SideCar to City: Have App, Will Travel ... to Court

A car stops at a house. A passenger gets in and pays the driver for the ride. Is that car a taxi or not? The city of Austin says yes. SideCar, a company providing a for-profit "ridesharing" service, says no, and they're prepared to take the matter to court to prove it.

The controversy arose in early March, when San Francisco-based startup SideCar launched a petition on change.org. They had recently acquired Austin-based rideshare firm Heyride, and were asking the city to back down on its stringent regulations of such services.

SideCar CEO Sunil Paul calls his firm's smartphone app "a ride-matching platform," where people sharing the same destination share the same vehicle. However, city staff have applied a "walks like a duck, quacks like a duck" standard and come to a different conclusion. If SideCar connects passengers and drivers and then takes a 20% cut of the fee paid, how is it not an unlicensed taxi service? The fact that their dispatch center is an app rather than a phone line changes nothing – especially since now firms like Yellow Cab have their own booking app. And as such, SideCar is in violation of city regulations regarding taxis and is taking business away from the existing cab drivers and companies who hold franchises with the city.

Paul has already faced legal problems in San Francisco and Phila­del­phia, but has also managed success in changing lawmakers' minds; in 2011, he successfully lobbied the California legislature to pass Assembly Bill 1871, which allowed private car sharing. His plan is to change the laws about ridesharing the same way. He said, "With a smartphone platform, you can rethink transportation."

Paul's argument is simple: Ridesharing is a sustainable transportation option, and it's a private transaction his company is facilitating through a digital app that links drivers and riders, and it shouldn't require additional regulation. However, Heyride tried using that logic and ended up on the business end of a cease and desist order (see "City to Heyride: Not So Fast," Nov. 30, 2012). It may seem unusual that one start-up – especially when it is still in its initial Series A round of venture capital – would acquire another in the midst of legal woes. However, Paul doubts that will upset his investors. He said, "We were under a cease and desist order when we received our Series A."

Council sees enough of a distance between ridesharing and traditional taxis that the members are prepared to consider a new regulatory environment. On March 7, Council approved a resolution by Council Member Chris Riley instructing City Manager Marc Ott to examine how other cities regulate ridesharing, and make recommendations by June 1. But that's not enough for Paul. Before the Council meeting, he said he was "eager to engage and have constructive conversations with city officials." The next day, March 8, he announced on SideCar's blog that he's suing the city, claiming that staff are misinterpreting the current rules.