Will Uber’s litigious retreat from Vancouver spread to other cities?

In Vancouver, the only city to date that ride sharing service Uber has left, The B.C. Passenger Transportation Board has not issued a new taxi license for 25 years. (Photo by Travis Nep Smith)

The darling of the sharing economy sector, Uber, recently raised $1.2 billion at a valuation of approximately $18.2 billion, signalling that the game is on for those businesses who make money from the utilization of underused assets. The most prominent denizens of this new vertical are Uber itself, its most immediate competitors Sidecar and Lyft, and property rental player Airbnb, which recently closed a half-billion dollar round at a $10-billion valuation.

It may seem that the sky is the limit for Uber, but the company consistently faces real problems when it rubs up against the traditional economy and the municipal, state and federal agencies that are charged with regulating it.

Writing for the Washington Post recently, Emily Badger detailed how Uber has impacted the price of taxi medallions in different U.S cities. These licenses to operate a cab fetch upwards of $700,000 in Boston and more than a million dollars in New York City. The value of medallions has more than doubled since 2009 and has outperformed the S&P 500 in that period, a time when returns were none too shabby.

One lawsuit filed on behalf of medallion holders claims that taxis are an essential public service and that the public would be endangered by a flood of clunkers on the road.

“The taxi industry warns that without medallions, cities will lose their control over an essential public service,” writes Badger. “Uber counters that medallions have created a cartel that operates for its own benefit — and not in the best interests of the public.”

“If in fact the taxis were doing what they were required to do with providing universal service, why would Uber, Lyft and Sidecar exist?” offers David Estrada, Lyft’s vice president of government relations. “The only reason we exist is because current regulations and the current system is not serving people.”

But Uber’s competitor Lyft says its simply fills in the holes in a system that simply isn’t working.

“If in fact the taxis were doing what they were required to do with providing universal service, why would Uber, Lyft and Sidecar exist?” offers David Estrada, Lyft’s vice president of government relations. “The only reason we exist is because current regulations and the current system is not serving people.”

The fact that Lyft employs a VP of government relations tells you a lot about the biggest challenges faced by sharing economy companies. In places are far flung as the U.K., Belgium and Germany, Uber is currently up against legal actions, including one pending London decision that aims to determine if its app is, effectively, a cab meter. In New York, the attorney general’s office recently subpoenaed the records of 15,000 Airbnb hosts.

So far, the kinds of legal issues Uber faces hasn’t led the company to walk away from any market, except one: Vancouver.

Uber came to Vancouver midway through 2012 with a soft-launch that included rides to high profile events that was spread through a word of mouth campaign. Hootsuite founder Ryan Holmes was among the first to use the service. But when the company was ready to make its entry into the Lotusland market official a few months later, it found a major roadblock had been placed in the way. The B.C. Passenger Transportation Board notified the company that its service was being classified as a limousine and the minimum rate for limousines is $75 per trip.

Uber cofounder and CEO Travis Kalanick told the Georgia Straight that regulatory hurdles the company faced in Vancouver were some of the most challenging the company had faced.

The reasons Uber left Vancouver were not based on any battle it had faced and lost, and indeed, the company has had success in the courtroom, including a high-profile victory in a case launched by the New York City Taxi and Limousine Commission.

But cracks may be beginning to show. In April, Uber lost a case against Berlin’s taxi association, when it was determined that the company was essentially a rental car businesses and not a taxi. Uber continues to operate in Berlin today because the association has chosen not to enforce the ruling. More recently, The California Public Utilities Commission warned Uber, Lyft, Sidecar that they are not allowed pick up or drop off passengers from any airport in the state.

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Vancouver-based lawyer Tim Murphy of Murphy and Company says the danger for Uber is that a precedent held up in one jurisdiction could become a potential template for lawsuits launched elsewhere.

“Lobby groups representing taxi and limousines services will look at all the legal challenges being made to Uber in every market,” he says. “It’s likely that they are considering which one of these options may work best in their particular jurisdiction. The fact that Vancouver is the only city that has kept Uber out means that lobby groups may pay special attention to that option.”

In Vancouver, where the B.C. Passenger Transportation Board has not issued a new taxi license for 25 years, the cost of a license has soared to more than $800,000. This means a shortage of cabs and an inflated price. Vancouver passengers pay more for a cab than in Toronto or Montreal and 73% more for a five kilometre ride than passengers in Washington, D.C.

One expert thinks the taxi industry, which operates under a bylaw that keeps the number of permanent taxis in Vancouver to 588 is actually its own worst enemy. Ottawa-based economist Dan Hara, who watches the international taxi industry closely, says the public image of taxi service in Vancouver has suffered because the limited number of cabs can’t efficiently handle the volume of business in the city.

“You have network failure where a whole group of people stops using taxis because they can’t find them,” he says. “What you discover with these revealed markets is that companies start coming forward and you get this expansion and the revenues expand with it. Suddenly there’s more taxis everywhere so people are getting better service.”

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