Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Tex.: Taxi operators’ false advertising claims proceed against Uber and Lyft, (Mar 11, 2015)

By Linda O’Brien, J.D., LL.M.

Licensed tax operators alleged sufficient facts to pursue false advertising claims under the Lanham Act against transportation networks Uber and Lyft for representations regarding the scope of their insurance coverage, the federal district court in Houston, Texas has decided (Greater Houston Transportation Company v. Uber Technologies, Inc., March 10, 2015, Gilmore, V.).

Greater Houston Transportation Authority, Fiesta Cab Company, Houston Transportation Services, National Cab Co., Pasadena Taxi Co., Greater San Antonio Transportation Company, and Enterprise Transportation Inc. are licensed taxi operators in Houston and San Antonio. Under Texas law, municipalities are required to license and control taxi transportation services. In Houston, vehicles for hire are regulated by Chapter 46 of the Houston Code of Ordinances (HCO), which requires taxicabs to be licensed to operate in the city and imposes significant requirements on taxicab operators, including minimum insurance coverage. Vehicles for hire in San Antonio are regulated by Chapter 33 of the San Antonio Code of Ordinances (SACCO), which imposes similar requirements.

Uber and Lyft are mobile-based transportation networks (TNCs) that enable customers to use smartphone apps to connect with third-party drivers for transportation. Shortly after Uber and Lyft began operating in the Houston and San Antonio areas, the licensed taxi operators filed suit, alleging, in part, claims for false advertising under the Lanham Act. The operators alleged that Uber and Lyft unfairly competed with the taxicab industry by failing to comply with local regulations and misrepresented the nature of their services to consumers. Uber and Lyft moved to dismiss the complaint.

Proximate cause. The court determined that the plaintiffs adequately pleaded facts to support their claim that the defendants’ actions were the proximate cause of their injuries and to establish standing to pursue claims under the Lanham Act. The defendants argued that the plaintiffs failed to show that (1) customers were influenced by the alleged misrepresentations, (2) their loss of business was the result of the defendants’ alleged misrepresentations as opposed to market factors, and (3) a direct correlation between the plaintiffs’ loss of business and defendants’ alleged misrepresentations did not involve an impermissible amount of speculation.

According to the court, the plaintiffs claimed that the defendants misrepresented (1) the legality of their operations; (2) the nature of their services by using the terms “ridesharing,” “partners,” and “donations”; and (3) the scope of their insurance coverage. Although the plaintiffs did not state the precise amount of lost business, their allegations that the defendants’ misrepresentations swayed consumers to use their services were plausible. The plaintiffs did not have to prove that their harms were not the result of natural market factors to survive a motion to dismiss.

Insurance. Additionally, the plaintiffs adequately pleaded that Uber’s and Lyft’s statements regarding the scope of insurance coverage could have been false or misleading. According to the court, the plaintiffs contended that Uber’s and Lyft’s representations on their websites that they maintained minimum insurance coverage misled customers, since the companies maintained “excess and surplus lines” policies rather than the commercial auto insurance policies held by taxi companies. Uber’s and Lyft’s insurance coverage was limited to what they would be liable for in case of injury due to their liability disclaimer contained in the terms of service. Thus, the taxi operators adequately pleaded that there could be deficiencies in insurance coverage, which would render Uber’s and Lyft’s statements materially misleading, in the court’s view.

The taxi operators also adequately pleaded that Lyft’s statements regarding its donation-based model could have been false or misleading. Lyft’s website stated that its drivers collect only “donations.” The plaintiffs claimed that Lyft automatically charges riders the full “suggested donation” unless they affirmatively opt out. Moreover, pressure to donate was increased by drivers’ ability to screen riders based on whether they made donations and mobile app warnings that users were more likely to obtain a ride if they consistently made donations. Lyft’s statements could lead a consumer to believe that the service was strictly donation-based but effectively required payment if users wished to be picked up by drivers.

False and misleading statements. However, the plaintiffs failed to plead a cognizable cause of action that Uber and Lyft misrepresented that every driver met all local regulations and their use of the term “ridesharing” was false or misleading. The court noted that the plaintiffs could not use the Lanham Act to enforce their interpretation of the local ordinances absent clear and unambiguous statements from local regulatory authorities that Uber and Lyft were violating the law. Furthermore, Uber and Lyft openly provided base fares for customers on its website, and customers were not likely to be misled by different characterizations of drivers in promotional materials. Thus, the plaintiffs’ claims based on those representations were dismissed, the court concluded.

The case is No. 4:14-0941.

Attorneys: Daniel K. Hedges (Porter & Hedges) for Greater Houston Transportation Co. Martyn B. Hill (Pagel Davis & Hill) for Fiesta Cab Co., Houston Transportation Services, LLC, National Cab Co. Inc., Pasadena Taxi Co., Inc., Greater San Antonio Transportation Co., and Enterprise Transportation Inc. Amit B. Patel (Quinn Emanuel Urquhart & Sullivan LLP) for Uber Technologies, Inc. Daniel David (Baker Botts LLP) for Lyft Inc.

Companies: Greater Houston Transportation Co.; Fiesta Cab Co.; Houston Transportation Services, LLC; National Cab Co. Inc.; Pasadena Taxi Co., Inc.; Greater San Antonio Transportation Co.; Enterprise Transportation Inc.; Uber Technologies, Inc.; Lyft Inc.

Cases: Advertising TexasNews