Free Minds & Free Markets


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Exposing Taxis to Competition from Uber and Lyft Is Not a Taking that Requires Compensation Under the Constitution

A federal court correctly rejects a dubious takings claim by Philadelphia cab companies.

It is no secret that taxi company profits have taken a major hit because of competition from ride-sharing services such as Uber and Lyft. Some cab companies have tried to recoup their losses by filing lawsuits claiming that they are entitled to compensation under the Takings Clause of the Fifth Amendment, which mandates that the government must give "just compensation" to people whose "private property" is taken by the state. They contend that jurisdictions that issue medallions to taxi companies have, in effect, created a property right entitling those firms to exclude competition from ride-share services. A recent ruling by federal district Judge Michael Baylson of the Eastern District of Pennsylvania rightly rejects such a claim filed by Philadelphia cab companies [HT: Nick Sibilla of the Institute for Justice].

The key flaw in the taxis' position is well summarized by an earlier opinion in a similar case decided by the Seventh Circuit Court of Appeals in 2016. It was written by Judge Richard Posner, probably the most distinguished federal lower court judge of the last several decades. Baylson quotes part of the following telling passage from Posner's ruling:

[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?

The issuance of medallions does not create a legal right to to exclude competitors, even if cities often used the medallion system to create an artificial scarcity of competition, thereby fleecing consumers and driving up taxi company profits. Baylson also effectively refutes the Philadelphia taxi firms' claim that the Philadelphia medallion system should be interpreted to create a constitutionally protected property right even if similar systems in other cities do not (see pp. 55-56 of his opinion). The simple fact of the matter is that, while the medallions may be protected property rights, "[t]here is no allegation that the government seized or confiscated medallions." And the medallions do not create constitutionally protected "property rights in the transportation market itself, which are nowhere mentioned in statute [that established the medallion system]."

I would go further and suggest that even 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 claiming that the government's failure to suppress competition from ride-share firms violates the Takings Clause, the Philadelphia taxi companies also contend that it violates the Equal Protection Clause of the Fourteenth Amendment. Baylson effectively disposes of this weak claim, too.

This ruling is the latest in a series of federal court decisions rejecting similar takings claims by taxi companies. He does an excellent job of summarizing the earlier decisions on the subject, and notes that he could find "no legal precedent in which a medallion-holding taxi company survived a motion to dismiss on a comparable takings theory, much less received a damage award." Hopefully, taxi companies will see the writing on the wall, and stop trying to use constitutional litigation to suppress their rivals. As Baylson puts it, "[a] court is not suited to protect market participants from competition, or from changing consumer preferences... the resolution of competitive combatants must take place in the marketplace, rather than in a courtroom."

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  • Scarecrow Repair & Chippering||

    I sometimes wish the decision would ask why the taxi companies expect the government to make up the loss when the tax companies kept the gain to themselves.

  • Flatulus||

    Probably because the taxi drivers already had to pay the government for the right to engage in that occupation. If new entrants (albeit with a different business model) don't have to pay the same price, the medallion-holders do seem to have gotten screwed.

  • Scarecrow Repair & Chippering||

    The taxi argument is that the medallions lost value. Their inflated price of hundreds of thousands of dollars was due solely to government creation of a near-monopoly, That is what I was referring to, not the relatively petty fees associated with having taxis.

  • Flatulus||

    That's also what I was referring to. My point being that any "gain" to the taxi companies must be set against their initial outlay in purchasing the medallion.

  • Scarecrow Repair & Chippering||

    I see I was too quick -- I see now that can include the purchase price from another medallion holder long after it's original city price has been inflated by the city monopoly.

  • Arcxjo||

    How could a city that's charging so much to drive a car still be so broke?

  • Flatulus||

    1. Even if medallion-holders can't be said to have a right against competition, can't they be said to have a right to compete only against other medallion-holders?

    2. If the state (1) takes away your right to engage in your chosen occupation only to (2) sell it back to you at exorbitant prices in the form of a license or medallion, and then later (3) devalues the license or medallion by allowing new forms of competition, it certainly looks like the state has taken something valuable from you, even if by means of the whole process rather than just step (3).

  • dew||

    On #1 (you must stay with medallions), I think it is a "distinction without a difference". Yes, you can make such a claim just like the actual claim made by taxi companies. The problem for either is actually proving there ever was an enforceable right.

    In the end the cab companies are really just arguing that the city can be prevented from allowing competition. So I'll turn it around - if you can force the city to require the medallions, why can't you also claim an enforceable right to prevent the city from issuing too many more medallions, which might dramatically dilutes the value of existing ones just like allowing Lyft/Uber?

    Both are basically arguments that any random law created by a city might implicitly create brand-new enforceable rights that locks the city into some frozen-in-time system. I think courts are correct to look at that with great skepticism - there are already clear mechanisms to bind a city explicitly: create a contract with taxi companies, or change the city charter (if they have one) , or even just a law that explicitly state "we state this is a right of taxi companies". Any of those might still be legally unenforceable, but at least a lawsuit could honestly say that everyone was (or should have been) on the same page when it was passed.

  • Rossami||

    1. No.

    2. Maybe but that's more properly a criticism of the original "taking" of your right to engage in your chosen occupation when the licensing system was first put into place. That works as a very poor argument when the government subsequently liberalizes it's earlier confiscation.

  • TWW||

    I believe the delivery of legal services should be controlled by the issuance of limited medallions. Oh.

  • M.L.||

    But then, just for fun and profit, let's issue so many medallions that half of the recipients can't find even a lick of paying work.

  • Xanthro||

    It was written by Judge Richard Posner, probably the most distinguished federal lower court judge of the last several decades.
    You mean the hack who decided that the Constitution doesn't matter and if you look hard enough that you can find a method to circumvent Constitutional protections, you think is the MOST distinguished Federal Lower Court Judge?

  • Jona||

    Robert A Heinlein's first published short story, Lifeline (1939) included the following opinion from a fictional court:

    There has grown in the minds of certain groups in this country the idea that just because a man or corporation has made a profit out of the public for a number of years, the government and the courts are charged with guaranteeing such a profit in the future, even in the face of changing circumstances and contrary to public interest. This strange doctrine is supported by neither statute or common law. Neither corporations or individuals have the right to come into court and ask that the clock of history be stopped, or turned back.


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