Uber/under: false advertising and association claims against Uber continue

Yellow Group LLC v. Uber Technologies Inc., No. 12 C 7967, 2014 WL 3396055 (N.D. Ill. July 10, 2014)

Taxi medallion owners, taxi affiliations (taxi dispatch services), and livery service providers sued Uber, alleging that it competed 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.  People who use Uber’s app may end up getting a driver associated with one of plaintiffs Flash Cab, Yellow Cab, or Your Private Limousine, and take their rides in vehicles bearing one of those plaintiffs’ marks.  The court partially granted Uber’s motion to dismiss.

Treating the Lanham Act and state law as identical in relevant part, the court first addressed claims regarding alleged misrepresentations of rates, licensure, and insurance.  Plaintiffs alleged that Uber deceptively advertised that Uber taxis charged “standard taxi rates,” when in fact riders were charged the meter fare plus a 20% ”gratuity” that was split between the driver and Uber.  They also challenged an Uber blog post stating that all uberX vehicles were “licensed by the city of Chicago, and driven by a licensed chauffeur.”  And they alleged that Uber misrepresented the scope of insurance coverage for uberX drivers and passengers as $2 million and then $1 million, whereas Uber doesn’t provide any insurance coverage.

Uber argued that plaintiffs lacked standing because they weren’t direct competitors at the same level of business.  But then Lexmark happened, so plaintiffs needed only to an allege “an injury to a commercial interest in reputation or sales, and that the injury must flow directly from the deception wrought by the defendant’s advertising, such that the false advertising directly caused consumers to divert their business from the plaintiff.”

Uber argued that bexause the taxi affiliation plaintiffs and Your Private Limousine didn’t receive a percentage of drivers’ fares or a dispatching fee, they couldn’t allege harm from the false advertising.  But at this stage, they plausibly alleged that Uber’s deceptive advertising has caused customers to refrain from using their dispatch services, harming the economic value of their business and their reputation.  Plus, the taxi affiliation plaintiffs are direct competitors on these pleadings, since Uber exercises control over vehicles for hire that compete with plaintiffs. 

But—and here the proximate causation reasoning of Lexmark starts to have bite—the medallion owner plaintiffs didn’t have standing, because they didn’t allege direct injury.  They argued that Uber’s presence decreased the value of medallions by allowing drivers of non-commercially licensed cars to pick up fares.  But that wasn’t injury directly flowing from Uber’s misrepresentations.

As to stating a claim, Uber again argued that plaintiffs’ income came from lease payments from drivers, not a percentage of fares or a dispatch fee, so they couldn’t lose income from diverted fares. However, the taxi affiliation plaintiffs alleged damage because the value of their business depended on the number of passengers; more passengers meant more goodwill.  If customers use Uber instead, their reputation would be damaged and, more importantly, they wouldn’t be able to charge drivers as much for the right to participate in plaintiffs’ services, including dispatching taxis and livery vehicles. They thus plausibly alleged that misrepresentations regarding Uber’s rates and uberX drivers’ licensure and insurance caused them harm.

What about the $2 million/$1 million claim?  Uber didn’t say it would provide the insurance policy.  Rather it said that there would be an insurance policy covering drivers and riders of at least $1-2 million, and plaintiffs didn’t allege this was false.  That claim was dismissed.

§43(a)(1)(A): Plaintiffs alleged that Uber misrepresented an association with them by occasionally referring to its “fleet partners,” and using a yellow colored SUV in one of its advertisements that evoked Yellow Cab. The SUV in the ad didn’t have Yellow Cab’s logo or name, but did include a taxi number 1317, which was assigned to a Yellow Cab of the same make and model. They also alleged that confusion was exacerbated by the fact that “when a customer orders a taxi or livery vehicle via Uber, a vehicle bearing the Flash or Yellow trademarks will often arrive to pick up the fare.”

Mark McKenna and Mark Lemley will be sad (compare a previous Uber case): this plausibly alleged a §43(a)(1)(A) violation.  Plaintiffs plausibly alleged that “Uber’s representations and the very nature of its service is likely to confuse Uber customers regarding an association between Uber and Flash or Yellow Cab, and that this confusion harms Flash and Yellow Cab’s taxi dispatch business.”  Likewise with the taxi affiliation plaintiffs. 

However, the medallion owner plaintiffs didn’t state a claim because they didn’t allege harm from the misrepresentations. Harm from Uber’s existence in the market depressing the value of medallions was insufficient.

Livery services were also different: Your Private Limousine alleged that confusion was even worse in the livery context “[g]iven that trademarks and trade dress are not as prevalent on the livery side of transportation services.”  But that didn’t work, because Your Private Limousine didn’t allege that its cars bore its mark or any other indicia of ownership/operation by Your Private Limousine. Its claims were therefore limited to its allegations that Uber improperly referred to its “fleet partners.”  And that wasn’t enough to plausibly allege likely confusion.  On its own, that’s not a misrepresentation, “as it could accurately refer to the owners and drivers of independent livery vehicles that have contracted directly with Uber.” Without identifying markings, “it is highly unlikely that a customer would even know that he or she was riding in a Your Private Limousine vehicle and would therefore infer that Your Private Limousine is one of Uber’s ‘fleet partners.’”  Plus, “fleet partners” wasn’t a specific, concrete, or measurable statement.  (This is applying §43(a)(1)(B) puffery analysis to a §43(a)(1)(A), but given that this should be a §43(a)(1)(B) claim, I’m not too saddened.)  So there was no plausible allegation of misrepresentation or confusion from “fleet partners” alone.

The plaintiffs who could proceed with these claims could also maintain a common law unfair competition claim.

Tortious interference with contract: This claim included allegations that Uber encouraged drivers to violate the trademark clause in the drivers’ taxi affiliation contracts by providing drivers with Uber branded “hangtags” to suspend from the cabs’ interior rearview mirrors.  Uber also allegedly encouraged drivers to use their cell phones while driving and required drivers to process credit card transactions via the Uber app, actions that violate local laws which are incorporated by reference into the contracts. Plus, these plaintiffs alleged that by subscribing to Uber in the first place, drivers violate their agreements that they will not use competing dispatch services. Uber argued that the plaintiffs didn’t allege harm, but the court inferred damages to their business through losing customers from their dispatch services and refused to dismiss the claim. 

Again, though, the medallion owner plaintiffs lost out. Their argument was based on their licensees’ agreement to abide by Chicago’s rules and regulations, and Uber’s alleged inducement to disobey the same (rules banning use of cell phones while driving and a regulation requiring that taxis “must process electronic forms of payment through their affiliations or licensed medallion managers”).  But the medallion owners didn’t plausibly allege reputational or economic harm from the violation of these contractual provisions.  (Could the medallion be seized if a driver were arrested for using a cell while driving? Would that be enough?)

Finally, Uber argued that the court should dismiss the entire complaint based on Dial A Car, Inc. v. Transportation, Inc., 82 F.3d 484 (D.C.Cir. 1996), which held that a limousine service could not bring a Lanham Act claim against a competing taxicab company when the plaintiff sought only to enforce violations of local taxicab ordinances and regulations. The DC Circuit declined to interpret or enforce municipal regulations; instead, the plaintiff should take its argument to the Taxicab Commission.

However, the point of this complaint was not that Uber’s service was illegal.  Rather, plaintiffs alleged misrepresentation separate from the legality of the service.  To the extent that the complaint alleged that Uber violated the Lanham Act or its Illinois counterpart simply by operating illegally or misrepresenting the legality of its service, those allegations would fail.  (Note that this would not be the result in California, which does allow its consumer protection law to borrow violations of other laws.)