A Feisty Start-Up Is Met With Regulatory Snarl

It is really interesting how self interests are destroying innovation.
[Reproduced from the New York Times]

By BRIAN X. CHEN
Published: December 2, 2012

WASHINGTON — Summoning a taxi or car service with your smartphone feels like the future. City governments around the world can agree on that. But many of them are proposing new rules that would run Uber, one of the most prominent ride-requesting apps, off the road.
The battle between Uber and city governments underscores the tension between lawmakers and technology companies at a time when Web sites and mobile apps can outmaneuver old rules.
At a recent conference here, transportation regulators and car service operators from cities in the United States and Europe met to talk about how smartphone apps were changing the hire-a-car business. Some of these apps are integrated with dispatching systems run by the car companies, while others allow drivers to directly connect with passengers, phone to phone.
While the regulators discussed ways to clarify the legality of these apps, they also proposed guidelines that would effectively force Uber, a San Francisco start-up, to cease operations in the United States. Uber also faces new lawsuits filed by San Francisco cabdrivers and Chicago car service companies, and a $20,000 fine from the California Public Utilities Commission.

The battle between Uber and city governments underscores the tension between lawmakers and technology companies at a time when Web sites and mobile apps can outmaneuver old rules. Services like Uber, Airbnb and Craigslist can cut out the middleman and lead to more efficient markets. But regulators say they could also put consumers at risk.
Uber has rattled regulators in many cities with its unusual approach to expansion. It says that it first consults a transportation lawyer in a city on whether it is legal to operate there. When it comes to town, its employees contact local car service companies to discuss working with them; in cities where Uber works with cabs, employees put up fliers or approach drivers at airports and gas stations. Participating drivers get free iPhones that run Uber’s navigation software, which helps them find people nearby who are requesting rides with their smartphones.
The start-up, which has raised $50 million since 2010, generally does not consult transportation regulators before it starts rolling in each city. Because it is not an actual provider of rides, it says that it is not subject to such regulation. To date, this approach has generally worked for it in 18 cities, including San Francisco, Washington, New York, Chicago, Paris and Amsterdam.
Uber suffered its first serious setback in New York, where it was forced to cease its fledgling yellow cab operation in October because of what the city said were exclusive contracts with payment processors. But the company continues to work with luxury sedan companies and drivers there.
Matthew W. Daus, former chairman of New York’s taxi and limousine commission and current president of the International Association of Transportation Regulators, is one of Uber’s most vocal critics, saying the company isn’t above regulation. With the support of 15 city governments that formed a task force called the Smartphone Apps Committee, he wrote up the guidelines on laws that, if passed by the cities, would outlaw Uber’s operations.
In an interview, Mr. Daus, who practices law part-time with the firm Windels Marx Lane & Mittendorf, said that Uber was a “rogue” app, and that the company was behaving in an unauthorized, unusual and destructive way.
As an example, he pointed to Uber’s doubling of fares in New York after Hurricane Sandy in what the company calls surge pricing, a move that the start-up said was necessary to get more drivers on the storm-ravaged roads.
He said, “New Yorkers deserve an apology from Uber for price-gouging them during the hurricane.”
There are dozens of other car-summoning apps, some even more unconventional than Uber. Lyft, released in May by a start-up called Zimride, allows ordinary citizens to give rides to others in their own cars in return for “donations.” SideCar, another start-up, offers a similar service. Like Uber, these companies are also facing a $20,000 fine from the California Public Utilities Commission for operating without a license.
Regulators say new laws are required to protect consumers from being harmed by such apps. But Uber, aside from the hurricane troubles, is generally adored by customers who say they are willing to pay extra to summon a ride without much wait, especially in cities where cabs are scarce.
In Apple’s App Store, the Uber app has hundreds of five-star ratings. And when Washington tried to pass rules that would make Uber illegal, customers bombarded City Council members with thousands of e-mails in protest.
Uber’s 36-year-old co-founder and chief, Travis Kalanick, has a history of controversy. Scour, the file-sharing start-up he helped found, shut down after it was sued for $250 billion by media companies on complaints of copyright infringement.
He draws attention to Uber by framing it as a story of David vs. Goliath — a lean technology start-up revolutionizing a creaky business. He once referred to Cambridge, Mass., as “home to Harvard, M.I.T. and some of the most anticompetitive, corrupt transportation laws in the country.”
To Mr. Kalanick, the rules being proposed by Mr. Daus’s committee are a classic example of regulators trying to stifle innovation. He says those making the rules are more interested in protecting the taxi and limousine businesses than in helping consumers. And he says Uber’s strategy of marching into new cities without asking permission is necessary.
 “If you put yourself in the position to ask for something that is already legal, you’ll find you’ll never be able to roll out,” Mr. Kalanick said in an interview. “The corruption of the taxi industries will make it so you will never get to market.”
Travis Kalanick, Uber’s chief, seen in Sydney, says corruption in the taxi industry accounts for the difficulties  his company has encountered. Uber faces lawsuits in San Francisco and Chicago.
Taxi regulators from 15 cities, including New York, Los Angeles, San Francisco, Washington and Chicago, were on the committee that drafted the guidelines on new rules. One rule would forbid luxury car services from using a GPS device as a meter for calculating fares based on time and distance, which is the method that Uber uses.
Another rule would forbid any driver from accepting an electronic hail through a smartphone while driving. And one says limousines may not accept a request for a ride that is made less than 30 minutes in advance, which would impede Uber’s primary business model of connecting luxury car drivers with passengers immediately.
“They’re clearly designed to shut down Uber,” Mr. Kalanick said of the proposed rules. “This is taxi protection at its finest. How are you supposed to tell somebody in a city that if they want a town car, they can’t get one in less than 30 minutes, and that’s illegal and it’s bad for them to do that?”
Mr. Daus said the guidelines were necessary because just about anyone could make a car-hailing app in their basement. If riders are fleeced or otherwise harmed, the drivers and their companies would be held liable, not the app makers, he said.
Regardless of the motivations of taxi companies and city governments, their actions are standing in the way of innovation, said Daniel Sperling, a professor of civil engineering and environmental science and policy at the University of California, Davis, and director of its Institute of Transportation Studies. Some of the app companies have come up with advanced ways to promote customer safety, he said, like the ability to see a rating of a driver before getting into the car.
“Transportation has been one of the least innovative sectors in our society,” Dr. Sperling said. “When I look at these new mobility companies coming, where they’re using information and communication technology, at a very high level it’s long overdue and should be embraced with open arms.”
Some apps for hailing taxis and cars, like Taxi Magic and Cabulous, are taking a less aggressive approach than Uber. Cabulous, a San Francisco start-up, says it meets with regulators before it begins operating in a city. Its system routes a customer’s request to a taxi company’s dispatch service. In cities that don’t have such services, Cabulous provides an Internet-based way for drivers to take requests.
“I don’t believe that having laws necessarily stops innovation,” said Steven Humphreys, chief executive of Cabulous. “I think you can innovate within those laws just fine.”
Uber is showing signs that it is getting ready to play more nicely with regulators, while still keeping its distance. The company did not directly participate in the Washington conference, instead choosing to set up its own meeting and an open bar in a room across the hall, where Mr. Kalanick told regulators how Uber worked and took questions.
Mr. Daus, who organized the conference, wasn’t pleased. “They can’t even comply with the rules of the conference,” he said.