Victory Over Taxi Monopolists in 7th Circuit Court of Appeals

Attempts by cabbies in Milwaukee and Chicago to crush competition from Uber-like services or more taxi drivers both shot down in federal court by Judge Richard Posner; Reason Foundation amicus brief relied on.


Taxi monopolists fighting against a more consumer-friendly, tech-enabled world of more competition hired rides were slapped down today by 7th Circuit Appeals Court Judge Richard Posner, in a pair of cases in which cabbies tried to claim that past quasi-monopolies they'd been granted established property rights that could not be constitutionally taken away.

Posner does not agree.

In Joe Sanfelippo Cabs, Inc., et al. v. City Of Milwaukee, Posner summed up the legal issue:

whether the Fifth Amendment's prohibition against the taking of private property for public use without just compensation forbids Milwaukee, in this case, and Chicago, in the parallel case, to allow competition with established taxi services in the city, whether from new taxi companies (in Milwaukee) or from companies that provide close though not identical substitutes for conven? tional taxi services, such as Uber Technologies, Inc. (better known just as "Uber") (in Chicago).

Posner goes on to explain how since 1992 Milwaukee city regulations ensured a constantly shrinking number of legal taxicabs and concomitant huge rise in the expense of the medallions that gave you the legal right to operate a cab.

Milwaukee in 2014 began issuing more permits in response to a legal challenge against their monopoly practices fought by the Institute for Justice, and the cab company plaintiffs in this case contend, Posner writes, "that the increased number of permits has taken property away from the plaintiffs without compensation, in violation of the constitutional protection of property."

What does Posner think of this contention? It

borders on the absurd. Property can take a variety of forms, some of them intangible, such as patents. But a taxi permit confers only a right to operate a taxicab (a right which, in Milwaukee, may be sold). It does not create a right to be an oligopolist, and thus confers no right to exclude others from operating taxis.

Posner hat tips to:

An excellent amicus curiae brief filed by Reason Foundation [the foundation that owns this website] [that] offers the hypothetical example of a city government that "issued a license to the first grocery store or gas station in a growing town. Years later, after the population had grown, other individuals applied for licenses to create competing grocery stores and gas stations to better serve the needs of the expanding market. …

Ultimately, the pressure for additional services might drive the City to issue additional licenses," thus breaking the monopoly of the initial, single licensee. "It would be absurd for the incumbent owners of the sole grocery store and gas station to assert a property right in the monopoly value of their businesses and claim a 'taking' for any reduction in secondary market value due to the newly?issued licenses, just as it would be absurd to claim a taking for reduced profits resulting from increased competition."

Posner points out the city always made it clear the ordinance freezing taxi permits could be repealed at any time. "The ordinance gave them no property right, and its repeal therefore invaded no right conferred on them by the Constitution," he concludes.

Thus, the taxi companies are out of luck.

The second case decided similarly today by Judge Posner was Illinois Transportation Trade Association, et al. v. City of Chicago, et al.. This case was not about merely expanding the legal ability to operate a cab, but the supposed threat that Uber and similar e-hailing services, sometimes known as transportation network providers (TNP), pose to taxis.

The case is rooted in a complaint against the regulations Chicago applies to Uber and similar companies and how they differ from those imposed on taxis, asserting that Chicago is "denying the equal protection of the laws by allowing the TNPs to compete with taxi and livery services without being subject to all the regulations governing those services."

There were seven distinct claims at issue, and Posner find them all "weak." Allowing TNPs into the market is not a taking of any property of the cabs, as per the Milwaukee decision above. "Were the old deemed to have a constitutional right to preclude the entry of the new into the markets of the old, economic progress might grind to a halt. Instead of taxis we might have horse and buggies; instead of the telephone, the telegraph; instead of computers, slide rules," Posner notes.

Another claim that the earlier district court decision thought might have some merit was an equal protection argument, based on the differences in regulation of TNPs and taxis. Posner isn't convinced by those either. "The proper question to ask regarding equal protection is whether the regulatory differences between Chicago taxicabs and Chicago TNPs are arbitrary or defensible, and the City makes a compelling case that they're the latter," Posner thinks.

He goes on to list some of the differences between how streethail taxis and ehail TNPs operate, including that:

customers [of TNPs] rather than being able to hail an Uber car, must sign up with Uber before being able to summon it, and the sign up creates a contractual relationship specifying such terms as fares, driver qualifications, insurance, and any special need of the potential customer owing to his or her having a disability.

Unlike taxicab service Uber assumes primary responsibility for screening potential drivers and hiring only those found to be qualified, and the passengers receive more information in advance about their prospective rides—information that includes not only the driver's name but also pictures of him (or her) and of the car….

There are enough differences between taxi service and TNP service to justify different regulatory schemes, and the existence of such justification dissolves the plaintiffs' equal protection claim. Different products or services do not as a matter of constitutional law, and indeed of common sense, always require identical regulatory rules.

The Chicago taxi companies, also out of luck, thank goodness.

Adrian Moore reported on this phenomenon of taxi companies fighting for their monopoly prerogatives in court in Reason's October issue.

In a press release emailed from the Institute for Justice, the opinions' potential happy meaning for America is explained:

"These cases clear the way for transportation freedom across the country," said Institute for Justice Senior Attorney Anthony Sanders, who represented drivers and entrepreneurs in both cases who intervened to defend their economic liberty. "In city after city, we are seeing lawsuits like these filed by incumbent businesses that want to freeze the current regulatory environment in amber. For too long, cities across the country have embraced an outdated mode of transportation regulation that says competition is to be feared and that freedom for taxi drivers or other transportation entrepreneurs is unthinkable. Today's rulings confirm that there is absolutely no legal barrier to other cities' joining the rising wave of cities embracing transportation freedom."….

In recent years, cities across the country—from San Diego, California, to Sarasota, Florida—have removed outdated protectionist laws. That wave of pro-freedom reform should only increase now that its legality has been validated by a federal appellate court.

My 2014 Reason feature on the burgeoning and ongoing regulatory fight against tech-enabled rides-for-hire.