On May 11, 2017, the European Courts of Justice (ECJ) ruled that the service provided by Uber in connecting customers with drivers cannot be classified as an “information society service,” and that it is to be included in the scope of transportation services.
The decision might not have implications in the short term, as the case will now go back to the tribunal in Barcelona that sought the ECJ’s intervention to clarify the matter. However, it sets a precedent that is likely to be a reference for future cases, and could lead Uber to be regulated as a transportation service across EU countries. However, regulators should consider easing burdens across services rather than imposing additional requirements on innovative ones, if they aim to foster innovation.
Services competing with online platforms should be freed from rules that are now unnecessary
The ECJ’s ruling of May 11, 2017 might have not been what Uber was hoping for, but it can hardly be said that it came out of the blue. Users across the world tend to view the Uber platform as a transportation service, and the industry of traditional taxi transportation has fought its legal battles in several countries for a few years now. In economic terms, it is difficult to deny that services such as Uber act as a substitute to the good old cab.
The justification of the ECJ’s decision follows the above reasoning. The court has framed Uber as a “composite service” (i.e. part information society, and part transportation), although it noted that, for it to be considered an information society service, either the supply would have to be independent of the online platform or the main component of the service would have to be provided electronically. The ECJ concluded that Uber meets neither of the two conditions above, so it should be classified as a transportation service.
In the short run, this does not change the way Uber can operate in the EU. As the case was brought to the ECJ by a tribunal in Barcelona, it will now be up to the tribunal to make a final decision based on the ECJ’s input. However, considering past cases and the influence inevitably exerted by the ECJ, it is likely that the decision will inform the orientation of courts across the EU in the future. It is also likely to influence future legislation and regulation of online platforms in general, including services such as Airbnb.
However, regulators should use this as an opportunity to remove obsolete regulations on certain categories of services, rather than adding a burden to businesses that are innovating in the industries where they operate. In particular, the taxi industry in many EU countries requires an onerous licensing process, which forces drivers to invest significant sums of money; should new businesses be forced to comply with the same rules, their ability to innovate and revolutionize business models would be significantly compromised.
As Ovum noted in its The Regulatory Environment for Platforms report, published last year, prescriptive regulation could help level the playing field, but it could end up forcing new business models to become way too similar to traditional ones. A sensible approach to regulating online platforms is likely to consist of a mix of traditional regulatory tools, ex post competition law, and self-regulation.
The Regulatory Environment for Platforms, TE0007-001003 (March 2016)
“The four things regulators should think about when considering platforms,” TE0007-001016 (April 2016)
Luca Schiavoni, Senior Analyst, Regulation