October 28, 2013
Several months ago, we featured two articles about California's ride-sharing startups. Ride-sharing companies, such as uberX, Lyft, and FlightCar, are in the business of providing vehicles-for-hire. Using apps and other online programs, the companies connect those in need of rides with non-professional drivers driving their own cars. Beginning in late 2010, the California Public Utilities Company (CPUC) issued cease and desist orders against all three ride-sharing companies for operating unlicensed charter party services, and the City of San Francisco followed up by suing FlightCar, alleging that it was undercutting rental car companies at the airport by acting like a rental car company, but ignoring the regulations that govern them. This past August, California became the first state to legalize ride-sharing companies when the CPUC issued a proposed set of rules that would grant state licenses to the ride-sharing companies and allow their vehicles to remain on California roads. The proposal creates a new category called the Transportation Network Companies and requires a ride-sharing company to apply for a license to operate in the state.
UberX Appeals Effort to Regulate itFast forward several months: This past Wednesday, attorneys for Uber Technologies, Inc., which runs uberX, filed an appeal - or an application for rehearing - challenging the CPUC's power to regulate it, contending that uberX is a technology company, not a vehicle-for-hire services and that the CPUC does not have jurisdiction over technology companies that do not provide transportation services. uberX argues that it does not have to comply with the CPUC's requirement to obtain a license because "it operates no vehicles and does not hold itself out or advertise itself as a transportation service provider." Rather, it merely developed a software and mobile application service, which simply connects the transportation service provider with those persons seeking transportation. uberX does not own, lease, or charter any vehicles for the transportation of passengers and, therefore, should not be required to obtain a license to operate in the state of California.
In its application for rehearing, uberX argues that the CPUC dismissed a request by Tower Tour Agency (San Francisco's "most popular touring/sightseeing company") to operate as a regulated charter-party carrier, ruling that the definition of a charter-party carrier does not extend to "someone who operates no vehicle, does not hold out nor advertise itself as a [charter-party carrier] and does little more than book space and sell tickets for a [charter-party carrier]." uberX and its attorneys contend that this same reasoning should apply to the CPUC's evaluation of uberX.
We Can HelpuberX's arguments in its application for rehearing raises many questions about the laws surrounding startups in California. Given the background of ride-sharing companies in California and the legal wrangling that has been going on since 2010, it will be interesting to see how the CPUC and even the public respond to uberX's claims. Will uberX take flack from customers because of its claim? We will monitor the appeal and update the situation. In the meantime, if you have questions about startups in our area, an experienced business lawyer can answer your questions. Don't hesitate to contact us today.