Uber Technologies Inc. (“Uber”) announced recently its expansion into 22 new U.S. cities, now bringing its app service to over 100 cities nationwide. The rapid expansion of Uber’s mobile phone app technology connecting consumers needing a ride (typically in-city, short-haul trips) with private cars, rideshares, and select taxi services, has roiled the taxicab marketplace. Cab owners and drivers are unhappy with the dramatic impact Uber has made, particularly in the nation’s large metropolitan areas; their complaints are multi-faceted: alleged advertising misrepresentations, safety, insurance, hyper-competitive pricing, absent or insufficient background checks on Uber operators and other licensing and regulatory considerations.
While the uproar and skirmishes are playing out in cities and courts across the country, it is occurring perhaps most dramatically in and around Chicago, where several taxicab and limousine companies have brought suit challenging Uber alleging violations of the Federal Lanham Act, as well as state law violations of Illinois’ Deceptive Trade Practices Act and Consumer Fraud Act. Yellow Group LLC v. Uber Technologies Inc., No. 12C7967 (N.D. Illinois). The high-stakes case is pending before U.S. District Judge Sara Ellis. Uber challenged the multi-count complaint on motion to dismiss grounds. In July, the Court granted in part and denied in part Uber’s motion, narrowing the case, but allowed to stand plaintiffs’ claims that Uber violated the Lanham Act (15 U.S.C. § 1125(a)), by its representation of rates and its representation that drivers and automobiles have proper licensing. Uber’s motion to dismiss arguments were several, and other legal blogs have examined the Court’s recent decision in depth.
Given Uber’s rapid growth and expansion, the question now is what’s next? With the tortious interference claims dismissed, the advertising claims are now at the heart of the case, underscoring the import of Judge Ellis’s nod to the U.S. Supreme Court’s recent decision in Lexmark Int’l , Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1392 (2014). Lexmark makes plain that the Lanham Act does not protect only the alleged “false-advertiser’s direct competitors” and “a plaintiff suing for false advertising pursuant to the Lanham Act need not directly compete with the defendant, but must allege an injury to a commercial interest in reputation or sales, and that the injury must flow directly from the deception wrought by the defendants’ advertising, such that the false advertising directly caused consumers to divert their business from the plaintiff.” July 10, 2014 decision at pp. 5-6 (citing Lexmark at 1391). The “taxi affiliation” and “your Private Limousine” plaintiffs convinced Judge Ellis in Chicago federal court that their Lanham Act claims, measured against the Lexmark standard, remain plausible, but those plaintiffs now face a lot of work to demonstrate facts, undoubtedly accompanied by extensive expert testimony, to show the direct causal link required under the Lexmark test. (For a nice summary of Lexmark, see my colleague Steve Weigand’s May 6, 2014 blog entry at www.businesslitigationinfo.com entitled: “Supreme Court of the United States Establishes New Standard for Standing in False Advertising Cases Under the Lanham Act.”)
Uber and its app-based vehicle-for-hire competitor, Lyft, remain darlings of young, hip consumers ranging from college students to young baby boomers, but the popularity of these web-based services have many hurdles ahead as the legacy taxi/limousine vehicle-for-hire companies are fighting on multiple fronts in an effort to preserve (or perhaps, achieve) some competitive balance in the marketplace. The case will be watched carefully not only because of people’s practical interest in how they get from point A to B after a late night out in the Windy City and elsewhere, but also because of the application of the false advertising test announced by the Supremes in Lexmark. The Yellow Group case is yet another example of the tension between old (or perhaps, traditional or legacy) business models and new, technology-driven, web-based services.