UBER case (I): summary of the essential matters

It is certain by now, due to the repercussion in the press, that we all know that someone in Europe has declared that UBER provides transport services, and not collaborative platform services.

But who has said it and why? What is its basis to affirm that? What repercussion does that have on UBER users? And how does it affect the rest of platforms that are in the sharing economy?

To start off with, and in order to attract the interest of those who are not fully up to date on the subject, we must start by saying that, with regard to the legal grounds, nothing new has been declared regarding the collaborative economy. Nobody should tear their garments, because the European Commission already stated, a year ago, in its Communication on the collaborative economy, what is now applied  – indeed for the first time – by the Attorney General in the UBER case, precisely to exclude it from this new economy.

However, let us take it in parts, starting from the beginning.

Opinion of the General Advocate

Although initially foreseen last 6th April, what was notified on 11th May this year were the conclusions by the Attorney General, Mr Maciej Szpunar, before the Courts of Justice of the European Union in Luxembourg (CJEU), in the prejudicial matter raised by Commercial Court No. 3 of Barcelona, in the UBER case (see Press Release of the CJEU and full text of the Conclusions).

General Advocates, far from being counsel to the parties, as their name might indicate, are jurists of recognised prestige whose function consists of independently proposing a solution to the matter concerned to the Court of Justice. It is from there on that the Court begins to deliberate on the case, that shall subsequently decide, not necessarily, although generally, in the sense of the pronouncement by the General Advocate.

Thus, the Conclusions by the General Advocate are doubly non binding, in the sense that: (i) the General Advocate’s opinion is not binding on the Court of Justice and that (ii) on this occasion it is a prejudicial matter, put before the CJEU by a Court in a Member State of the European Union, so it shall ultimately lie with it to decide. “The Court of Justice does not resolve on national litigation, and it is the national court that must resolve the litigation pursuant to the decision by the Court of Justice. That decision is also binding on the other national courts that hear a similar case”  – states the CJEU in its Press Release.

However, this is undoubtedly a very relevant finding, due to it being long awaited, and due to the consequences of this to distinguish collaborative economy platforms from those who are not.

The case of UBER in Spain

UBER was the first online platform (we shall not say of the collaborative economy, as the company itself claims it does not belong to it) that was sued in Spain for unfair competition in the year 2014.

On 9th December 2014, Commercial Court no. 2 of Madrid, chaired by Judge Sánchez Magro (the same that issued judgement on the BlaBlaCar case in February 2017) handed down an Order by which it admitted some extremely injunctive measures that had been requested by the Asociación Madrileña del Taxi (Taxi Association of Madrid) on filing its suit. Among legal circles, great attention was attracted to the fact of the measures being adopted in an extremely injunctive manner, “inaudita parte”, that is, without granting UBER the possibility of defending itself and of being heard. Now, without reaching a position on the underlying matter, the Judge considered that the cases arose to admit the injunctive measures and ordered cessation of providing UberPOP services in Spain, to provide transport services for travellers and prohibiting access and the content of its web page and its computer applications.

A short time later, on 29th October 2014, Asociación Profesional Élite Taxi had filed another ordinary suit against UBER before Commercial Court no. 3 of Barcelona, applying to declare the activity by UBER (then only UberPOP) to be declared to constitute unfair competition, due to breach of regulations, and to order it to cease its conduct. The counsel to UBER alleged that the platform provided information society services and did not provide the underlying service of transport (to see the difference between these, we recommend you visit our post on the legality of collaborative platforms). Considering the complexity and novelty of the matter, on that second occasion, the Judge decided to raise a prejudicial matter before the CJEU on 7th August 2015, that in fact he formulated through different matters.

Starting point: Basic matters to be taken into account to understand the matter.

In order to understand both the questions raised as well as the ultimate term of the matter, it is necessary to have a clear idea of the following points:

I. The purpose of the European Union is to create a sole European internal market between the Member States, that aims to be a space free of frontiers and barriers of all kinds. To that end, the system rests upon a series of basic elements, that constitute a juridical framework for the purpose of effective implementation of that internal market. Among those elements, Four Fundamental Liberties stand out, which are free circulation of merchandise, workers, services and capital.

Free provision of services is recognised in the Treaty on the Functioning of the European Union (TFEU) by prohibition of restrictions on free provision of services within the Union for the nationals of the member states established in a Member State that is not the receiver of the service. The essential factor in the right to free establishment is being able to perform activities under the same conditions as each Member State imposes on its nationals.

II.  In order to understand the object of the debate, it is important to bear three documents in the European Union scope in mind, that we shall cite all together at the beginning, to be able to start with prior knowledge. The first two are Directives:

1. The Directive on services of the information society and electronic commerce [Directive 2000/31/EC], that defines what is understood by information society services.

2. The Directive on services in the internal market [Directive 2006/123/EC], which is relevant for this matter in two aspects:

 Because it prohibits the Member States from making provision of services subject to restrictions, such as regimes of authorisations, especially when these are discriminatory, unnecessary and unjustified due to an imperious reason in the general interest and disproportionate for that objective of general interest.

And because its scope of application excludes transport services that, thus, a sensu contrario may be subject to regimes of authorisation or licences prior to the activity.

Now, as may easily be concluded, if we apply both directives and speak of an information society service, it turns out that, as it is a service, pursuant to the Services Directive, no restrictions may be imposed, and much less ones that are (i) unnecessary and/or (ii) disproportionate for the general interest one intends to achieve. However, in addition to these Directives, there is a third document that it is important to take into account:

3. The Communication of the European Commission of 2nd June 2016 titled “A European Agenda for the collaborative economy” that establishes a series of non binding directives, although these are highly relevant as they have the object of conveying how, in the opinion of the European Commission, and until further regulations are issued, the existing Community regulations must be interpreted with regard to the reality of the collaborative economy. Now this Communication, in addition to supporting the legality of collaborative platforms, underlines two essential points to understand the object under discussion in the UBER case:

  • On one hand, it states that collaborative economy platforms, to the extent that they put offer and demand in contact (who then reach an agreement over provision of the physical service: accommodation, transport, etc.), only provide an electronic intermediation service within the scope of information society services. And that the fact of them offering additional services such as payment platforms, insurance coverages, rating services, etc., does not in any way change the nature of the service they provide: an electronic intermediation service that has the juridical nature of information society service.
  • On the other hand, the European Commission also says that it is possible for the platform to also provide the underlying physical service (housing, transport, etc.), fundamentally in cases in which a great level of control or influence is exercised on the users who provide the underlying service. Thus, in these cases, due to the control the platform exercises over the user-service providers, it is understood that the party providing the underlying service is the platform.
  • However, it even goes a bit further and states a series of criteria with which one may assume that such a level of control or influence by the platform exists over the user-providers of the service. These are mainly three, which are: for the platform to set the price of the underlying service, for it to determine the essential conditions of provision of the service and/or own the key assets (that is the vehicle, the house, etc.). However, it adds some others, such as undertaking all the risks of the transaction, expenses or when the service provider is employed directly by the platform, where there is a labour relation between them.

Now, having clarified all this, we shall analyse what has happened this week.

The prejudicial matter and the juridical procedure

To sum up, the Court of Barcelona raised the following prejudicial matters (See Link to the original text)

  1.  Whether UBER provides a transport service or an electronic intermediation service, or a service inherent to the information society (to the extent that the Service Directive excludes transport from its scope of application and “protection”).
  2. Whether, in the event of partially providing an information society service, the electronic intermediation service could take advantage of the principle of free service provision (and thus the impossibility of being restricted by unnecessary or disproportionate restrictions).
  3. Whether in the event of it not being a transport service (and if the Service Directive were to be applied to it), if Article 15 of the Unfair Competition Act might be contrary to freedom of establishment of the Service Directive (due to not taking into account whether the rule breached requires licences or authorisations of a restrictive or disproportionate nature).
  4. Whether in the event of it being an information society service – under the terms of the Service Directive  – restrictions on free provision by a Member State would be valid.

An expected juridical posture

The oral hearing of the proceedings were held in Luxembourg on 29th November 2016, with discussion of up to what point UBER could be considered to exercise a sufficient level of influence or control over its drivers. Specifically, it was noted that, of the three essential criteria according to which the European Commission may presume a sufficient level of influence or control by platforms over the users providing the services, UBER (i) set the price and (ii) set the key contractual conditions for its drivers, however (iii) it did not own the key assets, the cars.

Since then, prejudicial matter was pending resolution, awaiting publication of the Conclusions by the Attorney General and subsequent deliberation and decision by the Court, that is awaited for the year end.

The underlying matter

Definitively, and gathering the starting points with the questions put to the CJEU, the underlying matter fundamentally lies in discerning two points:

  • the juridical nature of the UberPOP service in Barcelona: either as an information society service or as a transport service.
  • and the consequences of that juridical nature, for the purposes of the possibility of restrictions being imposed and for these being subject to the obligation to have a prior licence to be provided.

The opinion by the General Advocate, summarised and defined in the basic points.

To sum up and as we shall publish another post that concentrates more on the relevant juridical matters for those who may be interested in the in-depth juridical debate, what the Attorney General says in his Conclusions is the following (with the specific paragraphs of the Conclusions in which each particular is affirmed being quoted in brackets):

Starting point:

  • That UBER represents a separate case in development of new technologies, both in the juridical aspects, as well as in economic and social terms. (1)
  • That the underlying question consists of ascertaining whether what is at stake is: (i) free provision of services, and thus UBER is subject to the requisites of the European Union (EU), or (ii) provision of a transport service, that is subject to the requisites of the EU as well as the Member States (that may impose a prior licence on its activity). (2)
  • That the object subject to litigation are not all the UBER services, that is, “there is no discussion of the possibility of blocking or deactivating the Uber application on smartphones” but rather just the UberPOP service provided by Uber in Barcelona. (19) At this point one must warn that the company UBER no longer provides the UberPOP service in Spain, as that service was ceased due to the extreme injunctive measures in the judicial proceedings in Madrid.

Analysis: mixed service

  • That the activity by UBER may be analysed both from the perspective of the Information Society Service Directive, as well as from the perspective of the Service Directive; and that from the perspective of the Information Society Service Directive, “we are in the presence of a mixed service, in which one part is provided by electronic means and, by definition, the other no”. (28)
  • That, as a general rule, these are understood to be mixed services:
    •   They are information society services when transmitted by electronic mail with a (i) principal status (ii) independent of the physical service.
    • While they are shall not be information society services when there is a decisive influence of the platform on providing the physical service, that acquires a principal nature from the economic sense.
  •   That there are two possibilities with regard to mixed services: to consider them as two different services (one is electronic and the other is not) or as a sole overall service.

Conclusions:

1. UBER is not collaborative economy

  • That the services of UBER cannot be considered collaborative economy, as (i) UBER is not a shared use platform and (ii) UBER controls all the aspects of what is an urban transport service, that is:
    •    It imposes requisites for the vehicles.
    •    It also imposes requisites for the drivers, as well as compensating them for achieving specific targets.
    •   It establishes a rating service, that may even exclude a driver from the platform, which implies control by UBER regarding the quality of the services the drivers are provided.
    • And above all, it sets the price, attending to the duration and distance, and although it is true that there is a possibility of the drivers decreasing the price, it is scarcely probable, due to the margin taken by UBER.
  •   That due to all the foregoing (according to the control it exercises over the drivers), the services UBER provides must be considered as a sole service, of transport services.
  • The fact of UBER providing transport services does not mean that the drivers are its employees. With regard to this point, the Attorney General rejects that the criteria that determines provision of the underlying service has anything to do with the labour conditions of the providers of the physical service, that is, of the drivers with regard to UBER. We must remember that this was one of the criteria pointed out by the European Commission in its Communication of 2nd June 2016, as indicators of control. However, the Attorney General emphasises that these have nothing to do with the labour procedures taken against UBER in other countries (such as UK) with the matter forming the object of litigation in these proceedings.
  • That one may affirm that UBER provides transport services although it does not own the key assets, the vehicles (that was another of the criteria explained by the European Commission, as possible factors to assume the platform controls the service providers).

2. UBER is not a mere intermediary

That UBER cannot be considered a mere intermediary, because

  •  (i) while intermediary platforms offer reservations, payment facilities and rating systems, thus becoming solely means of marketing their services, but that do not determine the conditions to provide the services offered. (57-59)
  •   (ii) UBER is acting as an organiser and operator of the transport services, so the drivers do not pursue an independent economic when driving for the UBER platform, as (1) drivers are only able to locate passengers through the UBER App, and 2) the application allows only drivers working on platform to be located. Precisely due to this, “one is thus inseparable and together they form a single service”. (60-63)

That is, the reciprocal exclusivity is decisive, in the opinion of the Attorney General, to consider it a sole service, in which organisation of the platform stands above provision of the underlying service (of transport) by the drivers.

3. UBER provides a sole service: that of transport

  • That even when recognising that the innovative nature of the UBER platform lies in use of new technologies such as GPS or smartphones, the innovation goes beyond that and affects the actual organisation of the transport. (64)
  • That, due to all this, “provision of transport is undoubtedly the main supply and which gives the economic service meaning”. (64)
  • That thus, “connecting passenger and driver [by UBER] is neither autonomous or principal in relation to supplying transport. Due to this, it cannot be classified as an “information society service””(65)
  • That, due to the above, the activity by UBER must be considered a transport service in the sense of Article 2.2 of the Service Directive (that is the principle that excludes transport services within the scope of application of this Directive), and that it may thus be considered excluded from the Service Directive, from the “protection” granted by this Directive (preventing prior authorisations being imposed, except if they are necessary and in proportion to the objective of the general interest pursued). (70)

Final considerations

That, considering everything stated, it is concluded that:

  •  (i) mixed services comprised of an element provided by electronic means and not by others, in order for these to be classified as information society services, must be configured so the element provided by electronic means is independent of the principal with regard to the other, and
  • (ii) the activity by UBER must be taken into account as a whole, with the juridical nature of the transport service, as it is the main element from the financial point of view.

That due to all this, the reply to the prejudicial matters raised is as follows:

  • Prejudicial matter 1. As UBER exercises control over the transport services, it cannot be considered an information society service.
  • Prejudicial matter 2. UBER services are transport services, and as such, excluded from the scope of the Service Directive, so the Member States may demand permits for these to be supplied. (71)
  • Prejudicial matters 3 and 4. It is not appropriate to issue a finding on these, as these prejudicial matters do not fulfil the cases of facts, as the activity by UBER is not considered either a service or an information society service.

Effects of this finding

In successive posts, we shall analyse the effects this finding by the Attorney General has on the platforms that are truly in the collaborative economy, for the urban transport sector, or from a juridical point of view.

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Rosa Guirado

Lawyer & Economist .Founder of Legal Sharing
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