Uber Legal Fight Gets Contentious

Uber's legal battle the taxi industry

Source: ©iStock.com/Aleutie

Much of Uber’s $1.2 billion in funding will be spent on legal and lobbying efforts against taxi regulators around the world

Destination Wealth Management CEO Michael Yoshikami believes Uber’s impressive $17 billion valuation is justifiable because it’s identified a sustainably profitable marketplace.

Uber Faces Legal Battles EverywhereI think that latest valuation is definitely debatable, but much less so is the fact Uber’s legal and lobbying efforts are costing the company some serious coin.

It appears that Uber’s legal plans focus on steamrolling its way through regulatory red tape by using big-time Silicon Valley dollars to buy the influence necessary to carry on with its expansion, no matter the rules it’s breaking.

Uber is less about taxis and more about disruption. With so many regulatory bodies struggling to keep up with advancing technology, it’s clear that Uber’s legal department is busier than most — startup or otherwise — at putting out fires.

The big question is whether the billable hours it’s racking up today will amount to anything substantial tomorrow. Can Uber’s legal position go from regulatory outlaw to good corporate citizen over the next 12 to 24 months?

The answer to this carries the true value of Uber.

Uber’s Legal Wranglings

Justin Kintz, Uber’s policy director for the Americas, is the first to admit that Uber has regulatory issues in all 128 of the cities where it operates around the world. The New Republic views Uber’s business in much the same fashion as Airbnb in that they are both using the might of public opinion to force regulators to let them into an exclusive club without having to pay the price of entry.

Mark Egerman, formerly of the Consumer Financial Protection Bureau, puts Uber’s legal strategy very succinctly:

“Get super popular, ignore the laws, and if you try to enforce them, we’ll use the power of the bully pulpit.”

A good place to start if you want to understand Uber founder Travis Kalanick is this Inc. article from July 2013. Author Christine Lagorio-Chafkin does a good job highlighting Uber’s legal and lobbying strategies. She makes it perfectly clear that Kalanick is the kind of guy who doesn’t put up with a lot of incompetence.

Given the number of people who can’t stand Uber and want to see it permanently shut down, it’s probably a good thing that he’s not a terribly nice guy.

Even now, Uber is facing a ban in Virginia, which has gone after the industry, shutting down not only Uber operations in the state, but also rival Lyft.

Uber faces legal challenges almost everywhere it operates

[youtube http://www.youtube.com/watch?v=pKOc6BqRZHk&w=600&h=338]
Source: WXYZ-TV Detroit / Channel 7

Which makes it even more puzzling why investors like Fidelity Investments, Wellington Management and BlackRock (BLK) got in on the latest round of financing. It’s one thing for venture capital firms such as Google Ventures to participate — that’s their modus operandi — but when investment firms and pensions start buying into the hype, you really have to be worried that the only thing holding up this valuation is Uber’s ongoing legal and lobbying efforts against taxi regulators around the world.

For an understanding of just how frothy Uber’s valuation has become, ask Aswath Damodaran, professor of finance at NYU’s Stern School of Business. He comes up with a valuation of $6 billion — or one-third the $17 billion figure applied to this latest round of financing.

Damodaran figures the worldwide taxi market will be worth $183 billion by 2024. If Uber grabs 20% market share and continues to get 20% of the fare revenue, you’re talking about $7.5 billion in revenue to Uber’s top line by the end of the next decade. However, to get there, pretty much everything has to go right when it comes to Uber’s legal battles with regulators.

And we all know that isn’t going to happen no matter how sensible Uber is.

Uber’s Legal Reality

Uber likely will have to compromise with the powers that be in each of the jurisdictions in which it participates. Uber’s legal dance around regulators ultimately must come to an end, just as it has for so many others who’ve attempted to skirt regulatory laws in the past.

How this plays out is anyone’s guess.

But one thing that’s certain is how Uber is going to spend its $1.2 billion in funds. I think it’s pretty clear that much of those funds will go to lawyers and lobbyists who will carry on Uber’s legal fight against regulators.

Whatever happens, you know the lawyers’ win.

The investors? That’s still to be determined.[polldaddy poll=8128439]

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Legal Commentary From Uber’s Blog

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