LUXEMBURG
JEAN-MARC UEBERECKEN

In Silicon Valley, the engine powering much of innovation is the enthusiasm for breaking things. Start-ups all over the world aim to disrupt in order reshape the way we communicate, shop, drive, work out, or sleep.

What if stuffy regulation - or the law - is in the way of those dreams? Does an absolute commitment to disruption have to stop at the law? There are quite a few very innovative companies out there which do not always seem to stop at the law.

UBER is probably the best known and the most valuable of the new technology companies which appear to be fighting the law in many jurisdictions. UBER is valued at more than 60 billion Dollars and its service is available in 457 cities worldwide.

What is UBER? UBER is smart phone app, which allows the user to call a driver using the GPS capabilities of his mobile phone. In most jurisdictions, including Luxembourg, the government restricts the entry into the taxi market and regulates fares, which helps to ensure that taxi drivers and taxi companies make a living. In exchange, these operators have to follow certain safety, insurance, and service requirements.

The legality of UBER has been challenged by governments, cities and taxi companies all over the world who allege that its use of unlicensed drivers is unsafe and illegal. Critics are charging UBER with unfairly competing with taxi drivers by entering their market without following regulations or fare schedules.

For example, during the first week of October 2015 alone, UBER faced a police raid on its European headquarters in the Netherlands, a criminal trial of its two top executives in France and a ban on its services in Rio de Janeiro. In the U.S. alone, UBER has been involved in almost 200 lawsuits since October 2012.

So, the question is really how much of UBER’s business model is based on breaking the law and avoiding the costs of regulation; and how much of the business model is successful because there is an artificial restriction on the supply of taxicabs protected by a monopoly position? Many times, when a product is so much better, the incumbent will eventually lose. Regulation can only delay the change for a short time.

Is regulation the protection of last resort for the taxicabs in 2016? In the early 1900s, many hated cars because they scared horses. In fact, in 1900 a law in Pennsylvania (United States) stated: „Any motorist who sights a team of horses coming toward him must pull well off the road, cover his car with a blanket or canvas that blends with the countryside, and let the horses pass. If the horses appear skittish, the motorist must take his car apart, piece by piece, and hide it under the nearest bushes.“

UBER wants to be seen by consumers as a modern alternative to taxicabs and aims to convince its (potential) customers that taxicabs often provide a lousy service because of their protected monopoly position which should be abolished.

On the other hand, UBER has created a system where its own regulation is monitored and policed by the customers themselves, not by the government or by the city, ensuring that each UBER driver actually does comply with UBER’s terms of service. If the car is dirty, smelly or should the passenger feel harassed, the customer can rate the driver the moment he steps out of the car.

The strategy of breaking the law only works if the companies break the law during a relatively short period of time while managing to generate at the same time sufficient consumer enthusiasm for their service in order to encourage local politicians to develop rules that allow it to operate instead of prohibiting their service.

Arendt & Medernach

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Arendt & Medernach, established in 1988 through the merger of the two Luxembourg law firms Arendt & Harles and Mersch & Medernach, is the leading independent business law firm in Luxembourg. The firm’s international team of more than 285 legal professionals represents Luxembourg and foreign clients in all areas of Luxembourg business law from our head office in Luxembourg and our foreign offices in Dubai, Hong Kong, London, Moscow, New York and Paris. Our specialized practice areas allow us to offer a complete range of Luxembourg legal services tailored to client’s individual needs across all areas of business law. Our firm advises international and domestic clients in all areas of business law relevant to their business activities, ranging from fund formation, banking, insurance, private equity, real estate to corporate and tax matters.