Ridesharing Wars: Uber, Regulators, and the “California Compromise”

Yesterday, as many in the D.C. metro area are aware, Virginia’s Department of Motor Vehicles sent cease-and-desist letters to Uber (PDF) and Lyft (PDF) warning the ridesharing companies to halt their “illegal operations.” As someone who has followed the regulatory battle over ridesharing closely, this was incredibly disappointing. But on the same day as the Virginia DMV’s attack on competition and innovation, Colorado Gov. John Hickenlooper (D) signed Senate Bill 125 into law. This new law creates a regulatory class called the transportation network company, requires driver background checks, and spells out insurance requirements for ridesharing operators.

While this route is not ideal — ideally, lawmakers would support broad liberalization of the transportation service industry — explicitly recognizing the legality of ridesharing, along with some regulatory requirements, is superior to Virginia’s approach. Some have referred to this as the “California compromise,” as Colorado’s bill is based on the California Public Utilities Commission regulations (PDF) that were promulgated in September 2013 after a long battle between ridesharing companies and various regulators in the Golden State.

In the early days of ridesharing, Uber and others took a head-on approach to regulatory challenges. They called themselves a tech company and (unconvincingly) denied they were in the transportation service business per se. They called for dramatic deregulation and effectively harnessed their customer bases to engage in grassroots lobbying. But with the California compromise, ridesharing providers seem to accept that they will be regulated and must “work with the system.” However, it is far from clear that this is a more effective strategy. Like Colorado, both Georgia and Arizona saw legislation introduced based on the California compromise. Unlike Colorado, those measures failed.

In Virginia, it remains unclear which route the companies will take. Outrage among the citizenry is growing and it is likely Uber and others will harness their customer bases to again engage in grassroots lobbying. Given extensive interstate travel between the District of Columbia, Maryland, and Virginia, the Federal Trade Commission may get involved, although given that a state rather than municipality is doing the regulating in Virginia, Parker immunity limits potential FTC remedies.

But will ridesharing companies seek deregulation or regulatory recognition? Again, it is too early to say.

This debate is about more than ridesharing companies as they exist today. As I noted in my recent paper for CEI on autonomous vehicles and regulation (PDF), regulations for ridesharing services today will likely affect those of tomorrow — the “driverless” taxis that many envision. If they must regulate rather than deregulate, policy makers should keep in mind that the definitions of “transportation network company,” etc., should be broad enough to permit autonomous ridesharing services in the future. As for the laws and regulations that have been written to date, this care to the future and innovation is not being taken, which is the fatal flaw of the California compromise.


The grassroots lobbying effort in Virginia has begun.