Uber: When Innovation Outpaces The Law

While a disruptive service can be created by a couple of geeks with laptops, laws are born within the snarl of slow bureaucracy. They need time to catch up.

Uber, an app that helps connect car drivers with people looking for a ride, has expanded to more than 15 cities since it launched in San Francisco two years ago. But is it legal? Depends who you ask.

Taxi and limousine authorities in San Francisco, Washington, D.C., Boston, and New York City have all started asking questions about Uber's legality, often waving around cease and desist orders in the process. Yet the startup, having worked out these squabbles in one way or another, is still operating in all of the cities in which it has set up shop.

Its legality is simply not clear-cut. There are laws for taxis, which you hail on the street, and there are laws for limousines, which you call in advance. But until Uber came around and gave people the option to schedule cars with a moment’s notice from an app, there was no need for laws governing limousines that sometimes act similarly to taxis—or taxi-type cars that could be digitally hailed. The company operates in a gray area of its own invention.

"A lot of this regulation was written before mobile technology," says Josh Mohrer, the general manager of Uber in New York City. "In a world where a black car can only be arranged by phone, and you’re calling a phone number and they’re going to radio to the car, and they’re going to come pick you up, and that whole process takes a half an hour."

A disruptive service can be created by a couple of geeks with laptops, but new laws are born within the snarl of slow bureaucracy. It takes a while for them to catch up. Uber isn't the only service that is caught in the disparity between the two timetables.

Car-sharing companies such as Getaround and RelayRides let neighbors rent their cars to each other, sometimes by the hour. But when it comes to deciding who should pay if one of those cars gets in an accident, the law is still unclear. A federal law protects car rental and leasing companies from liability in the case of an accident, but what about an individual who has rented her car? With no precedent, it’s hard to tell. Peer-to-peer room renting service Airbnb has also created a new category that lacks straightforward legislation. Earlier this year, San Francisco clarified that it expects the service to pay the same 15% tax hotels pay, something it hadn't been doing. Meanwhile, landlords who prohibit subletting without their consent have taken legal action against tenets who post rooms on the Airbnb site.

The relationship between innovation and laws has always been this way. Vehicles were sold in the United States for years before the country got its first speed limit.
And airlines were already selling tickets to civilians by the time the first federal aviation act passed in 1926.

Figuring out exactly how a new service fits into existing laws is a cost of doing business when you’re disrupting an industry, and most companies accept that.

"We have found that when policy makers learn more about our business and the economic benefits our platform offers to cities and to individuals trying to make ends meet in this tough economy, they want to help," Airbnb's head of communications Kim Rubey tells Fast Company. "So our goal is to make sure we reach out and educate policy makers so that policies don't inadvertently inhibit the growth of businesses powered by the burgeoning sharing economy."

In Uber’s case, Mohrer says policies, though difficult to navigate, have not inhibited the company's growth. They’ve hired no outside experts to navigate taxi codes, nor has this become the focus of anyone’s job. It's been a menace, but most disputes are solved quickly.

"We’re in the technology business, not in the lawmaking business," Mohrer says.

[Image: Flickr user Bob Vonderau]

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8 Comments

  • ArnoldfromOhio

    Used Uber for the first time while in San Fran this past month.  Best service ever!  No credit card exchange (Had mine stolen once by a cabby), they appear in minutes and I don't look like a tourist hailing a cab, plus the town cars are much nicer than the nasty dirty cabs you see around cities.  Plus they email you a detailed receipt which makes life easier when turning in expenses.  

    You also get the tag number of the vehicle, the drivers name and photo, as well as cell phone.  Uber > Cab companies > Limo companies I hope it grows exponentially in every city.  It costs less if not the same than most cabs in the same city. 

  • David5

    Uber found a way to restore free enterprise in a sliver of the economy where businesses paid local governments to build tall walls to protect them from competitors.

  • Reed

    As a consumer why would you ever bash Uber?  First, they are not price-gauging- have you ever ridden in an Uber?? I have.  And even if they were price gauging it's still the consumer's choice to order an Uber in the first place- no one is forcing you.  Second, they are shaking up an incumbent industry that is big, slow, and stagnant.  That equates to increased competition and better value for the consumer.  The traditional taxi companies are just angry because they didn't see this coming.  They thought the hugely prohibitive entry cost of taxi medallions was enough to prevent any innovators from threatening them.  Guess what.  Uber found a way around it and good for them!  As a consumer I'm happy to have a choice and see some shaking up of the industry...

  • A. Pedestrian

    Taxi regulations don't just exist to limit apps that make marginal advances in work orders. They also happen to 1. protect consumers from price gauging and unqualified drivers (as has been mentioned) and 2. reduce congestion in overcrowded cities like New York. The average yellow taxi adds significantly to the amount of traffic in NYC (think 40x as much as a private car), so no, enabling price-gauging town cars to act as cabs (but without associated fees and registrations) is actually pretty selfish and short sighted.

  • Mlevine

    Uber is not inthe technology bsiness, they are in the for-hire vehicle busines, whether it be taxicabs or liveries or limousines. They take an order, they send a vehicle, they take a payment. That is what every for-hire-vehicle company in the world does. The fact that they take the order through an app is irrelevant, and not even particularly unique. Major taxicab companies worldwide have been taking orders through mobile applications for years, and they somehow maage to abide by the local reguations which are in place to protect the ridng public.  Uber disregards regulations because the are costly. You need staff to properly vet drivers, check vehicles, and manage the reporing required by most municipalities.. Under Uber's theory they could provide an app that connects people in need of prescription medication with guys making drugs in their basement and it would be absolutely fine, since the would be a technology company, not a supplier of illegal prescription drugs. If it walk like a duck.....

  • SANCRI65

    MLEVINE. WAKE UP READ AND GET UPDATED. UBER IS NOT A TIPICAL CARSERVICE BASE IN FACT IS NOT A BASE AT ALL. IT IS A TECHNOLOGY MEDIATOR WHICH CONNECTS CLIENTS AND DRIVERS.  I AM A CARSERVICE FULLY LICENCED DRIVER IN NEW YORK CITY WHO USES UBER'S APP TO CONNECT TO CUSTOMERS AND PROVIDE A SERVICE TO THEM. I DO MY OWN SURVEY WITH EACH OF MY PASSENGERS AND SO FAR I CAN TELL YOU ALL THE FEEDS BACK ARE 100% SATISFACTORY.  IF MY SERVICE WAS ILEGAL ME AND MY CAR WOULDN'T BE 100% LICENCED BY THE NYC TAXI AND LIMOUSINE COMMISSION AND UNABLE TO OPERATE. ABOUT THE HAND HELD DEVICES REGULATIONS, WE AS DRIVERS TRY TO CUMPLY AS MUCH AS WE CAN BUT THE VIOLATIONS ARE NO MORE THAN THE ONES EVERYONE ELSE PRACTICES ON A DAILY BASIS. OPEN YOUR EYES AND LOOK AROUND IT IS NOT A SO PERFECT WORLD. NYC STREET SPEED LIMIT IS 30 MPH, HOW MUCH IS IT BEING SAID ABOUT THE YELLOW CABS INABILITY TO OBEY THAT AND RESTRAIN FROM ALL THE VIOLATIONS THEY MAKE EVERY MINUTE? UBER IS BEING SUCCESSFULL, IT TIS A GREAT INNOVATION AND EVERYTIME A REVOLUTIONARY SUCCESSFULL DEVELOPMENT IS CREATED IGNORANT PEOPLE HAVE SOMETHING NEGATIVE TO SAY. IT IS EXPECTED. START USING UBER YOURSELF AND DONT TAKE THE SUCCESS OF OTHERS SO PAINFULLY.

  • Athan

    Innovation hasn't outpaced the law. The ability to book an illegal taxi already existed and the smart phone apps to book real taxis has existed longer than the iPhone has been in existence. What's changed is that Uber, Lyft, etc. have mastered the art of marketing and skirting the law. 

  • Slow company

    Just another skiming operation. Same guys you are warned about at the airport. Taxi business is regulated based on public need and necessity. There is zero new technology here. Do your research and you will find hundred of apps that follow the law ,

    How much are you guys getting to write this stuff?