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Legal Challenges for Uber in the European Union and in Germany

To “Uber” is now a verb. This development reflects the rapid expansion of the mobile ride-hailing company Uber in the United States and the rest of the world. However, in many European jurisdictions, and particularly in Germany, Uber has run into regulatory roadblocks.

Uber offers “a technology platform that enables users of Uber’s mobile applications or websites provided as part of the Services to arrange and schedule transportation and/or logistics services with third party providers of such services… .” The customer registers for a user account with Uber and payment of the services is made through Uber to the third party providing the services. (Terms & Conditions, nos. 3, 4, para. 1.) Every user of the services has the opportunity to rate the experience and leave additional feedback. (Id. no. 4, para. 4.)

In the United States, around fifty lawsuits were filed against Uber in U.S. Federal Courts in 2015 alone, but Uber is still operating in every major U.S. city. However, in Europe, the service has been banned in several countries or cities as a result of lawsuits in France, Germany, Belgium, and Spain, and accordingly suspended all or some of their services in these countries. In response, Uber has filed complaints with the European Commission against France, Germany, and Spain alleging that they are in violation of article 49 (freedom of establishment) and article 56 (freedom to provide services) of the Treaty on the Functioning of the European Union (TFEU).

Uber’s legal issues stem from the difficulty in defining what kinds of services Uber offers and what kind of relationship exists between Uber and its customers. While Uber claims that it only provides a digital platform for third party drivers, various European courts have taken a different view.

London anti-Uber taxi protest. (Photo by Flickr user David Holt, Jun. 11, 2014. Used under Creative Commons license,https://creativecommons.org/licenses/by/2.0/.

London anti-Uber taxi protest. (Photo by Flickr user David Holt, Jun. 11, 2014. Used under Creative Commons license, https://creativecommons.org/licenses/by/2.0/.

The Situation in the U.S. – Transportation Network Company

Uber Technologies Inc., which is headquartered in San Francisco, California, is classified as a “transportation network company” by the California Public Utilities Commission (CPUC). The CPUC defines “transportation network companies (TNCs)” as companies that ”provide prearranged transportation services for compensation using an online-enabled application or platform (such as smart phone apps) to connect drivers using their personal vehicles with passengers.” All TNCs need to apply for a permit with the CPUC. The most recent permit for Rasier LLC, a subsidiary of Uber, was approved in August 2015. The requirements for TNCs to operate alongside taxis in other US states vary a lot.

The Situation in the EU – Information Society Service or Transport Operator

The situation in the European Union (EU) is less clear. The service can either be qualified as a digital service provider, called an “information society service” in the applicable EU directive, or as a transport operator. Information society services are regulated by the EU and benefit from the freedom of establishment for service providers and the free movement of services as provided for in the Services Directive 2006/123/EC and the TFEU, whereas transport operation is regulated by the EU Member States. (Services Directive, recital 21.) “Information society services” are defined as “any services normally provided for remuneration, at a distance, by means of electronic equipment for the processing (including digital compression) and storage of data, and at the individual request of a recipient of a service.” (Id. art. 2(a).)

Two developments are important in this regard. First, a Spanish Court has requested a preliminary ruling from the Court of Justice of the European Union (CJEU) (Asociación Profesional Elite Taxi, Case C-434/15) and referred four questions, asking the court to define what kind of services Uber provides.

In particular, the court asked the CJEU:

  1. If the services Uber provides can be qualified as merely a transport service or if it must be considered to be an electronic intermediary service or an information society service?
  2. If Uber’s services can be qualified as “information society services,” should it benefit from the freedom to provide services guaranteed by Article 56 TFEU and the Services Directive 2006/123/EC and the E-Commerce Directive 2000/31/EC?
  3. Is Uber’s alleged breach of Spain’s unfair competition law contrary to Article 9 of the Services Directive, which governs “authorization schemes” and which states that an authorization, licensing or permits regime cannot be restrictive or disproportionate, and cannot unreasonably hinder the principle of freedom of establishment?
  4. If Uber is to be considered as an information society service, are the restrictions Spain is currently imposing on Uber allowed, taking into account the freedom to provide information society services expressed by Article 3 of the E-Commerce Directive?

A decision of the CJEU is not expected until fall 2016.

In addition, the EU Commission is currently launching studies to analyze the markets for taxis and hire-car-with-driver services in Member States as well as a separate explanatory study on consumer issues in certain online peer-to-peer markets, including the sharing of private transport. The results of the studies will determine whether regulatory action at an EU level will be required.

The Situation in Germany – Intermediary or Professional

As a reaction to several law suits in Germany, the only services Uber B.V. (Uber’s European subsidiary, headquartered in the Netherlands) currently offers are transport services provided by licensed independent professional drivers through its services UberX and UberBLACK, the luxury hire-car service, as well as standard taxi services through UberTaxi. The only German cities in which Uber operates are Berlin and Munich. The service UberPOP, which used private non-licensed drivers with their own vehicles, was discontinued in all of Germany.

Taxis in Berlin, Germany waiting at a designated taxi spot. (Photo by Flickr user Till Krech, Nov. 17, 2006.) Used under Creative Commons license, https://creativecommons.org/licenses/by/2.0/.

Applicable German Law

In Germany, all transportation of persons with motor vehicles, trolleybuses, and trams for remuneration or in the framework of the economic activity of an enterprise is subject to the Passenger Transport Act. (Passenger Transport Act (Personenbeförderungsgesetz (PBefG)), § 1, para. 1, sentence 1.) If the regular or occasional transport of persons with motor vehicles falls under section 1, it requires a permit. (Id. § 2, para. 1, sentence 1.) An exception to the applicability of the Passenger Transport Act exists, if the price of the ride does not exceed the operating costs or if it is offered for free. (Id. § 47, para. 1.)

The Passenger Transport Act provides additional requirements for the occasional transport of persons, which is defined as transport according to the customer’s specific requirements. (Id. §§ 46, para. 1, 42.) Section 46, paragraph 2 states that only taxis (id. § 47), excursion and long distance trip organizers (id. § 48), and cars or buses-for-hire (id. § 49) are allowed to carry out the occasional transport of persons. Transportation with taxis is defined as “transportation of persons with motor vehicles which the professional makes available at publicly designated locations and with which the transport of a passenger to a specific location is performed.” Taxi drivers are obligated to accept a ride assignment within their assigned zones. (Id. § 49, para. 4.) Prices for the ride are fixed by regulation. (Id. § 51.)

Transport with cars-for-hire is defined as “transport of persons with motor vehicles which can only be hired as a whole and with which the professional conducts rides in which the purpose, destination, and course are determined by the passenger and which cannot be qualified as transport with taxis.” Cars-for-hire may only accept assignments which were received at the place of business of the professional and have to return to the place of business after the conclusion of the ride. (Id. § 49, para. 4).

The questions that German courts, both civil and administrative, were asked to consider were whether Uber’s services can be authorized under the Passenger Transport Act as occasional transport of persons and, if yes, whether Uber acts merely as an intermediary between the customer and the driver or if Uber itself can be qualified as a professional offering the services.

Civil Court Proceedings

In Berlin, a taxi driver sued Uber in civil court alleging that its business model UberBLACK violated German competition law, because drivers were encouraged to make themselves available outside of the place of business without responding to a concrete assignment. In April 2014, the Higher District Court of Berlin granted a preliminary injunction against Uber. (LG Berlin, docket no. 15 O 43/14.) Uber appealed the ruling and the appeals court overturned the measure, because the plaintiff had not enforced the injunction. (KG Berlin, docket no. 5 U 63/14.)

In February 2015, however, the Berlin Higher Regional Court held in the main proceedings that the UberBLACK business model did indeed violate German competition law and issued a prohibition order against the company in Berlin. (LG Berlin, February 2015, main proceedings, docket no. 101 O 125/14.) The appeal by Uber was unsuccessful. (KG Berlin, December 11, 2015, appeal, docket no. 5 U 31/15.)

In August 2014, another civil suit commenced at the Higher Regional Court of Frankfurt am Main alleging that the service UberPOP violated German competition law, because the drivers were not licensed for passenger transportation as required by section 2 of the Passenger Transport Act. The Court granted the preliminary injunction initially (LG Frankfurt am Main, docket no. 2-03 O 329/14), but revoked it later due to formal reasons (LG Frankfurt, docket no. 2-03 O 329/14).

In the main proceedings at the Higher Regional Court of Frankfurt am Main, which took place in March 2015, the Court ruled against Uber and issued a Germany-wide ban on the service UberPOP. (LG Frankfurt, docket no. 3-08 O 136/14.)

Following the effective entry of the judgment of the Higher Regional Court of Frankfurt am Main, Uber initially lowered its price to 35 cents per kilometer, the cost of operation, to take advantage of the exception of the Passenger Transport Act, before abolishing the service UberPOP completely.

EU building, Brussels. (Photo by Flickr user David Kenny, Jan. 9, 2008) Used under Creative Commons license, https://creativecommons.org/licenses/by-nc-nd/2.0/.

EU building, Brussels. (Photo by Flickr user David Kenny, Jan. 9, 2008) Used under Creative Commons license, https://creativecommons.org/licenses/by-nc-nd/2.0/.

Administrative Court Proceedings

The cities of Hamburg and Berlin also issued administrative decisions prohibiting Uber from offering services through its app, UberPOP. Berlin additionally prohibited the service UberBLACK. The cities argued that the services were not permissible according to the requirements of the Passenger Transport Act, because the UberPOP drivers did not have a permit and the UberBLACK drivers did not receive their assignments at the place of business of Uber and/or return to the place of business after the conclusion of a ride.

The Higher Administrative Court of Hamburg upheld the city’s decision (OVG Hamburg, order of September 24, 2014, docket no. 3 Bs 175/14), as did the Higher Regional Court of Berlin-Brandenburg (OVG Berlin-Brandenburg, docket no. OVG 1 S 96.14). The Federal Constitutional Court declined to hear the Hamburg case. (Bundesverfassungsgericht [BVerfG], order of November 13, 2014, docket no. 1 BvR 2861/14.)

Both courts ruled that Uber does not act merely as an intermediary between the driver and the consumer, but presents itself as a professional to the consumer. According to the courts, Uber concludes the contract with the consumer and handles the payment since payment to the driver directly is prohibited by Uber’s terms and conditions. Furthermore, the courts found that Uber contracts with the drivers; it sets the prices for the ride, and coordinates the assignments via its app, UberPOP. They held that the clause in Uber’s terms and conditions providing that it merely acts as an intermediary was irrelevant in light of the facts. (OVG Hamburg, para. 14; OVG Berlin-Brandenburg, para. 28-32.)

Reactions to the EU Bans

The Vice-President of the European Commission, Neelie Kroes, declared that she was “outraged” at the decision of a Belgian court to ban Uber. She added that “[s]lamming the door in Uber’s face doesn’t solve anything. It sends a bad anti-tech message about Brussels, which is already in the 4G dark ages. People in Brussels are modern and open, they should have a chance to use modern and open services!”

Uber is hoping for support from the EU in its fight with European regulators. The company was quoted by the BBC as saying that the Frankfurt Court’s decision represented a “fundamental infringement of our ability under European law to establish and provide a service.” In February 2016, Uber, together with AirBnB and other share economy companies, sent an open letter to the Netherlands Presidency of the Council of the EU and called on the EU Member States to “continue to seek to ensure that local and national laws do not unnecessarily limit the development of the collaborative economy to the detriment of Europeans.”

Update: This was originally published as a guest post by Jenny Gesley. The author information has been updated to reflect that Jenny is now an In Custodia Legis blogger.

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