Transportation Startups: Online Marketplace or Retailer?

Screen Shot 2014-10-07 at 2.43.03 PMBy Lydia Ansari

Sidecar, Lyft, Uber and other transportation network companies (TNCs) have been thriving in a marketplace generally free from government regulation. But this freedom may be short lived. State legislators in Colorado, California and Washington are catching-up with technology innovations in the transportation industry by proposing and enacting state-level regulations.

This push for legislation comes in response to a growing concern over passenger safety and claims that transportation network companies have inadequate insurance policies. In one instance, an Uber car driver allegedly attacked a passenger with a hammer during a late night ride, leaving the passenger hospitalized with a fractured skull and in danger of losing his left eye. The attack occurred after a disagreement over the route, and the passenger is suing Uber.

Uber strongly disclaims any liability in their terms of service, which states that people ride at their own risk when they jump into a car with “third party transportation providers.” Ride-share companies have consistently claimed protection under section 230 of the Communications Decency Act, which grants broad immunity to websites with user-generated content. TNCs argue that as platform providers that connect drivers and riders, they should not be liable for torts committed by third party drivers. However, this position may fall apart under closer inspection.

Section 230 was originally aimed at protecting websites from claims arising out of user-generated content—the rationale being that companies should not pay the price when third party users do bad things outside of the companies’ control. But TNCs do not give their users the same degree of control that other online internet providers do. For example, passengers using Uber cannot choose their drivers or negotiate ride prices, which are fixed by Uber. This undermines the argument that TNCs provide a free online marketplace.

Professor Eric Goldman, a Santa Clara University law professor who maintains an active blog about section 230 cases, is not sure that Uber would qualify for section 230 protection given that “there’s a fine line between an online marketplace and a retailer.” That line is drawn, in part, based on issues of control. If Uber drivers are found to be employees, rather than independent contractors, Uber will likely be considered a retailer and held liable due to its ability to control the manner and means by which driving services are provided. Section 230 does not generally immunize an employer for an employee’s activities.

So should TNCs be as unfettered as Facebook? On the one hand, there is the argument that consumers benefit when they have more choices and economic options. On the other hand, some argue that consumers are not willing to, or should not have to, assume the risk of getting hurt in order to save a few bucks. In my opinion, TNCs do not operate like other interactive computer services and should not be treated the same way. They are retailers of ride-sharing services that operate in an online marketplace, and new rules should be developed to regulate them for safe consumer use. Unless TNCs drastically change their control models to allow for user-generated ride pairings, they will likely be required to change their terms of service. This change will either come from state-level regulations or court decisions requiring TNCs, like taxis, to accept responsibility for their drivers’

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