that the legislative process is used to create a “thoughtful and
collaborative discussion” where businesses can work with local leaders to create “new rules
for peer-to-peer transportation”).
2015] UBER’S LOOPHOLE 95
an established and valued part of society.155 The purpose of taking
action is to ensure that Uber plays by the rules established for taxi
companies and the rest of the service industry in order to protect
customers, drivers, and competitors.156 Therefore, it is not a bad thing
that some cities are passing legislation favorable to Uber.157 It is
necessary, however, to do so with parameters in mind such as those
set by Milwaukee.158
B. Regulatory Action Against Ride-Sharing Companies
In contrast to efforts in Milwaukee and California to allow Uber
to operate, states such as Virginia, Pennsylvania, Illinois and Nevada
have taken regulatory action against Uber.159 In Virginia, Uber has
been fined a total of $26,000 and Lyft a total of $9,000 for
operations.160 Regulators in Pennsylvania filed complaints seeking
more than $110,000 from Lyft and $95,000 from Uber.161 Illinois
regulators proposed a bill in July 2014 that sets specific rules for
“ridesharing” such as prohibiting drives from working more than 10
hours a day, preventing drivers from charging more than the most
expensive cab ride in the area, and requiring drivers to obtain a
chauffeur’s license.162 Further, cars must conform to some of the
same insurance and safety requirements as taxis and livery cabs, five
percent of vehicles available through ride-sharing must be able to
accommodate wheelchairs, and services such as UberX are banned
from airport cab stands.163
In keeping with its usual tactics, Uber called on customers to
urge a veto of the bill and a public suggestion that it would add more
jobs to its Chicago office if the provisions are prevented from becoming
law.164 Uber also hired lobbyists to advocate on its behalf, including
155. See Danny Huizinga, Uber Competition is Good for Society, INTERCOLLEGIATE REVIEW
(Oct. 1, 2014), http://www.intercollegiatereview.com/index.php/2014/10/01/uber-competition-is-
good-for-society/ (discussing the benefits Uber brings to society such as innovative safety
features, lower fares, increased visibility, and shorter wait times).
156. See Judd, supra note 2. (providing an Uber’s spokesman’s statement that “Uber
works with leaders across the country to develop regulations that protect driver economic
opportunity and rider access to safe, affordable and reliable transportation alternatives”).
157. See Erika D. Smith, Don’t Overload Uber, Lyft with New Regulations, INDYSTAR
(Feb. 7, 2015, 10:33 PM), http://www.indystar.com/story/opinion/columnists/erika-
smith/2015/02/07/smith-overload-uber-lyft-new-regulations/22994495 (asserting that cities
“can’t afford to run [Uber] out of town” because Uber is critical to the transportation
networks and urban atmospheres of cities).
158. Judd, supra note 2.
159. Id.
160. Id.
161. Id.
162. Id.
163. Id.
164. Id. (providing Uber’s argument that the bill’s rules “threaten consumers” and that
insurance provisions are a maneuver to “protect the taxi monopoly”).
96 HLRe: OFF THE RECORD [6:1
Governor Quinn’s former chief of staff Jack Lavin.165 Uber CEO
Kalanick criticized the “corruption and . . . cronyism in the taxi
industry and . . . regulatory capture” for the numerous and
enthusiastic regulatory measures taken against Uber.166
Nevada has also been strong in its opposition to Uber’s
method of operations.167 Uber launched in Nevada on October 24,
2014 with no certificate of conveyance, meaning the company can’t
currently operate legally in Nevada.168 Regulatory enforcement
officers with the Nevada Transportation Authority and the
Nevada Taxicab Authority have continued to cite Uber drivers and
impound their vehicles since the beginning of operations.169 In
response, Uber offers legal support, financial resources, and
rented cars for drivers whose cars have been confiscated.170 In
Carson City, the Attorney General sought a temporary restraining
order just hours after Uber was launched.171 District Judge James
Russell blocked Uber from offering rides for two weeks pending a
hearing scheduled to determine whether Uber could continue to
operate.172 While the company was allowed to operate again
following the suspension, such an order shows Uber that courts in
the jurisdiction are serious about compliance with the law.173
VI. CONCLUSION
Uber has established a place in society that it won’t be
abandoning anytime soon.174 It offers a unique service that is
valued and beneficial to society.175 It also has a business strategy
that is becoming increasingly harmful to society.176 Uber’s self-
declared status as a “tech company” operated by independent
165. Id. (adding that Uber made a similar move by hiring former NYC Taxi and
Limousine Commission official, Ashwini Chhabra, in order to assert more political
influence and shape legislation in its favor).
166. Id.
167. Velotta, supra note 6; see Lochhead & Torres, supra note 21 (discussing how
Uber’s service was halted by a court order just hours after it launched in Nevada).
168. Velotta, supra note 6.
169. Id.
170. Id.
171. Lochhead & Torres, supra note 21.
172. Id.
173. Id.
174. Douglas MacMillan, Sam Schechner & Lisa Fleisher, Uber Snags $41 Billion
Valuation, WALL ST. J. (Dec. 4, 2014), http://www.marketwatch.com/story/uber-snags-41-
billion-valuation-2014-12-04.
175. See Jeff Bercovici, The Bear Case For Uber (Yes, There Is One), FORBES (July
28, 2014), http://www.forbes.com/sites/jeffbercovici/2014/07/28/the-bear-case-for-uber/
(suggesting that using Uber’s services leads to “a world with less pollution and no traffic
jams, where taxis are cheap and safe and you never have to wait for a pickup”).
176. Frizell, supra note 7.
2015] UBER’S LOOPHOLE 97
contractors puts drivers, customers, and competitors in danger.177
It is critical that legislators take action in order to protect these
third parties by regulating Uber as a transportation company.178
Most states will eventually revise legislation to allow Uber to
operate.179 In order to keep control over the company’s business
practices, this legislation must specifically address the standards to
which Uber will be held.180 Some states and cities have chosen to pass
legislation specific to Uber and other ride-sharing companies.181
Other states have chosen to expand current regulations for taxicab
companies to include Uber.182 Regardless of the method chosen,
regulators must clarify that Uber is considered a transportation
company, its drivers are employees of the company, and it will be
regulated in the same manner as other transportation services.183
By regulating Uber as a transportation company, it will be
forced to raise its standards for insurance, safety features,
compensation of employees, and compliance with local laws and
regulations.184 Drivers and passengers will be insulated from
exploitation and ambiguous terms.185 Fair competition will stabilize
prices in the transportation industry and promote consumer choice.186
Taxi and livery services will be able to continue operating without fear
of going bankrupt.187 And Uber will continue to be a multi-billion
dollar tech sensation that is finally playing by the rules.188
Erin Mitchell
177. Vara, supra note 7.
178. Id.
179. See Judd, supra note 2 (describing the strides that Milwaukee, Seattle, and
California have made to pass laws that “clear the way” for Uber drivers to operate legally).
180. See id. (illustrating how Milwaukee is specifically keeping control over
background checks, vehicle inspections, and insurance standards in allowing Uber to
operate within the city).
181. Lochhead & Torres, supra note 21; Velotta, supra note 6; Judd, supra note 2.
182. Judd, supra note 2; Vara, supra note 7.
183. See Lochhead & Torres, supra note 21 (discussing Uber management’s view that
the company is a technology platform rather than a transportation company and the
company’s efforts to avoid liability under that theory).
184. Id.
185. Id.; Williams & Alexander, supra note 8; Judd, supra note 2.
186. Lowrey, supra note 33.
187. Yellow Group LLC v. Uber Technologies Inc., No. 12 C 7967, 2014 WL 3396055,
at *2 (N.D. Ill. July 10, 2014); Manzo v. Uber Technologies, Inc., No. 13 C 2407, 2014 WL
3495401, at *2 (N.D. Ill. July 14, 2014); Judd, supra note 2.
188. See MacMillan, Schechner and Fleisher, supra note 174 (discussing Uber’s $41
billion valuation and projections for further increased revenues in the future).
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