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How A Supreme Court Precedent From 1837 Supports Uber's Fight Against Taxi Monopolies

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POST WRITTEN BY
Christian G. Samito, Ph.D.
This article is more than 9 years old.

Boston Cab Dispatch, Inc., et al. v. Uber Technologies, Inc., currently before the federal district court of Massachusetts, highlights the tension created when innovation threatens older businesses. Using a mobile phone application, Uber connects passengers to black cars, participating taxicabs, and personal automobiles driven by their owner (UberX). Eliminating the uncertainty of trying to hail a taxicab, or hoping a dispatcher will send one when called, Uber allows users to track the arrival of their car in real-time on a map. In many locations, UberX cars typically are nicer and in better condition than their taxicab counterparts. At the same time, what many riders view as a great convenience, many taxicab drivers loathe as a threat. While the Uber case may involve modern technology, the Supreme Court addressed the heart of its issue almost two centuries ago in another case arising out of Boston.

In 1792, Massachusetts’ legislature granted a charter for a company to operate until 1856 a toll bridge connecting Boston and Charlestown. The crowded Charles River Bridge generated huge amounts of revenue for its owners and became a symbol of monopoly. Then, in 1828, the state legislature did something that threatened to destroy the value of the bridge: it granted a charter to the Warren Bridge Company to build another toll bridge between Boston and Charleston. This bridge would be less than 90 yards from the Charles River Bridge on the Charlestown side and less than 300 yards from it on the Boston side. Making matters worse for the Charles River Bridge’s owners, the charter required the owners of the Warren Bridge to relinquish it to the state within six years and it would become toll-free.

The Charles River Bridge’s owners hired a legal team that included Daniel Webster and sought an injunction to stop the Warren Bridge. Through counsel, they argued to Massachusetts’ highest court that the state had infringed the 1792 charter by granting a charter to a competing company. The proprietors of the Charles River Bridge argued that Massachusetts thus violated the federal Constitution’s prohibition that states could not pass any law which impaired the obligation of contract. They lost and appealed to the U.S. Supreme Court; by the time that court issued its ruling, the Warren Bridge had become free.

When Chief Justice Roger Taney – later of Dred Scott infamy – wrote the majority opinion in Charles River Bridge v. Warren Bridge (1837), he understood its implications for the vibrant economic development of that day. If granting a charter to one company meant the state could not charter competing companies, technological change and its accompanying improvements would cease. Turnpike companies would soon awake “from their sleep,” Taney warned, suing railroads and canals to stop them from competing, throwing society “back to the improvements of the last century” instead of permitting it to benefit from “modern science[.]” The Supreme Court held that a charter did not protect a company against competition or being rendered obsolete in the course of progress.

Uber currently faces federal lawsuits from taxi companies in cities such as Seattle, Houston, and Chicago. On May 22, 2014, the Boston Taxi Drivers Association held what it called a “rolling rally,” with taxicab drivers circling around Uber’s Boston headquarters and honking their horns for an hour. Nearly three weeks later, taxicab drivers in London, Berlin, Paris, and Madrid created traffic nightmares when they held taxi strikes and protested against the company.

Boston Cab’s complaint against Uber underscores the reason for these lawsuits and protests: economic competition. According to its amended complaint, Boston Cab alleges it faces “unfair competition” because Uber’s black cars and UberX vehicles do not have taxicab medallions, limited by Boston to 1,825 and having a current market value of $700,000 each. Boston Cab is the largest holder of medallions, owning over a fifth of them, and Uber has jeopardized the value of that investment. Boston Cab also repeatedly avers its concern for consumer protection, claiming that the medallions ensure “Boston taxi service is safe, reliable, and non-discriminatory” while Uber “preys parasitically on established taxi service without paying for them and without obeying laws designed to protect taxi customers.” While refraining from mentioning that taxicab fares often exceed UberX fares, Boston Cab also alleges, “Boston taxi rules protect consumers—and less wealthy customers—by establishing uniform fares.”

Concern about competition – the same driving force behind the lawsuit by the owners of the Charles River Bridge – and not worry over public safety motivates the taxicab lawsuits against Uber. Technological advancement improves society but necessarily involves the sacrifice of that which it renders archaic. At the time of the Charles River Bridge case, machines created new job opportunities and permitted the manufacture of more affordable goods. Factories generated cloth in tremendous volume, allowing even poor people to purchase better clothing. On the other hand, hand weavers and some craftsmen became obsolete and, as they experienced the death throes of their livelihood, they sometimes protested.

The lawsuits and demonstrations against Uber remind us of the strains innovation can create for some people. The technology that creates a new job opportunity – driving a car through Uber – also challenges the monopoly of taxicab medallions and stands to transform that industry. Developing renewable energy sources creates jobs in research and production, to say nothing of the possible environmental benefits, but success would threaten with obsolescence people employed by the gas and oil industry. Social media has accelerated access to news and information but is forcing the news industry to adapt – Newsweek magazine even ceased print publication for a time – and book publishers are scrambling to adapt to the new world of online sales and kindle devices.

Chief Justice Taney recognized Joseph Schumpeter’s creative destruction played out in the courtroom and we can see the same phenomena take place in the lawsuits against Uber. Taney highlighted that innovation trumped established monopolies when he recognized that a ruling in favor of the Charles River Bridge owners would mean that “the millions of property which have been invested in railroads and canals” on routes “before occupied by turnpike corporations will be put in jeopardy” – but, he remained silent about protecting the investment of the turnpike owners. While some local governments will probably impose more robust regulations on Uber vehicles in their jurisdictions, it seems nearly impossible to imagine a court shutting down a new and popular method of for-hire transportation because it competes with the taxicab industry. Doing so would be a belated ruling in favor of the owners of the Charles River Bridge and a rejection of the capitalist ethos of competition and innovation.