Uber in court: Is it a digital service, or an unlicensed taxi company?

A case the European Union's highest court heard arguments for on Tuesday centers on whether Uber and other companies in the sharing economy are digital services, or real-life service providers that must face real-life regulations. 

A legal battle that has reached the European Union’s highest court has presented Uber with an identity crisis: Is it just a digital service that connects drivers and passengers? Or is it, in reality, an unlicensed taxi service?

The Court of Justice heard arguments in Luxembourg Tuesday from lawyers that represent Uber and the Asociación Profesional Élite Taxi, the main taxi operator in Barcelona, which originally filed legal proceedings against Uber in 2014. The Court of Justice panel, made up of 15 judges, is not expected to rule until at least April. However, its decision could extend beyond the EU and the ride-sharing industry.

The case has set member nations of the EU with different regulations against each other, with other countries, especially those in the so-called sharing economy, paying heed. Because the EU is one of Uber’s largest international markets, a decision could mark a turning point in how the world generally regards the sharing economy. In particular, a decision could affect whether services such as Uber, Lyft, and Airbnb are considered apps that exist in just the digital space, or real-life service providers that should face real-life regulations, including licensing, insurance, and safety.

Uber’s lawyers indicated Tuesday the company doesn’t believe it should be confined to the label of a taxi service.

"Uber is part of a wave of technology which radically changes the way we shop, obtain information," Uber's lawyer Cani Fernandez told the EU Court of Justice. "Uber's services can't be reduced to merely a transport service."

The case that has pushed these questions to the surface involves UberPOP, which allowed almost anyone – after some basic security checks – to use the company’s app to pick up passengers, according to The New York Times. The Asociación Profesional Élite Taxi, Barcelona’s main taxi operator, accused Uber of running an illegal taxi service through UberPOP, which is comparable to UberX in the United States.

A Spanish judge referred the case to the EU Court of Justice in Luxembourg. Uber, meanwhile, suspended its services in Spain, including UberPOP, according to the Times. Uber has since returned to the country, this time in partnership with licensed taxi drivers.

But lawyers representing the Spanish taxi operator argued in court Tuesday that UberPOP allowed the San Francisco-based startup to gain an unfair advantage by avoiding regulations and fees in Spain.

"Let's look at things as they really are. If there's a transport service being provided, a company should not be able to hide behind the thin veil of describing it as a different kind of activity," Montse Balague Farre, a lawyer representing the group, told the court, as Bloomberg reported. "We cannot allow a business model to develop in Europe which could allow for any undermining or detriment to the rights and protection of consumers."

The stakes for Uber are high. For one, if the court were to rule against it, Uber would be forced to comply with normal obligations transportation services face under EU rules. But the decision could also affect how the company is seen outside the European bloc. Uber has repeatedly said it is a digital service, making similar arguments recently in places like Taiwan. The island nation has asked Apple and Google to remove Uber from the country's app stores, and ordered Uber to pay back taxes, arguing that its classification as an Internet-based technology is a misrepresentation of the company.

This conflict has come into focus as the sharing economy shifts from its origins in not-for-profit services to some of the most successful startups in Silicon Valley history. When the idea of the sharing economy first appeared, it was embodied by not-for-profit services like Wikipedia, the user-generated encyclopedia, and Couchsurfing, the website that matches hosts and travelers, as Juliet Schor, a sociologist at Boston College, and a leading researcher on the sharing economy, writes for the website the Great Transition Initiative.

“Within a few years, and particularly since the for-profit platforms began to take large sums of outside investment from venture capitalists, the situation has become more contested,” writes Dr. Schor. “...Dean Baker, a progressive economist, claims the new sharing is ‘largely based on evading regulations and breaking the law’ and subjects consumers to a substandard, possibly unsafe product. Anthony Kalamar has called out ‘sharewashing,’ in which platforms shift risk onto employees under the guise of ‘sharing.’”

With an estimated value of $68 billion, Uber and its ongoing battle with the taxi industry has been at the center of this controversy. 

“The biggest impact,” Schor writes about the taxi industry, “is likely the erosion in the value of [taxi drivers'] medallions, the licenses they must possess to operate, because these medallions yield pure rents.”

In Paris, for instance, traditional taxi drivers enjoyed a monopoly of privilege and power, Dominique Andolfatto, a professor of political science at the University of Bourgogne, told The Christian Science Monitor last year. But now, frustrated with the current system, many younger French citizens, in particular, are embracing economic deregulation.

“What’s interesting is that Uber has accomplished something that we thought would never happen in France: digital innovations are inciting change where politicians have failed to do so,” David Viret-Lange, the chief information officer at French telecom giant Orange Business Services, told the Monitor. 

In an effort to catch up with this change, however, politicians and traditional transportation services have brought legal and regulatory challenges against Uber and other ride-hailing companies in cities that include London, Frankfurt, and Calgary, Canada. At the heart of many of these debates is this question of whether Uber is purely a digital company that matches passengers and drivers, or whether it is, in effect, an unlicensed taxi service, as the Harvard Kennedy’s School Shorenstein Center wrote in an analysis of the issue.

While the EU awaits a court decision, different regulators in the US have dealt with this question differently. New York state recently found two Uber drivers (one also drove for Lyft) were entitled to unemployment payments, meaning they should be treated as employees rather than independent contractors. Meanwhile, in June, the Economics and Statistics Administration of the US Commerce Department issued a report that labeled companies involved in the sharing economy as “digital matching firms.”

Other companies in the sharing economy have faced similar questions. Airbnb, which matches lodging hosts with guests, and its rival, HomeAway, were fined $1.2 million last week by the city government in Barcelona for advertising and operating vacation rentals without appropriate licenses, according to Fortune.

This report contains material from Reuters.