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Case Study Uber- Solution ( European Competition Law)

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Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

Uber and Taxi Regulations:

are Member States preserving a legal monopoly
to the detriment of consumers?
- Solution -

Case Study within the framework of the course

“Case Studies related to the Law and Economics of European Competition Policy”

Submitted to:
Prof. Dr. Georg Stadtmann
Chair of Economics, in particular Microeconomics

Submitted by:
Laura Barainsky euv04821@europa-uni.de
Esma Gumberidze euv163523@europa-uni.de
Amin Mohammad Nurul euv141083@europa-uni.de

Frankfurt (Oder), 30 September 2016

Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

1. Teaching objective and teaching approach

1.1. Teaching goals
This case deals with the Uber and taxi regulations and asks the question whether the taxi monop-
oly might be detrimental for the consumers.

By solving this case the students should learn:

- the theoretical concepts of a monopoly and under which circumstances a monopoly might
be useful;
- the differences in national regulations of Member States;
- to strengthen their communication skills by analyzing and condensing the relevant infor-
mation given in newspaper and/or online articles.

1.2. Case difficulty cube

Every case has a certain set of tasks for its reader, which have a different level of difficulty of
solving. The degree of difficulty has three major dimensions: the analytical, the conceptual and
the presentation dimension. 1 This case has the 2-3-1 dimension and therefore lies in the upper
middle of the back of the Leenders/Mauffette-Leenders/Erskine case difficulty cube.

Analytical dimension (difficulty: 2 out of 3):

The analytical dimension asks, which decisions the reader has to make and how these decisions
are presented. 2 This case gives the different decision alternatives but excludes the final decision,
whether it can be justified that there might be regulations which grant a monopoly to taxis.

Conceptual dimension (difficulty: 3 out of 3):

The conceptual dimension of the case deals with the difficulty of the theories, concepts and tech-
niques which are useful for understanding and solving the case. 3 The conceptual difficulty of this
case is high, because the case of Uber is an international topic which has to be solved for differ-
ent legislations.

1
Cf. Leenders, M / Mauffette-Leenders, L / Erskine, J.: „Writing Cases“, 4th edition, 2001, Ivey Publishing, p. 17.
2
Cf. Leenders, M / Mauffette-Leenders, L / Erskine, J.: „Writing Cases“, 4th edition, 2001, Ivey Publishing, p. 18.
3
Cf. Leenders, M / Mauffette-Leenders, L / Erskine, J.: „Writing Cases“, 4th edition, 2001, Ivey Publishing, p. 19.
2
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

Presentation dimension (difficulty: 1 out of 3):

The third dimension concerns the question how the case is presented and if the relevant infor-
mation is given or still missing. 4 This case is short and contains (almost) all relevant information.
Furthermore, the given information is well structured, handed in a single, simple format and only
little additional information is given. Therefore, the difficulty of the presentation dimension is
low.

2. Solution
Question 1: Which services are offered by Uber and in which EU Member States have services
of Uber been banned?

Uber Technologies, Inc. provides a service, which connects independent contractors (drivers)
with passengers by using a mobile app. Uber is operating in more than 70 countries 5 around the
world and is valued approximately $ 41 billion. 6 The advantages of Uber over a regular taxi are,
first, that independent contractors can earn money as long as they own a car and, second, that
passengers can get a ride for lower costs than with a normal taxi.

The main service of Uber is to connect passengers and drivers. All products of Uber are digital,
the consumers download the Uber app and can use it to find a driver which is located close by.
Furthermore, they can track the location of the car until it arrives and get an alarm if the car ar-
rived. 7

Furthermore, Uber provides services for different price segments. It starts with the low-cost op-
tion UberX, which is supposed to be the right option for everyday-occasions, like trip to grocery
store or for going out, at an everyday price for 1 – 4 riders. 8 The second option from the economy
price segment is UberXL, which is a cheap way to move a large group of up to 6 people around

4
Cf. Leenders, M / Mauffette-Leenders, L / Erskine, J.: „Writing Cases“, 4th edition, 2001, Ivey Publishing, p. 20.
5
Cf. Uber Newsroom: https://newsroom.uber.com/locations/.
6
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, available
online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
7
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, available
online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
8
Cf. Uber website: https://www.uber.com/ride/uberx/.
3
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

the city with a van or SUV. 9 UberSELECT provides luxury at an affordable price. 1 – 4 riders
can get a ride with highly-rated drivers with high-end sedans, which is the right option for a big
night out. 10 The premium price segment has three different categories: UberBLACK, UberSUV
and UberLUX. The whole Uber idea started with UberBLACK which promises a professional
driver in a stylish ride for up to 4 riders and is supposed to be the right option for business meet-
ings or a date night. 11 The UberSUV option is – like UberXL – intended to drive a large group of
up to 7 people around, but in the premium version. 12 UberLUX promises luxury sedans driven by
an experienced and professional chauffeur and the right option for the most special occasions. 13
Additionally, there is an option for riders in wheelchairs – the Accessibility option of Uber. 14
With UberPOOL riders can even share their ride and therefore the price for the ride as well with
people who need to go the same way. 15
Figure 1: Ubers Legal Problem Worldwide - Source: Taxi Deutschland

Uber’s motto is "Available locally, expanding globally". Uber has expanded its business to more
than 70 countries 16 worldwide. Even though it is successful in some countries, in many other
countries it faces regulatory hurdles that cause trouble for Uber to successfully operate in this
area. The biggest problem of Uber seems to be the inability to obtain licenses even though they

9
Cf. Uber website: https://www.uber.com/ride/uberxl/.
10
Cf. Uber website: https://www.uber.com/ride/uberselect/.
11
Cf. Uber website: https://www.uber.com/ride/uberblack/.
12
Cf. Uber website: https://www.uber.com/ride/ubersuv/.
13
Cf. Uber website: https://www.uber.com/ride/uberlux/.
14
Cf. Uber website: https://www.uber.com/ride/.
15
Cf. Uber website: https://www.uber.com/ride/uberpool/.
16
Cf. Uber Newsroom: https://newsroom.uber.com/locations/.
4
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

offer the same service as a taxi. Figure 1 highlights all countries where a) Uber is driving with no
restriction, b) Uber experienced legal problems, is in a legal dispute, or threatened by a ban, or c)
Uber has been banned. As it can be seen, the most restrictions are outside the United States.

Many, if not all, of the examples, include banning Uber or Uber services due to the lack of pro-
fessional licenses for drivers. For illustration, in Taiwan authorities claim that Uber services vio-
late highway laws by not having transport-licenses to operate legally. The ministry of Economic
Affairs has looked into the possibility of canceling Uber’s business registration. Additionally, in
Spain, Uber shut down its ride-sharing service after a judge ruled that Uber drivers are not legally
authorized to transport passengers by unfairly competing against licensed taxi drivers. Australia
(states Victoria and New South Wales) ruled Uber’s app to be illegal due to safety concerns. Po-
lice in Cape Town, South Africa impounded 33 cars operating with the Uber app because the
drivers did not have a taxi license. Police in Indonesia have been prompted by taxi and transpor-
tation operators to investigate whether Uber’s start-up practices are illegal. Bans have also been
inaugurated in France, India, and Germany. 17

In 2011 Paris became the first city outside the United States where Uber set up operations. How-
ever, an attempt was made to ban UberPOP because drivers do not need to be licensed. French
police even invaded Uber’s Paris office. Consequently, A French law was passed mandating that
operating a service that connects passengers to non-licensed drivers is punishable with fines over
$300,000 and up to two years in prison 18. Hundreds of Uber drivers in France have issued fines
for operating illegally. However, Uber confronted that law, claiming that it is unlawful because it
deters free enterprise. A French court decided against banning UberPOP and sent the case to a
higher court. This has generated tough criticism from taxicab officials in France as they claim
that they have to license drivers while Uber is currently free from this restriction. 19

Then, Uber provides its ride-sharing service in Germany's five biggest cities, namely Frankfurt,
Berlin, Hamburg, Munich, and Düsseldorf. In 2014 Frankfurt's court filed an injunction against
Uber. A nationwide ban was instituted against Uber’s UberPOP services after taxicab operators

17
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, p: 8, avail-
able online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
18
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, p: 8, avail-
able online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
19
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, p: 8 - 9,
available online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
5
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

asked for an emergency injunction. However, in 2015 a German court banned Uber services if
they used unlicensed drivers. Uber claimed in court that the company itself is only an agent to
connect driver and rider. Rules that apply to taxi services supposedly do not apply, and all ser-
vices are deemed to be legal, according to Uber. The court ruled that Uber's business model clear-
ly infringes the Personal Transportation Law because drivers transport riders without a personal
transportation license. The injunction includes a fine of more than $260,000 per ride for non-
compliance. 20 If the injunction is breached, drivers could go to jail for up to half a year, in addi-
tion to an imposition of fines. The German Taxi Association (Taxi Deutschland) was pleased
with the outcome, claiming that taxi services will remain in the hands of qualified people and
keeps everyone safer. Despite the ruling, an Uber spokesperson said that the company will not
give up on Germany because UberBLACK and UberTAXI services will remain unaffected by the
District Court's verdict. Both, UberBLACK and UberTAXI are using licensed taxis and limou-
sine drivers. 21

Recently Uber decided to temporarily suspend its service in Abu Dhabi due to some unforeseen
circumstances. 22 One spokesperson from Uber said on 29th August, 2016

“Uber made the decision to temporarily suspend services due to some unforeseen
circumstances. Our goal is to have operations up and running as soon as possible.”

Lastly, due to these challenges Uber faces risk in several areas of it business. Most importantly
the risk might occur with dissatisfied drivers might be out of Ubers control. Also, Uber’s business
model is easy to copy by its competitors. Ever-changing Technology and customer satisfaction
also might be an important risk factor to consider for Uber.

20
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, p: 9, avail-
able online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
21
Cf. Daniels Fund Ethics Initiative: “Uber Technologies Inc.: Managing Opportunities and Challenges”, p: 10,
available online: https://danielsethics.mgt.unm.edu/pdf/uber.pdf.
22
Cf. Kerr, S.: “Uber and Careem suspend services in Abu Dhabi”, available online:
http://www.ft.com/cms/s/0/e61f68ae-6dba-11e6-a0c9-1365ce54b926.html#axzz4JD7Qb6oV.
6
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

Figure 2: Major Cities Shut Down – Source: Bloomberg

Question 2: Does Uber compete in the same market as taxis – and if so, which of Uber’s ser-
vices compete in that market?

Taxi companies in all parts of the world relied on a similar kind of business model for almost a
century. Taxi services are basic in nature and require less capital or skills. Furthermore, the taxi
regulation typically involves: control of entry, licensing, and financial standards (i.e. insurance)
and setting maximum rates. However, taxi fares always remain expensive while the quality of
service always depends on the individual driver. During a certain time, such as peak hours, taxis
remain limited. Therefore, it increases the waiting time for customers. As a consequence, coun-
tries try to engage deregulatory in improving the performance of taxi sector. However, these de-
regulatory efforts did not lead to a major innovation as new entrants used the same business mod-
el as existing incumbents. Until a few years ago, the taxi sector was not showing any sign of
evolving and users have to accept the service as it is.

The situation changed when the online-enabled car transportation service like Uber emerged.
This new mode of car transportation service connects passengers with drivers. Uber named this
service as a ride-or car-sharing service. The main difference between regular taxi service and
Uber is that Uber use a marketplace where independent drivers are connected to passengers
through the online platform which is known as a peer-to-peer platform. This platform helped Ub-
7
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

er to really change the traditional taxi service as it matches the demand with the supply of a ser-
vice without an intermediary. Uber's mobile app is user-friendly and offers attractive rates com-
pared to the rate charged by regular taxis. Ubers charges are based on the combination of time
and distance parameters. It also uses a “dynamic” or “surge pricing” mechanism during peak
hours by increasing the fees for drivers. On average, 80% of the fares go to drivers and rest is
kept by Uber. It also reduces the search costs for users.

It has to be determined, whether the service, which is offered by Uber has to be classifies as a
taxi/transportation service or information society, as it offers the service via electronic means.
This question is addressed in detail in Question 5.

Question 3: Have a look at the decision by the Court in Frankfurt/Main against Uber and
what is still on offer by Uber in e.g. Berlin.

A three-judge panel, Frankfurt Regional Court, Germany has issued a temporary injunction
against Uber, the U.S.-based online transport service. It said Uber drivers required necessary
commercial permits, potentially excluding the company from operating in cities across Germany.
In its ruling, the Frankfurt Regional Court said the company could no longer offer its Uber and
UberPop phone apps to connect drivers with passengers. The taxi services arranged by Uber, are
a violation of Germany’s Passenger Transportation Act. 23 It also mentioned that Uber's network
of drivers lacked the necessary commercial licenses to pick up passengers. However, German law
allows drivers to pick up passengers without a commercial license only if the driver charges no
more than the operating cost of the trip. Drivers must carry a valid driving license, have neces-
sary local permits, and undergo background checks before they pick up passengers, it says. Be-
cause Uber stands to take a cut of any charges, the court held it liable and issued an injunction
against the service. The Frankfurt regional court said each violation of the Uber order was subject

23
Cf. “Uber taxi app banned in Germany following court ruling” , available online :
https://www.euractiv.com/section/social-europe-jobs/news/uber-taxi-app-banned-in-germany-following-court-
ruling/.
8
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

to a € 250,000 ($ 264,825) fine 24 or a jail term of up to six months for a local employee, if it vio-
lated the temporary injunction. 25

The suit was brought by Taxi Deutschland, a Frankfurt-based consortium of taxi companies oper-
ating in major cities across Germany. Taxi Deutschland offers its own taxi-hire apps for
smartphones. The ruling drew praise from other industry groups including Taxi.eu, which said it
put Uber drivers on a "level playing field" with the 150,000 drivers it counts in its pan-European
network. 26

However, the district court of Frankfurt lifted the preliminary injunction imposed against the ser-
vice UberPOP on 25 August 2014. The court reversed that decision, saying that although some of
the taxi drivers’ legal arguments against Uber were valid, the strict conditions needed to endow-
ment an emergency injunction were not met. 27

In addition, on September, 2014 a Berlin court also upheld a ban imposed on the start-up that had
banded it from operating across the German capital. As part of the decision, the Berlin court
agreed with the local authorities, which ruled in August that Uber did not have the proper licenses
or safety checks in place to operate in the city. 28

Question 4: Are national regulations on taxis common to all Member States preserving a legit-
imate aim, or merely preventing the entry of an innovative new service?

The regulations commonly issued by the national governments or local authorities on Taxi busi-
ness sector typically involve:

24
($ 1 = € 0.9440), cf. Eric Auchard: “Frankfurt Court Bans Uber Across Germany”, available online:
http://www.businessinsider.com/r-frankfurt-court-bans-uber-taxi-services-across-germany-2014-9?IR=T.
25
Cf. Auchard, E.: “Frankfurt Court Bans Uber Across Germany”, available online:
http://www.businessinsider.com/r-frankfurt-court-bans-uber-taxi-services-across-germany-2014-9?IR=T.
26
Cf. Julana : “Uber welcomes today’s Frankfurt court decision lifting the injunction brought by taxi incu bents” ,
available online : https://newsroom.uber.com/germany/uber-begrust-die-entscheidung-des-landgerichts-frankfurt-
zur-aufhebung-der-einstweiligen-verfugung-gegen-uberpop-3/.
27
Cf. Scott, M.: “Court Upholds Ban on Uber in Berlin”, available online:
http://bits.blogs.nytimes.com/2014/09/26/court-upholds-ban-on-uber-in-berlin/.
28
Cf. Scott, M. & Plass. S.: “German Court Lifts Ban on Uber Ride Service”, available online:
http://www.nytimes.com/2014/09/17/business/international/uber-ban-in-germany-is-lifted-by-court.html.
9
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

1. Licensing entry on the market. This type of regulation aims at limiting the number of sub-
jects operating in a given area, this is why the number of such licenses is usually limited.
Thus, only a given number of taxi companies is allowed to operate and compete with one
another in a given area. This limitation is supposed to prevent oversupply of taxis, which
would result in ruinous competition between taxis, which on a turn, would result in de-
crease of drivers’ life quality, as they would be dropping prices to attract more passengers
almost to a point, where they wouldn’t be able to make profit anymore. Such ruinous
competition would also lead to huge increase number of taxis, creating more traffic and,
thus, harming the environment.
2. Quality and performance standards for cars and drivers to comply with. These standards
might involve certain characteristics, such as driving age, existence of some safety fea-
tures and regular car inspections, as well as requirements for the drivers to undergo some
trainings or criminal background checks, as well as car accessibility features to ensure
equal treatment of passengers with disabilities. These licensing requirements are meant to
ensure passengers’ safety and equal treatment and non-discrimination, as well as, for ex-
ample, to provide taxi services even in less populated areas. Finally, these standards are to
prevent the cities from receiving worse and worse cars.
3. Financial responsibilities for the companies to ensure their cars. This measure is also in-
tended to provide passengers with safety, as insurance requirements might incentivize
drivers and companies to properly take care of the cars and ensure that they are new
enough to avoid insurance rates going up.

All of these measures are legitimate for public policy reasons, rather than for economic ones. The
side effects of deregulation, such as ruinous competition, decreased living standards for drivers,
increased traffic resulting in increased pollution, worse and unsafe cars, no or insufficient service
in less populated areas, are proven through historical experience. •During Great Depression, peo-
ple jumped at the opportunity to drive unlicensed taxis at the absence of stable jobs→ increase in
accident rates, poor insurance coverage, road congestion

In the 1970s / early 1980s some US cities (namely Atlanta, Indianapolis, Milwaukee, Kansas
City, Phoenix, San Diego, Portland and Seattle) removed regulations on fares, licensing, accessi-
bility requirements, but only a decade later these cities re-regulated the taxi market because the

10
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

deregulation had several negative effects: the prices for taxi riders increased, vehicle quality de-
creased, average age of vehicles increased, fares became confusing and unpredictable for passen-
gers, taxi rides in low-density areas neglected and 7/24 transportation became difficult, living
standards of taxi drivers decreased due to oversupply, accidents increased due to inexperienced
drivers, traffic and therefore pollution increased.

Although all of these side effects of deregulated market in theory could be overcome through the
means of the rules of economy, such supply-demand balance. For example, in theory ruinous
competition will be stabilized as more taxi drivers drop out of business not being able to maintain
such low prices. The taxi supply will gradually decrease causing price increase, resulting in im-
provement of the living standards of drivers still operating on the market. Passengers’ need for
better, safer and more accessible cars would force taxi companies to provide such. However,
these natural processes will gradually result in supply-demand balance again and will keep the
market fluctuating. Besides, for stabilization through the means of free market a lot of time is
needed, meanwhile, more people are dying in car accidents, traffic is increasing, transporting taxi
cars are becoming worse and worse, passengers are less safe and less sure of the fairness of the
ride fears they are paying, living standards of drivers are decreasing. To conclude, the regulations
commonly imposed on taxi market have legitimacy and justification and are not created to merely
prevent more innovative services from appearing. However, some regulating measures described
above might be replaced with less intrusive, but as effective measures as ones described above.
For instance, it could be possible to achieve a stable number of taxis in a given area just by im-
posing quality and performance standards on operating subjects, rather than by directly limiting
taxi numbers by limiting the total number of licenses distributed in a given area. It is also neces-
sary to get rid of such intrusive regulations, as those directly aiming at setting up the maximum
prices/fears for the rides. The regulation of any economic activity should be flexible enough to
accommodate all developments of supply and demand that are in the public interest, e.g. econom-
ic growth. An adaptable regulation provides incentives for innovations to the market. A flexible
regulatory structure in itself is in public interest. Let the law identify the very general principles
and leave the application of those general rules to the (local) enforcer. 29 It is important that regu-

29
Cf. Bagis Akkaya, M.: „Uber, the online car-sharing service: a critical review of European approach to competi-
tion vs. local regulation”, available online: http://turinschool.eu/files/turinschool/ISS15_Bagis_Akkaya.pdf.
11
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

lations, even if they used to serve or still are serving legitimate purposes do not prevent from
emerging innovations that could benefit the costumers, the market and, the society in general.

Question 5: Could a regulation, which grants a monopoly to taxis be justified? Which Articles
are relevant?

In order to answer the first part of the question, it is important to answer the questions about what
is monopoly, what is meant by the word “taxi” and which other businesses/services could be
competing on the same market. By definition a monopoly is a dominant state of a particular busi-
ness operator, which is either the only subject providing a particular service of its kind, or its
share of the market of particular product/service is close to 100%. The regulations usually im-
posed on taxi market by national governments or local authorities typically do directly involve or
indirectly result in a restriction of the number of taxis/taxi companies operating and competing
with each other in a given locality, but they do not aim and do not result in existence of only one
subject operating in a given area without competition at all. Even when the regulator sets up the
rigid number of taxi licenses per given locality, there still are more than one license. Those taxi
companies that obtain the license still have to compete with each other, even though there is lim-
ited number of them. Therefore, regulating taxi market itself does not automatically mean grant-
ing a monopoly.

But we further have to ask the question whether there is a monopoly granted to taxis as a whole
general type of organized transportation on the market of picking up individual passengers by
individual cars and transporting them for remuneration to their individually requested destination
by the national and local governments by the means of imposing mandatory licensing. Does the
fact that other innovative commercialized businesses providing the process of transferring indi-
vidual passengers by individual cars to the destination of their individual request, that resemble
taxis, but do not fall under licensing criteria set up by the authorities, are deprived the right to
freely conduct their business, constitute a monopoly of taxis? For example, the Frankfurt court in
Germany issued an injunction prohibiting Uber drivers from picking up passengers and imposing
6-month imprisonment or € 250,000 fine on drivers if they violate this ruling. Does this ban of
Uber operation automatically mean that authorities are granting taxis a monopoly? Taking into
account what was already known from Question 4, it could be said that such “monopoly” granted
to certain type of product or service can be justified by environmental, social and other public
12
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

policy needs of providing safe, accessible, environmentally most harmless, comfortable mean of
transportation, available for passengers 24/7 and even in the least populated areas, as well as to
ensure decent living standards for the drivers. ‘Monopoly’ is a term used only to describe indi-
vidual business/economic subjects/entities dominating a certain market with no or very few and
weak competitors and not to describe a group of such entities competing with each other. There-
fore, taxis/taxi companies competing with each other as a group are not considered as a monopo-
list, even if they are protected by regulations from facing more and more new competitors over
time. Such regulations actually do limit competition, but not to a degree of a monopoly, unless
they join in cartels, merge or enter other negotiations, as a result of which they start operating as
one business entity.

To answer the second part of this question, the following question needs to be answered first:
Does the issue of letting Uber compete in the markets of the EU member states, outside of the
usual regulations for taxis, fall under the scope of EU law and the competences of EU institu-
tions? And if so, how would European Commission decide such case?

In Article 4 of the Treaty on the European Union (TEU) 30 it is regulated that any competences,
which are not granted to the Union through the treaties, are left to the states. The member states
should comply and meet the obligations taken through EU treaties or resulting from the acts of
EU institutions (principle of loyal cooperation). So unless a particular issue falls under EU com-
petences, it cannot be addressed and solved by EU institutions. Even though taxi and similar ser-
vices usually are of local nature, the online component of Uber operation gives it European
scope. People can order Uber drivers from another EU member state, for example, the neighbor-
ing one, which results in a competition between taxis based in the state, where the order was
made from and Uber drivers coming to pick up their passenger just across the border from the
neighboring state. Uber drivers could work in a neighboring state, where Uber is allowed, if it is
not in the home state, which means increased competition for taxis operating in Uber friendly
states and reduced competition in Uber prohibiting states. Uber branch offices established in one

30
Cf. European Union: “Consolidated versions of the Treaty on European Union (TEU) and the Treaty on the Func-
tioning of the European Union (TFEU)”, available online: http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:12012M/TXT&from=en.
13
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

EU member state are expanding Uber’s services to other EU member states (Uber BV in Nether-
lands is connected to Uber Systems Spain), thus competing with local taxi companies in more
than one EU member state. Uber currently offers its services in more than 50 cities across EU.
When a EU member state prohibits Uber from operating in its boarders, because of heavy regula-
tions on taxi services, this ban might affect the competition with other EU member states, be-
cause Uber’s branch that administered its operations in country of prohibition was located in a
different EU member state. On the other hand, in those EU member states, where Uber is freely
operated with no regulation what so ever, with no obligation to pay taxes, provide its drivers with
insurance or retirement plans/social security, while taxis operate under more-less heavy regula-
tions, for example have to obtain licenses, operation of Uber might prevent taxi companies from
other EU member states from establishing and starting to operate and compete there. Therefore,
issues related to Uber can affect trade between EU member states, thus these issues fall under the
scope of EU law and in competences of EU institutions as they have EU dimension.

In order to fully answer the question what kind of EU legislation could be referred to, it has to be
determined whether or not Uber itself has to be classified as a taxi/transportation service or in-
formation society. If Uber is evaluated as information society, then it can benefit from the “E-
commerce Directive” 31. Article 3, Number 2 provides that Member States may not restrict the
freedom to provide information society services from another Member State. According to Arti-
cle 1 Number 2 of Directive 98/34/EC 32 defines information society service as a normally pro-
vided service for remuneration at a given price, through electronic means, from a distance on an
individual request of a recipient. Uber platform, through which it operates, meets all of the parts
of this definition: the service is provided upon an individual request of a recipient (rider submits
request through a platform, driver also notifies of his/her availability through the same platform);
the services are provided for remuneration (rider pays the fair for a ride, from which driver re-
ceives 80% and the rest is deducted by Uber); the service is provided at a distance (driver and
rider communicate through virtual platform); and the service is provided by electronic means
(Uber application via internet). Even though Uber does not own any vehicles, still it has some
31
Cf. European Parliament: ”Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on
certain legal aspects of information society services, in particular electronic commerce, in the Internal Market ('Di-
rective on electronic commerce')”, available online: http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:32000L0031&from=en.
32
Cf. European Parliament: ”Directive 98/34/EC of the European Parliament and of the Council”, available online:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:1998L0034:20070101:EN:PDF.
14
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

features that make it more than just an information society. In the United States, Californian court
ruled that Uber partner drivers are not independent contractors, but the employees of the compa-
ny, because Uber determines prices of the fairs with drivers having no control over pricing mech-
anisms. The payments are not made through driver either, so he/she cannot even request for
more, as all payments are made through passenger’s smartphone, deducted from his/her bank
account through banking card. Uber receives its 20 % share for providing information/facilitation
not from the driver, but automatically deducts it. Driver receives his/her earnings through Uber,
not the other way around. This shift of control over the remunerations, as well as Uber’s com-
plete control over the prices shows that Uber’s involvement in transportation providing processes
goes beyond just facilitation of information exchange. Uber’s role should not be interpreted in a
formalistic way, but looking at its overall policies. In order to successfully compete with taxis,
Uber sometimes damps the prices and charges below the costs of a ride. As all costs related to
maintaining a car (fuel, renovations, insurance) are on the driver, drivers often complain about
low profits they are receiving. To address this in the United States Uber started providing stable
remunerations of $ 25 per hour for those drivers, who agreed to specific conditions, for instance,
accepting 90% of all ride requests, being on-line 50 minutes out of each hour. These policies,
together with price control, increase dependence of a driver on Uber not only as on information
platform, but also as on cash distributer. Thus, Uber should not be considered a pure information
society, not as a pure intermediary, therefore, Uber does not fall under scope of the directive
mentioned above and shall be treated rather as a service linked to transportation. Also, services
provided by Uber drivers certainly resemble the ones offered by taxis with the only difference
that Uber drivers are individual drivers and not employed like traditional for EU taxi companies.
They provide transportation for individual passengers on their individual request for remunera-
tion just as taxis do. Therefore, Uber partner drivers could be subjects to the scrutiny and licens-
ing similar to taxis, this licensing would have to be individual.

Under the “Services Directive” 33, Article 9 Number 1, which provides that Member States should
not make access to a service activity or its exercise “subject to an authorization scheme unless the
following conditions are satisfied: (a) the authorization scheme does not discriminate against the

33
Cf. European Parliament: “Directive 2006/123/EC of the European Parliament and of the Council of 12 December
2006 on services in the internal market”, available online: http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:32006L0123&from=EN.
15
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

provider in question; (b) the need for an authorization scheme is justified by an overriding reason
relating to the public interest; (c) the objective pursued cannot be attained by means of a less re-
strictive measure”. These 3 conditions are cumulatively mandatory for the state in order to be
legally allowed to impose an authorization on service providers under EU law. Prohibiting Uber,
and especially its individual partner drivers from picking up passengers, while other taxi services
could perform such tasks under certain conditions, does constitute discrimination. Even though
this restriction on provision of services could be justified by public need, however, there still are
less restrictive options available. Rather than banning, the authorities should design appropriate
regulations to accommodate new developments on the market. Therefore, Uber bans are illegal
under the directive mentioned in this paragraph.

Under Article 49 of Treaty of the Functioning of the European Union (TFEU) 34 any citizen of EU
member state is free and allowed without restrictions to set up and establish state branches or
subsidiaries in any other member. While setting up such firms in another EU member state rather
than one of person’s citizenship such person and his/her firm should be treated under the same
laws and regulations as undertakings established by local citizens. Therefore, Uber branches that
already have been established in one EU member state and are expanding to another have the
right to compete with undertakings locally established in the member state. Court bans conducted
by the national courts because of strict taxi regulations preventing new competitors from entering
the market is a violation of Article 49 of TFEU. Under Article 56 of TFEU the citizens within the
EU are free to provide services to citizens of different EU member states, meaning that traveling
to another EU member state just to pick up a passenger is completely allowed under EU law and
therefore for Uber drivers as well. If they are deprived of such opportunity, because in some
member states Uber app is blocked as a result of court ban, that constitutes violation of TFEU.

Under Article 102 of the TFEU abuse of dominant position on the market by an undertaking or a
group of undertakings, which may directly or indirectly result in setting up unfair prices, hinder-
ing technological developments on the market, is prohibited. Even though the situation of those
taxi firms that have obtained licenses amount of which was artificially limited by the national or
local authorities, does not amount to a monopoly, as their situation does not result from their in-

34
Cf. European Union: “Consolidated versions of the Treaty on European Union and the Treaty on the Functioning
of the European Union (TFEU)”, available online: http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:12012E/TXT&from=DE.
16
Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

ternal agreements, but just from the decisions of the authorities and as they still compete among
each other, however, it still might amount to dominance and its abuse, especially if the regulator
has set a maximum charge rates. The artificial reduction of potential competitors on the taxi mar-
ket results in unfairly high prices, as well as in limitation of production. These practices are viola-
tions of Article 102 of TFEU. We did not refer to article 101 of TFEU as it concerns only the
intentional agreements between undertakings, not the situation of dominance caused by the ac-
tions of public authorities. Under article 106 of the TFEU any undertaking that is granted exclu-
sive rights by the public authorities should not be aided to such extent to affect competition be-
tween member states conflicting the interests of the union.

On the other hand, in those EU member states, where Uber is allowed to operate with no regula-
tions, while traditional taxi firms still have to comply with licensing requirements, we might have
a reversed abuse of dominance by Uber, as it competes with others not on equal terms. However,
until now there has not been a case, when Uber taking advantage of regulatory gaps and achiev-
ing dominant position, had significantly increased prices or limited production harming consum-
ers. However, to avoid such situation, not regulating Uber, but regulating other taxi service pro-
viders, governments passively grant exclusive rights to Uber affecting trade between member
states, the governments need to either lift all regulations from taxis or propose appropriate regula-
tions for Uber in order to avoid violation of articles 101, 102 and 106 of the TFEU.

After reviewing complaints concerning Uber bans in different EU member states, the European
Commission is expected to find these bans to be violating articles 49 providing freedom of estab-
lishment, 59 providing freedom of services, 102 prohibition of abuse of dominance and 106 im-
posing limitations on state aide and state granted exclusive rights.

17
 Uber and Taxi Regulations – are Member States preserving a legal monopoly to the detriment of consumers?

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