So, What Really Happened with the Government vs. Uber?

by: Jacob Huebert

It happens everywhere, and it’s all too common in Chicago and across Illinois: established players in an industry will lobby government to enact laws and regulations to keep new competitors out, protecting their profits while killing entrepreneurship.

Some technology startups may not face this problem. A company creating something altogether new in an industry still in its infancy may not have established players or protectionist laws in its way. On the other hand, a startup offering an innovative product that disrupts a well-established, politically privileged industry may find itself besieged by lawsuits and bureaucrats.

That is what has happened to Uber, the San Francisco-based company whose popular smartphone application allows users in Chicago and more than a dozen other U.S. cities to summon a black sedan with the push of a button. In some cities, including Chicago, users can also hail a taxi or an SUV. Uber has no cars of its own – it simply connects users with licensed drivers, who are either independent or affiliated with another company.

Uber came to Chicago in 2011 and quickly became popular with tens of thousands of users and more than 1,000 affiliated drivers. It faced little legal resistance until October 2012, when several taxi and vehicle-service companies filed a federal lawsuit containing dubious allegations that Uber’s business model violated city regulations as well as state and federal law. This move appears designed to intimidate Uber and make it costly for the company to remain in Chicago. Later that month, the city’s Department of Business Affairs and Consumer Protection proposed new regulations that would prohibit “public passenger vehicles,” which include most vehicles for hire other than taxis, from using any device that measures time or distance to determine fares. That would make Uber’s black cars, which measure time and distance using Uber’s GPS-enabled app, illegal. In fact, the proposed regulations’ wording is so broad that even clocks, maps and pocket calculators would be banned, too.

This onslaught against Uber is not motivated by concern for consumers, who tend to love Uber and have few complaints. And it’s not motivated by concern for drivers, who have in fact embraced the opportunity Uber provides them to earn extra money from new customers who previously would not have used a black car service. Rather, the attack is coming from the owners of big taxi companies who want government to protect them from competition. Chicago’s taxi laws and regulations—such as the medallion system that limits the number of taxis but does not apply to other vehicles for hire, like Uber’s black cars—have served that purpose for decades. But the old rules didn’t anticipate Uber’s new business model, so company owners are now scrambling to maintain their privileged position.

That’s why the Liberty Justice Center filed comments opposing the new regulations. As a nonprofit, nonpartisan public interest litigation center, we bring lawsuits to protect rights guaranteed by the Illinois and U.S. Constitutions, including the right to start a business and earn a living. Under the Illinois Constitution, a law or regulation that infringes a person’s right to earn a living must be designed to serve the public’s health, safety or welfare; it cannot serve only to protect a special interest group from competition—but that is all that Chicago’s proposed rules would do.

Fortunately for Uber, its affiliated drivers and its customers, the company is in an unusually strong position to fight for its right to operate. It has savvy fans who will pressure city officials; in fact, more than 5,500 of them signed an online petition opposing the proposed regulations, and many more tweeted or emailed city officials in Uber’s defense. And because Uber has more money than the average startup—it has received about $45 million from investors—it can pay for costly lawyers and lobbyists.

But what about the typical entrepreneur, who must devote all of his or her resources to ordinary business expenses and can’t afford lawsuits or lobbyists? That’s where the Liberty Justice Center comes in.

One of our clients, Julie Crowe, wanted to start a vehicle-for-hire service that would offer a safer, female-friendly alternative to the “party buses” that take Illinois State University students back and forth to downtown bars in Bloomington, Illinois. Unfortunately, in Bloomington as in Chicago, the laws are designed to protect the bottom lines of established businesses, not the rights of entrepreneurs. A city ordinance requires Crowe to have a “certificate of convenience” from the city to operate, and it entitles the owners of existing taxi and vehicle-for-hire services to weigh in on whether she should get it. The city can then approve or deny the certificate based on whether the city manager finds it “desirable.” Predictably, Crowe’s would-be competitors objected to her application. The city then rejected it, claiming there was no “need” for her business.

What do “desirable” and “need” mean? The city’s ordinance doesn’t say—so they mean whatever the city manager wants them to mean. Thus, on nothing more than a single bureaucrat’s whim, an entrepreneur, such as Crowe, can lose her fundamental civil right to pursue her dreams and earn an honest living—and the public can lose out on the innovation that only a competitive marketplace can provide.

The Liberty Justice Center has filed a lawsuit, now pending in Illinois state court, challenging the ordinance on Crowe’s behalf. We’re representing Crowe both to defend her rights and to help reestablish a legal climate in which entrepreneurs can unleash their creativity, earn a living, and create jobs as they discover new ways to serve the public.

The costs of regulations like these are immeasurable. How many businesses fail—or never come into existence at all—because their founders lack the resources to wage a legal and public relations battle like Uber’s? What great new products and services have consumers been denied as a result? The Liberty Justice Center wants to end this harm.

As Crowe fights her court case and Uber waits to find out whether Chicago will enact its proposed lethal regulations, people who value freedom and entrepreneurship should be outraged and demand that local legislators repeal protectionist taxi laws before more innovative businesses are needlessly driven out of the state. And if you are facing arbitrary state or local legal barriers to starting a business in Illinois and would like the Liberty Justice Center to consider taking your case, please contact us.

 

About the author Jacob Huebert @Technori
Jacob Huebert is associate counsel for the Liberty Justice Center of the Illinois Policy Institute, and lead counsel in Crowe v. City of Bloomington. Connect with Jacob on Twitter and Facebook.

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