The government's lawsuit against ride-hailing upstart Uber has stirred a fierce backlash from advocates who fear regulation could put the brakes on innovation.
The lawsuit was filed Tuesday by the district attorneys of San Francisco and Los Angeles counties — George Gascon and Jackie Lacey — seeking an injunction against Uber to stop what they contend are fraudulent pricing practices and misleading public statements about driver safety, among other complaints.
"We urge policymakers not to be a barrier to innovation," said Gary Toebben, president and chief executive of the Los Angeles Chamber of Commerce, calling for "productive conversations" with ride-sharing companies.
Brian Wise of the free market advocacy group the U.S. Consumer Coalition issued a statement titled, "Gov't Declaring War on Uber." The government, he said, "needs to back off."
For the Record
Dec. 10, 9:20 p.m.: An earlier version of this article incorrectly identified Brian Wise as Brian Damschen.
Internet Assn.'s California executive director, Robert Callahan, said that government agencies "have thoroughly debated the issue and determined that ride-sharing is a safe and important part of California's transportation infrastructure."
The district attorneys also targeted Lyft and Sidecar, competitors to Uber, but Lyft reached a settlement with prosecutors. Talks with Sidecar are ongoing.
The larger issue at play is the government's role in the so-called sharing economy, not only ride-hailing services but also lodging match-up services such as AirBnB.
Consumers are apt to wonder just what kind of regulations are placed on a company where a willing rider is matched up through a smartphone app with a willing stranger in a personal vehicle.
Despite the Internet Assn.'s supposition that the issue has been settled, it's anything but. The California Public Utilities Commission, the body responsible for regulating ride-sharing companies, has made clear that its regulations are in flux. Just last month, it held hearings to determine how current regulations might need to be changed.
In the state Legislature, Assemblyman Adrin Nazarian (D-Sherman Oaks), whose ride-sharing safety regulation bill was defeated last year, said Wednesday that he plans to introduce a similar bill in the next session that will be "at the bare minimum, exactly the same as where we left off with the previous bill."
The bill would have required ride-hailing drivers be enrolled in a DMV employer pull notice program, undergo a fingerprint-based background check and participate in a drug testing program. Nazarian said he's considering adding other safety provisions to the bill.
In the district attorneys' lawsuit filed Tuesday, the prosecutors say, "At the same time Uber was stating that it is 'working diligently to ensure we're doing everything we can to make Uber the safest experience in the world,' it was instead working diligently to ensure it was doing everything it could to successfully defeat a bill pending in the California Legislature that would have actually made Uber safer for its customers and the public."
Uber has maintained that its services are safe and is continuing to work with the district attorneys.
When Uber was founded in 2009, it entered virgin territory. The very concept of an app connecting riders was strange and new. No government regulations specifically addressed the innovative business model. Uber has repeatedly said it is subject to no regulation — that it's not even a transportation company. It has successfully fought taxicab lobbies in cities around the world, helped by the public's distaste for taxicab companies, which are typically regulated by the cities in which they operate.
In California, the ride-sharing services have been put in a category with limousines and shuttle services, not taxis, and are regulated statewide by the PUC through rules that went into effect in September 2013.
Uber had argued that the PUC had no authority over ride-sharing, comparing its service to Internet phone services like Skype. The PUC determined that "Uber's citations are beside the point," that it's a transportation company. It now mandates driver background checks, insurance requirements, vehicle inspections and a "zero-tolerance" policy on driver use of drugs and alcohol, among other things.
The PUC's director of policy and planning division, Marzia Zafar, said the commission is continuing to evolve its rules and is considering fingerprinting as part of the required background checks.
PUC officials said Uber continues to resist regulation efforts and has failed to submit requested data on things like the number of drivers that have committed violations or have been suspended.
Criticism of the PUC comes from almost all sides. It has "a very laissez-faire attitude toward regulation," said Mark Gruberg, a board member of the San Francisco Taxi Workers Alliance. "They do almost no enforcement, and therefore whatever rules there are don't mean very much."
According to Zafar, the commission's internal investigators primarily rely on complaints from the public to direct them toward possible rule breaches. She said the PUC has about 25 investigators who regulate limousines, shuttles and moving companies in addition to ride-hailing companies. If a ride-hailing company is found to have broken any of the rules, the PUC can fine them or revoke their permits. Thus far, Zafar said, that hasn't happened.
Even if the PUC was more aggressive in law enforcement, lawmakers believe that the existing set of regulations have gaps that endanger drivers and the public. The rules, for example, did not specify the kind of commercial liability insurance ride-hailing companies had to carry. It took legislation to clearly define the insurance needed and the periods of coverage.
In another example, the PUC currently requires ride-hailing services to perform criminal background checks on its drivers, but doesn't specify how thorough the checks need to be. Uber said it uses an "industry-leading background check process," even though it does not fingerprint its drivers.
The company's criminal checks are thus "completely worthless," Gascon said Tuesday.
"We wish there was a more earnest effort to make sure consumers are protected," Gascon said, explaining why he believes a lawsuit is necessary. "I would prefer [the PUC] would be a little more assertive."
"We're doing the best we can," Zafar said. "We would like to have more investigators to open many more investigations, but we're limited in the number of resources legislators give us."
The debate about regulation will continue, as governments attempt to balance public safety against red tape that stalls innovation.