The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
Over the last decade, traditional taxi cab company profits have taken a hit because of competition from ride-sharing services, such as Uber and Lyft. Some cab companies have tried to fight back by filing cases arguing that local governments that allow Uber and Lyft to compete with taxis have somehow violated the Takings Clause of the Fifth Amendment, which requires the government to pay "just compensation" when it takes "private property." On Monday, the US Court of Appeals for the Eleventh Circuit issued the latest in a long line of federal court decisions rejecting such claims. Nick Sibilla of the Institute for Justice has an excellent summary of the ruling and its significance, in Forbes:
In a resounding win for innovation and economic liberty, the 11th U.S. Circuit Court of Appeals unanimously ruled on Monday that taxi owners in Miami-Dade County have "no right to block competition" from ride-hailing firms like Lyft and Uber. By rejecting the notion that incumbent businesses are "entitled to…a competition-free marketplace," the 11th Circuit's decision should set an important precedent not just for the gig economy, but for reformers looking to crack open regulatory bottlenecks.
Back in 1998, Miami-Dade created a "medallion system," which capped the number of medallions needed to own or lease a taxicab. In the years since, Miami-Dade raised the cap to just over 2,100 medallions, which were supposed to serve a county with more than 2.7 million people. Fueled by this artificial scarcity, medallions at one point topped $400,000 on the secondary market….
But when Uber and Lyft entered the scene, they dramatically expanded the supply of available rides….
The rise of ride-hailing was facilitated by a drastic change in the regulatory environment. At first, county code enforcement officers conducted several undercover sting operations, ticketing drivers and even impounding their cars. But in 2016, Miami-Dade County approved an ordinance that legalized ride-hailing….
Facing greater competition, the value for a taxi medallion has since plunged by 90%, and now fetches $35,000 at auction. With a once lucrative business model now imploding, three taxi companies, Checker Cab, B&S Taxi and Miadeco, took the county to court and demanded a bailout. Echoing legal arguments that failed in Boston, Chicago, Georgia, and Philadelphia, the medallion owners argued that by legalizing Uber and Lyft, Miami-Dade County had "significantly devalued" their medallions….
In their view, deregulation was an unconstitutional "taking" that violated their Fifth Amendment rights…..
Writing for the majority, Judge Stanley Marcus meticulously dismissed their claim. Although the owners have an "intangible property interest" in their medallions, "the medallions conveyed only a property interest in providing taxicab services in Miami-Dade County—not in barring competitors," Judge Marcus explained. "Even the most cursory examination of the code reveals that the county did not give the medallion holders the right to enjoin competition," he added, while "the code furnished no basis for the medallion holders' assertion that they were entitled to, or could reasonably rely on a competition-free marketplace."
An earlier ruling on the same issue by Judge Richard Posner of the US Court of Appeals for the Seventh Circuit (which Judge Marcus cited in his opinion), provides a particularly good summary of why exposing businesses to competition does not qualify as a taking:
[T]he City [of Chicago] is not confiscating any taxi medallions; it is merely exposing the taxicab companies to new competition —competition from Uber and the other TNPs [Transportation Network Providers].
"Property" does not include a right to be free from competition. A license to operate a coffee shop doesn't authorize the licensee to enjoin a tea shop from opening. When property consists of a license to operate in a market in a particular way, it does not carry with it a right to be free from competition in that market… Indeed when new technologies, or new business methods, appear, a common result is the decline or even disappearance of the old. 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…..
Taxi medallions authorize the owners to own and operate taxis, not to exclude competing transportation services. The plaintiffs in this case cannot exclude competition from buses or trains or bicycles or liveries or chartered sightseeing vehicles or jitney buses or walking; indeed they cannot exclude competition from taxicab newcomers, for the City has reserved the right… to issue additional taxi medallions. Why then should the plaintiffs be allowed to exclude competition from Uber?
Judge Marcus and other judges who have ruled on such cases appropriately relied on the fact that city medallion laws did not include any guarantees against competition. As a legal matter, they only give holders the right to operate a taxi business themselves, not the right to suppress competitors. In my view, however, there would be no violation of the Takings Clause even if the medallion laws did include a legal right to block competition, which was then repealed by later legislation. I explained why in this post discussing an earlier taxi/takings case:
[E]ven if the laws conferring medallions did explicitly guarantee the holders protection against competition, that still would not be enough for courts to require compensation under the Takings Clause. The Clause does not require government to compensate businesses for any and all policies that reduce their profits. Compensation is only necessary if the government takes "private property." A state-created legal right to exclude competitors from a market is not private property. It goes beyond giving the holder control over his or her own property, and instead allows them to restrict the use of others' property (in this case, cars). Such a right is not private property as that concept is usually understood in Anglo-American law, and certainly would not have been considered such by the framers and ratifiers of the Fifth Amendment.
One could point to the example of intellectual property as a property right protected by the Takings Clause, despite the fact that it is in large part a legal right to constrain competition. But, as my George Mason University colleague Adam Mossoff argues in an important article, the Founders may have considered patent and copyright to be "natural" property rights, not merely government-created monopolies. If Mossoff is right, intellectual property is readily distinguishable from government-created cartels in conventional markets, including taxi medallion systems. If not, perhaps courts should rethink the status of intellectual property under the Takings Clause (though Congress would, of course, remain free to provide compensation to aggrieved intellectual property owners by statute).
In addition to rejecting the taxi companies' takings claim, Judge Marcus' opinion also ruled against their contention that deregulation of ride-sharing services violated the Equal Protection Clause of the Fourteenth Amendment because ride-sharing firms ended up less heavily regulated than traditional taxis. He does an excellent job of refuting this very weak argument. Similar arguments have also been rejected by other courts that have ruled on this issue.