Emulsification: Uber, UberX, and Growing Pains of the Local Sharing Economy

Written by: Michelle Sohn Edited by: Olga Slobodyanyuk Emulsion: A mixture of two or more liquids that are normally immiscible (nonmixable or unblendable). -Wikipedia I. UberX D.C. as Case Study in the Local Sharing Economy If states are laboratories of democracy, then cities are the experiments. A new experiment has bubbled up in cities across the world, reaching a boiling point. The experiment? The local sharing economy. In May, amidst accusations that many of its users were violating New York’s illegal hotels law, Airbnb agreed to release redacted user data to New York’s Attorney General. In early June, the Commonwealth of Virginia Department of Motor Vehicle Services issued cease-and-desist letters to Uber and Lyft, ride-on-demand mobile app services. Weeks later, taxicabs caravanned into Washington, D.C. in protest, bringing traffic to a standstill. They demanded that the D.C. City Council also issue cease-and-desist letters. While Virginia has since lifted the ban on Uber and Lyft, other states and cities have continued to fight. Heretofore, much of the debate has centered around two competing narratives: According to some, the Uber story (and more broadly, the local sharing economy story) is one that pits ham-handed regulation against innovation, protecting entrenched and outmoded industries. Others argue that the case against Uber is fair, and that to compete all services should play by the same rules. While politics and fears of disruption certainly play large roles in this regulatory drama, this comment points to a larger legal controversy at work—the increased emulsification of commercial and private uses. Although the focus of this comment is on Uber and D.C., the larger goal is to identify major regulatory tensions with the local sharing economy by examining actual and proposed municipal regulations and laws. II. What is the local sharing economy? There has been much debate on the term “sharing economy.” This comment defines a local sharing economy enterprise as a for-profit business that: a) leverages information technology to b) expand access to assets rather than ownership by c) encouraging collaborative consumption of pre-owned or pre-leased assets, and d) typically relies on the attractions (e.g., restaurants, museums, apartments) and infrastructure (e.g., streets, streetlamps, traffic signals) cities provide. Thus, UberX, which can connect a consumer to drivers using their own private cars, is an example of a local sharing economy activity. Airbnb, which allows users to rent out a pre-owned or pre-leased room, is a local sharing economy activity. The traditional taxicab would not qualify, because taxicabs are purchased and maintained to primarily provide for-hire service. Neither would traditional hotels. For the same reason, Uber Black and Uber Taxi are not a local sharing economy enterprise. This is because Uber Black and Uber Taxi connect users with pre-existing black car and taxi services. III. Emulsification: UberX and D.C.’s Regulatory Framework Issues This section goes through two major tensions within D.C.’s current and proposed regulatory framework that highlight the emulsification of commercial and private uses. To understand these tensions, a basic background understanding of D.C.’s taxicab regulatory framework and how Uber fits or doesn’t fit into this framework is necessary. Created in 1986 by the D.C. City Council, the D.C. Taxicab Commission is the District’s agency that regulates the public vehicle-for hire industry. D.C. Code § 50-304. D.C. Code § 50-303(17) defines “public vehicle-for-hire” as any passenger motor vehicle operated to provide for-hire transportation in the District or any other private passenger motor vehicle that is used for transportation of passengers for-hire but is not operated on a schedule or between fixed termini and is operated exclusively in the District. There are two major classes of for-hire transportation services that the Commission regulates: a) taxicabs and b) limousine and sedan services.[1] In the D.C. regulatory framework, taxicabs are heavily regulated by the Commission. For example, taxicabs must charge rates that the Commission sets. See 31 D.C.M.R. 801 et seq. Taxicabs must not discriminate on the basis of any protected characteristic, including calls from specific geographic regions of the District. 31 D.C.M.R. 818. In fact, taxicabs that are on-duty are not supposed to refuse service to a person. 31 D.C.M.R. 819.5. The Commission also mandates that the color scheme be uniform. 31 D.C.M.R. 503.3. With so many rules, why go through the trouble of being a registered taxicab? Taxicabs are the only vehicles allowed to accept street hails. D.C. Code § 50-303 (defining “taxicab” as the only type of vehicle transportation that can be “hailed on the street.”); see also D.C. Code § 50-329(b). Moreover, it was and is illegal to accept street hails if the vehicle and driver are not registered with the Commission and operating with the appropriate license. D.C. Code § 50-319. Indeed, part of the rationale behind these regulations is consumer protection. After all, customers who hail taxis from the street cannot compare price or quality of service. Consequently, for a long time, part of the appeal of becoming a taxicab was the exclusive legal ability to proactively and immediately pick up consumers hailing from the street. Other services such as a limousine were able to pick up consumers, but had to wait for consumers to contact them. Put differently, street hailing was the way for consumers to proactively signal demand for immediate transportation. The rise of mobile technology, however, provided an alternative method for consumers to proactively signal demand. With mobile apps, street hailing is no longer an exclusive means of getting immediate transportation. And this changed the game. A. Wherefore art thou Uber?: Information and a Method On the morning of January 13, 2012, less than a month after Uber’s D.C. debut for its Uber Black service, the Commission conducted its most notorious sting in its history. That morning at the Mayflower Hotel, Ron Linton, Chairman of the Commission, hailed a car using the Uber app. Once the car arrived, the driver was ticketed with a number of violations, including an improper fare violation. In an op-ed, Mr. Linton explained that the Uber car technically met the definition of “limousine” and thus, it was required to contract with the passenger before service. The service charge should have been based on an hourly rate. Because the Uber driver charged on a time and distance basis, the Uber driver had illegally converted his limousine into a taxicab service. Taxicabs must follow the Commission’s rate schedule. Ergo the improper fare violation. The D.C. City Council has since updated the District’s code to generally allow “sedan services” that are exclusively operated through a digital dispatch to charge on the basis of time and distance rather than hourly rates or flat-fees. This legally recognized services provided by Uber. The Commission’s sting and Mr. Linton’s op-ed, however, still illustrate the first major tension of the urban sharing economy enterprises: definitions. Far from being persnickety, the way service is defined is hugely important and a major source of controversy. In fact, Uber has gone through pains to say it is not a taxi or cab company. Uber’s legal policy claims that it does not provide “transportation services and . . . is not a transportation carrier.” Rather, Uber proclaims that it is a platform, a middleman who provides “information and a method.” Presenting itself as a platform/digital dispatch service rather than a transportation provider has several interrelated implications. The D.C. City Council made digital dispatch services like Uber exempt from the Commission’s regulations except for when it comes to safety, consumer protection, and privacy. D.C. Code § 50-329.02(b). However, sedan services—the vehicles and drivers—providing the actual transportation remain subject to the Commission’s regulatory authority. D.C. Code § 50-329(a). This means that for its Uber Black and Taxi services, Uber does not have to worry about whether these vehicles and drivers comply with the Commission’s rules. For example, taxicab drivers who use the Uber app are responsible for complying with the Commission’s rules such as uniform color scheme. It is not the responsibility of Uber to pay for the taxicab’s paint job nor is it Uber’s responsibility to insure them. This is because Uber is a platform, a digital dispatch service, and not the owner or operator of a taxicab fleet. The definitions and lines drawn between the responsibilities of digital dispatch services like Uber and transportation service providers, however, are less clear when Uber enters into the local sharing economy through its UberX program. Current regulations define “sedan” as a luxury class vehicle that is not stretched and is a “dark” color. 31 D.C.M.R. 1299.1. Because the Commission defined sedan service in terms of luxury vehicles, it left out many vehicles that are a part of UberX (for example, the Toyota Prius). To address this, on April 30, 2014, the Commission held a public hearing in which it discussed creating a new “private sedan class” of public vehicles for-hire. On August 6, 2014, the Commission published a notice of final rulemaking for Chapter 99 - Definitions that adds terms such as “private sedan” and “private sedan business.” Under the new rule, the Commission’s definition of “private sedan” would cover UberX vehicles. The proposed rules would also consider Uber as a “private sedan business,” because a “private sedan business” is one that “associates with private sedan operators for the purpose of providing private sedan service.” Chapter 99 – Final Rulemaking – Definitions. The Commission proposes to define “associated” as “voluntarily related through employment, contract, joint venture, ownership, agency or other legal affiliation.” Id. The fact that Uber doesn’t actually own or operate UberX vehicles would not matter. Thus, despite Uber’s attempts not to be a transportation provider, the Commission’s proposed rules clearly are meant to re-classify and regulate UberX as such. While the proposed regulations are discussed in more detail below, the overarching goal is to ensure that private drivers like UberX drivers are subject to similar levels of oversight as taxis and taxicab companies. B. When Tragedy Strikes: Liability and Caps On New Year’s Eve in 2013, around 8pm, the Liu family was crossing a street in San Francisco. At the same time, an UberX driver was making a turn and struck the family. Sophia Liu, just 6 years old, was killed. For the time being, Uber has stated that while tragic, it did not bear responsibility for the accident, because the UberX driver was not engaged in providing a ride at the time. The accident spurred Uber to change its insurance policy to cover UberX drivers as long as they are logged into the app, regardless of whether there is a passenger in the car. The accident also brings to the forefront questions of commercial and private liability. Had the accident happened with a taxicab, it most likely would have been covered by the taxicab’s insurance policy. For example, in D.C., D.C. Code § 50-314 mandates that taxicabs carry insurance for liability arising from ownership, maintenance, and operation of the cab. An insurance policy of this sort makes sense, because taxicabs are engaged in commercial activity. Transportation as a commercial activity brings increased risk, especially on the consumer protection front. Questions of liability in the local sharing economy are complicated: Should an UberX driver logged onto the Uber app be considered engaging in commercial activity? What if the UberX driver is on the way to the grocery store, but forgot to log out of the app? When do private drivers transform into commercial UberX drivers and vice versa? The Commission’s proposed rules seek to solve this problem by regulating private sedan drivers and private sedan businesses more like taxicabs and taxicab companies. For example, first, in the Commission’s Chapter 17 Proposed Second Rulemaking, proposed rule 31 D.C.M.R. 1708.1(a) requires private sedan drivers to acquire a private sedan operator license and 31 D.C.M.R. 1701.1(d) requires private sedan vehicles to display a Commission-issued decal. Second, private sedan businesses must apply for a private sedan business license and pay a $5,000 application fee. 31 D.C.M.R. 1702 et seq. Third, perhaps influenced by the New Year’s Eve accident, the Commission has also proposed to require private sedan businesses like Uber to maintain an insurance policy for all associated drivers “. . . without regard to whether or not the operator is logged into the digital payment system (the app) . . .” 31 D.C.M.R. 1706.1(d). Fourth, the Commission would require each private sedan business to provide 6 hours of training to private sedan drivers as well as require each private sedan vehicle to pass a biennial safety inspection. 31 D.C.M.R. 1707 et seq. The Commission also would require private sedan businesses to keep and maintain an inventory of active private sedan operators and vehicles with the D.C. Office of Taxicabs. 31 D.C.MR. 1707.2. Finally, the Commission attempts to draw a strict line between commercial and private by proposing to cap private sedan drivers at working 20 hours a week. 31 D.C.M.R. 1707.5(a)(3). Whether one agrees or disagrees with the Commission’s approach, the proposed rules present not only a city agency dealing with emulsification, but also an agency seeking government’s appropriate role in the local sharing economy. On the one hand, government has a legitimate role to play in regulating the hazards of emulsification. For example, gaps in insurance coverage, as the tragic case of Sophia Liu demonstrates, have serious consequences for participants in the local sharing economy—Uber, UberX drivers, passengers, insurance companies, law enforcement, and so on. Regulation can have a strong role in navigating the needs of consumers, entrepreneurs, and others. On the other hand, if the agency inelegantly draws the line between the commercial and private in contradictory ways, regulations can cause the community to question the agency’s legitimacy. For example, the Commission proposes to keep private sedan drivers like UberX drivers within the realm of private use by capping the number of hours UberX drivers can work to 20 hours. This cap seems particularly arbitrary and capricious, because the Commission simultaneously insists on also applying commercial-like regulations to UberX. The proposals mandating that Uber keep an active inventory of UberX drivers on file with the Office of taxicabs and requiring UberX drivers to display Commission-issued decals look very similar to commercial taxicab and taxicab company regulations. The Commission has stated that these regulations are necessary to enforce illegal street hail rules. April 30, 2014 Public Hearing, pgs. 141-45. However, it is unclear how insidious illegal street hails are in D.C. It is also unclear how many illegal street hails the Commission has caught, if the number has risen since Uber debuted in D.C, or why keeping an inventory on file is the best policy. Since Uber already collects UberX driver information and presumably can retain and analyze geolocation data, such rules may be redundant and unduly onerous. A simpler, more elegant option would be to negotiate and enter into a data sharing agreement or, at least, the right to review Uber’s roster of drivers should a complication arise. IV. Conclusion: Driving Forward At the time of this writing, the Commission has published two rounds of rulemaking that would affect UberX. According to its August 6^th agenda, the Commission is scheduled to meet to discuss the proposed rules again on September 10^th. Some have called for the D.C. Taxicab Commission to be dissolved entirely. Some have called for more taxi-like regulation of services like UberX and Sidecar. Unfortunately, applying a traditional commercial taxicab regulatory framework is not particularly promising, because regulation rarely (if ever) keeps pace with technology. In other words, regulations rarely are future-proof. Consequently, a regulatory framework seeking to apply an old framework and capture Uber and similar services as they work today will quickly be outmoded. For example, what will happen in the age of driverless cars? Will the Commission require the owners of driverless cars to undergo 6 hours of training even if they won’t actually be driving consumers? Recognizing this, as cities and local sharing economy enterprises continue to grapple with regulatory growing pains, both sides should collaborate in creating a new framework that pays particular attention to the emulsion of the commercial and private through technology. In fact, states like California have led the way by opting to create a whole new set of regulatory definitions and rules such as “transportation network provider.” Following suit, the D.C. City Council is currently reviewing a bill separate from the D.C. Taxicab Commission’s proposals that would create “transportation network application companies.” Indeed, as smart phones continue to proliferate and local sharing economy enterprises become more lucrative, this emulsification will intensify. It will be increasingly difficult to distinguish between a driver using her car to run a personal errand and a driver using her car to run a personal errand while simultaneously scanning her app to see if any requests for rides are nearby. Certainly, it will be increasingly difficult to enforce a strict line between these two activities. Moreover, as car safety and GPS technology continues to improve, regulations dictating certain inspections and registration requirements may become largely unnecessary. Although there is still certainly a need for law and regulation, especially in the realm of public safety, rules that rely on traditional commercial frameworks are ill suited to the task. Municipal authorities and private enterprises like Uber should work together to increase affordable, convenient transportation options in order to make D.C. a more navigable city. A more navigable city encourages people to eat, shop, and even reside in D.C.—taxable activities that contribute to maintaining and improving D.C.’s infrastructure and economy. Most importantly, improving transportation in a smart and safe way improves the quality of local life in the city.

[1] The definition of “sedan service” was updated by the Public Vehicle For-Hire Innovation Act of 2012 to allow “digital dispatch services” like Uber to charge on the basis of time and distance.