LA sides with taxi companies, sends cease-and-desist letters to 3 ride-sharing startups (poll)

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Peter Faris, shown here in Washington, D.C. in February 2013, is an independent driver who works with Uber, a technology firm which has created a mobile app that allows consumers to use their device to request a nearby taxi or limousine. The L.A. Department of Transportation on Monday sent Uber and two similar companies cease-and-desist letters.

Disruption may be the name of the game for tech startups, but it also guarantees there will be pushback from the disrupted. Three companies that aim to change the way we think about taxis were reminded of that fact on Monday when Los Angeles became their newest battleground.

The city's department of transportation sent cease-and-desist letters (embedded below) to Uber, Lyft and Sidecar, warning company officials and their drivers that operating an automobile-for-hire without a permit will not be tolerated.

"Due to the fact that your company has no permits or license to transport passengers for hire, in the interest of public safety, Sidecar, including all of its agents and contractors, is hereby directed to cease and desist from picking up passengers within the City of Los Angeles," wrote Thomas M. Drischler, taxicab administrator for the L.A. Department of Transportation, in a letter addressed to Sidecar CEO Sunil Paul.

Drischler sent nearly identical letters to executives at Lyft and Uber. It was a move that put the city squarely on the side of taxicab operators, which have a vested interest in preventing the increased competition from companies that provide a similar service at a lower cost. (Story continues below poll window.)

All three of the companies targeted offer a form of ride sharing centered on easy-to-use smartphone apps that skirt the traditional mode of taxi dispatch. And all three have hit similar speed bumps since launching.

The California Public Utilities Commission last fall fined the three companies $20,000 each for "operating as passenger carriers without evidence of public liability and property damage insurance coverage in effect and on file with the CPUC" and "engaging employee-drivers without evidence of workers’ compensation insurance in effect and on file with the CPUC," Ars Technica reported

However, Uber later entered into an operating agreement with the CPUC in January of this year.

Uber has faced at least two class action lawsuits filed on behalf of limo and taxicab operators. It recently won a ruling against the limo lobby in New York City, according to The Verge.

The beef L.A. transportation officials have with the companies hewed pretty closely to the earlier complaint from the CPUC. In his letter, Drischler cited Municipal Code 71.02, which prohibits any sort of automobile-for-hire in city limits without the proper permits:

(a) No person or corporation shall drive, operate or use, whether as owner, lessor, lessee or otherwise, any of the vehicles defined in Section 71.00 [which includes "automobile-for-hire"] to pick up or attempt to pick up passengers within the limits of the City of Los Angeles, or allow or permit to be operated, driven, or used, whether as owner, lessor, lessee, or otherwise, any of the vehicles defined in Section 71.00 to pick up or attempt to pick up passengers within the limits of the City of Los Angeles unless a written vehicle permit for the operation of such specifically defined vehicles has been obtained from the Board; provided, however, that no vehicle permit shall be required for the operation of any vehicle under and in accordance with the terms and conditions of a franchise granted by the City of Los Angeles.

The letter from Drischler also includes a warning aimed directly at the drivers, claiming they can be arrested and have their vehicles impounded. Drischler appeared to be referring to a clause further down in 71.02:

(e) No person or corporation shall knowingly dispatch a vehicle or respond to a request for a “taxi”, “cab” or “taxicab” for pick-up within the City of Los Angeles unless the responding vehicle is operated pursuant to a franchise granted by the City of Los Angeles.

The conflict between disruptor and disruptee isn't likely to go away any time soon, as the ride-sharing apps have proved popular both with end users and with angel investors. Lyft just got a $60 million boost from venture firm Andreessen Horowitz.

"These guys have cracked the community code in a way that no one else is even trying to do. Being part of a movement is very different than trying to optimize a service," Scott Weiss, a partner at the firm, told Fortune, explaining why the company favored Lyft over similar services.

Legacy transit providers, of course, are likely to remain on the other side of this argument. In a statement released Monday, taxicab operators pledged to continue the fight against what they called the "high-tech bandit cabs," calling them illegal, unsafe and unregulated.

The taxi activists planned to stage a rally at 9 a.m. Tuesday at City Hall, but instead of marching feet, they promised rolling wheels as they circle the seat of city government in their multi-colored cabs. A press conference was scheduled to follow in front of the First Street steps. 

Taxi Apps Cease and Desist Letter

Correction: An earlier version of this story stated that Andreesen Horowitz was the same company that NSA leaker Edward Snowden worked for. In fact, Snowden worked for defense contractor Booz Allen Hamilton.

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