Wednesday, April 09, 2014

Uber alles except unfair competition

I predict that Mark Lemley will not like this decision but that Mark McKenna will.

Boston Cab Dispatch, Inc. v. Uber Technologies, Inc., 2014 WL 1338148 No. 13–10769 (D. Mass. Mar. 27, 2014)

Plaintiffs sued Uber for false advertising, unfair competition, and violation of Boston taxicab ordinances for “providing a private car service that allows users to call taxicabs associated with Boston Cab and other dispatch services without complying with Boston taxicab regulations.”  (There were also tortious interference/RICO claims, though those were kicked out.)

The core of the complaint is that Uber gained an unfair competitive advantage over traditional taxicab dispatch services and license-holders “because it avoids the costs and burdens of complying with extensive regulations designed to ensure that residents of Boston have access to fairly priced and safe transportation options throughout the city and yet reaps the benefits of others’ compliance with those regulations.” The Boston Police Commissioner requires all taxi drivers to have a medallion, maintain a properly equipped and functioning taxicab, refrain from cell phone use while operating a taxicab and belong to an approved dispatch service or “radio association.” Such associations must provide 24–hour dispatch capability, two-way radio service and discount reimbursements for the elderly; keep records; and use specific approved colors and markings. Plaintiffs each contract with several hundred medallion owners to manage them.

Uber allows users to request private vehicles for hire.  At the time of the motion to dismiss, Uber offered both unmarked vehicles and “Uber Taxis,” operated by Boston taxicab drivers. Uber-affiliated drivers can’t accept cash or non-Uber-associated credit cards.  Uber taxi drivers “have agreed to be available for hire through Uber while they are working shifts and subject to dispatch by their radio associations.” While their fees are calculated based on the flat rate applicable to all Boston taxicab drivers, Uber adds a $1 “fee” and a 20% ”gratuity” and therefore the final charge exceeds the maximum that taxicabs are permitted to charge under the Police Commissioner’s rule.  Though Uber says that 20% is “for the driver,” drivers only get 10% and Uber keeps the rest.  (Boo!)  Unmarked vehicles don’t comply with the rules about 1) membership in approved associations or dispatch services, 2) regular inspections, 3) partitions between drivers and passengers, 4) panic buttons and GPS tracking to allow customers to alert police when they are in danger, 5) criminal background checks of drivers, 6) non-discrimination with respect to passengers with handicaps or 7) use of mobile telephones. 

Somewhat puzzlingly, the court says there’s no evidence in the record (on this motion to dismiss) that Boston Cab suffered any harm due to members on the clock picking up passengers through Uber rather than through its dispatch services.  But plaintiffs argued that, by falsely portraying taxis as one choice Uber offers, “Uber diverts fares that would go to licensed Boston taxis if Uber did not falsely claim taxis were part of its affiliated businesses.” They contended that this diversion decreased demand for their cabs, smaller numbers of leased cabs, and lost revenue.

Plaintiffs alleged that Uber misrepresented that it was affiliated with Boston Cab.  The court found that, regardless, they failed to plead harm caused by the alleged misrepresentation—the “use” of Boston Cab colors and markings.  There was no connection between the allegedly poorer quality of the unmarked Uber cars and the use of Boston Cab colors/markings on Uber taxis.  No reasonable inference could be drawn that a consumer would hold the unmarked cars’ lack of safety features against plaintiffs.  (In other words, mere affiliation confusion does not plausibly harm goodwill or reputation!  Mark McKenna, take note.)

Second, the magistrate judge who recommended keeping this claim alive reasoned that plaintiffs could be harmed because the Police Commissioner’s rule forbids mobile phone use by drivers, but Uber drivers must use mobile phones.  Even if this use increases accident potential, it still wasn’t plausible that plaintiffs were harmed by that risk “as a result of consumers possibly mistaking the relationship between plaintiffs and Uber. Even if Uber’s service resulted in an increase in accidents involving taxis bearing the Boston Cab markings, any harm to Boston Cab’s reputation would not be the result of customer confusion about the relationship between Uber and Boston Cab.”

Plus, plaintiffs alleged that they were harmed by lost revenues from the unmarked cars, but that doesn’t have anything to do with confusion about the relationship between Uber and Boston Cab either.

Likewise, the Chapter 93A unfair competition by misrepresentation claims were also dismissed.  Uber’s alleged misrepresentations of affiliation with medallion owners/radio associations, and misrepresentations that Uber only collects $1 and pays the 20% gratuity to taxi drivers, lacked the requisite causal connection to plaintiffs’ harm, as described above.  As for alleged misrepresentations that Uber’s service was lawful under the Boston rules, and that the unmarked cars didn’t need to be licensed and regulated as taxis, plaintiff didn’t identify a representation by Uber that said these things either expressly or by necessary implication.  Uber’s just acting and leaving Boston to catch up, if it can.

However, plaintiffs also alleged that Uber violated Chapter 93A through unfairly competing by “operating” its service without incurring the expense of compliance with Massachusetts law and Boston ordinances. Uber argued that it couldn’t be violating the law because it doesn’t own any cars, medallions, or radio associations and does not employ drivers. This was based on an “unduly narrow conception” of the term “operating.” There was sufficient evidence that Uber exercised control over vehicles for hire that competed with plaintiffs.  Uber’s preclusion argument also failed; the regulations didn’t occupy the field to the exclusion of Chapter 93A.  Nor did Uber succeed in shifting all responsibility for unlawful conduct to drivers (like Airbnb and others of these types of services, Uber said it was the drivers’ responsibility to follow local law and not Uber’s fault if they didn’t; Uber drivers take note).  Uber sets policy for the drivers, such as requiring mobile phone use.

This also preserved the common-law unfair competition claim.

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