Government regulation amidst disruptive technology
by Jay-r C. Ipac
Senior Associate

The law’s intersection with the advances in technology almost always results in gray areas. While the law is what the Supreme Court says it is, the Moore’s Law suggests even a brief discussion at this point of some of these gray areas lest a new kind of technology presents itself with an entirely new set of challenges.

The Land Transportation Franchising and Regulatory Board’s (LTFRB) recent decision not to accept new applications for accreditation as Transportation Network Vehicle Service (TNVS), its attempted crack-down on colorum Grab and Uber cars, and its announcement that it lost Grab and Uber’s accreditation papers generally drew flak from the public. The LTFRB’s pronouncements were anticipated to cause significant disruption on the services facilitated by these ride-sharing applications, which have so far delivered far superior services than its traditional counterpart.

In the wake of the government’s efforts to regulate a technology-based activity, questions were raised anew on the government’s authority to regulate this new mode of transportation based on an “outdated” law. In contrast, back in the United States, where Uber originated, there are those who call for Uber’s shut down, arguing that instead of following the law, the innovation behind Uber is actually rooted in law violation.[1]

So, must this new mode of public transport system conform to the law or is it the other way around?

The law of the horse

This question reminds me of Judge Frank H. Easterbrook’s famed “law of the horse.” He cautioned lawyers from unduly carving out a new field of law just because of the perceived gray areas brought about by advances in technology. Commenting on Dean Gerhard Casper’s remark, Judge Easterbrook said that the best way to learn the law applicable to specialized endeavors is to study general rules. Let’s try.

“The general rules”

The authority to regulate the operation of public land transportation vehicles and to grant franchises or certificates of public convenience (“CPC”) belongs to the LTFRB. The CPC is an authorization from the government to operate a public utility or a public service. Under the 1987 Constitution, a franchise for the operation of a public utility must comply with the nationality requirements.[2]

The Supreme Court defined a public utility as a business or service engaged in regularly supplying the public with some commodity or service of public consequence. The principal determinative characteristic of a public utility is that of service to, or readiness to serve, an indefinite public or portion of the public which has a legal right to demand and receive its services or commodities.  However, the fact that a business offers services or goods that promote public good and serve the interest of the public does not automatically make it a public utility.[3]  The test in determining if a service is a public utility is whether the public may enjoy it by right or only by permission.

On the other hand, the law (Commonwealth Act 146) defines public service by way of non-exclusive enumeration as including “every person who owns, operates, manages or controls, for hire or compensation, and done for general business purposes, any common carrier… with or without fixed route and other similar public services.” Under the Civil Code[4] common carriers are those engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. Case law teaches that the law’s definition of a common carrier does not “distinguish between a carrier offering its services to the “general public,” i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population.”[5]

The “accreditation” of Uber/Grab and enfranchising its “partners”/drivers  

Uber and Grab itself do not seriously question LTFRB’s regulatory powers over it[6] because essentially the nature of its business competes with an already regulated business of the taxicab operators. Based on existing legal rules, the taxicab business is a public utility and its operators are considered as common carriers. Thus, the taxicab operators argued that Uber and Grab should be treated similarly. But since it is not clear whether the business of these ride-sharing application services and their “partners”/drivers would amount to operating a public transportation vehicle, they were able to operate under the radar until the Department of Transportation and Communication (DOTC) came up with a new Department Order in 2015.[7]

In its Order, the DOTC made a new classification of transport service system known as Transportation Network Vehicle Service (TNVS). These refer to the Uber/Grab “partners”/drivers/vehicle. The DOTC defined a Transport Network Company (TNC) as an “organization whether a corporation, partnership or sole proprietor, that provides pre-arranged transportation services for compensation using internet-based technology application or digital platform technology to connect passengers with drivers using their personal vehicles.” Uber and Grab are considered TNCs. While the TNC provides the platform for the transportation service to be pre-arranged, the transportation service itself is rendered by the TNVS. Thus, the TNC’s business model, which capitalizes on disruptive technology, allows it to create a dichotomy in the transportation service: the technology provides the means to pre-arrange the service and the other renders the actual service itself.[8]

For its part, the LTFRB subsequently issued rules and regulations for the “accreditation” of TNCs with the LTFRB.[9] It also required the TNVS to secure a Certificate of Public Convenience.[10] Among the terms and conditions of TNC accreditation are: “the accredited TNC shall only allow duly franchised TNVS vehicles to provide a pre-arranged ride through its internet-based digital technology application” and  “the accredited TNC shall ensure and assist the [LTFRB] in monitoring the compliance with Terms and Conditions of a Certificate of Public Convenience to operate a Transportation Network Service Vehicle by its accredited owners/drivers.”[11]

These legal requirements raised questions on the LTFRB’s authority to regulate TNCs and the TNVS. An attempt to answer these questions requires a basic understanding of how TNCs generally work. TNCs are considered as Online-Enabled Transportation Service, relying on a mobile application and geo-location technology. This means that their passengers are limited to those who have the application installed on their devices and registered an account with the TNC. Upon going online, when a passenger requests for a driver, the application pairs the passenger with an available and willing driver.[12] The price in turn is determined by the TNC’s own computation and made known to the potential passenger.

If the TNCs merely pre-arrange the transportation service (so that passengers in need of a ride and drivers who are willing to render service can meet at a price set by the TNC itself), then arguably, the TNC itself is not operating the public transportation service although it gets compensated for its service. Hence, it is allowed to set its own fare mechanism (which it would share with its “partner”/driver) and to be a foreign entity. More importantly, it is not required to secure a CPC — for now. The reason is if this mode of transport becomes more and more pervasive (for multifarious reasons, including the possible demise of the taxicab business as we know it), our view of the nature of the TNCs may arguably change as well, to reflect our “modern” understanding of public use.

While it is not required to secure a CPC, a TNC is required to accredit with the LTFRB. By virtue of such accreditation, the LTFRB was able to exercise its regulatory power by putting a cap on the TNCs price surge mechanism when the public interest demanded it.[13] In this light, the LTFRB’s existing regulation can be seen as promoting public safety and interest. This was also the view of the California Public Utilities Commission.

How about the TNVS? In the 1916 case of US v. Kutz[14] adopted in our jurisdiction in the 1923 case of Ilo-Ilo Ice and Cold Storage Company v. Public Utility Board,[15] the US Supreme Court refused to consider a taxicab’s business of furnishing automobiles from its central garage on individual orders generally by telephone, as a public utility. The TNVS may argue that they are similarly situated because their contract of carriage appears to be undertaken by special agreement and therefore the public has no legal right to demand and receive its services. Thus, arguably they should not be required to secure a CPC.

However, the LTFRB does not see it this way. While it described the TNC’s business as “[p]roviding pre-arranged transportation services” — and not merely providing the platform to pre-arrange the service — only the TNVS is treated as public utility. Yet, it required the TNVS to accredit with an accredited TNC and to maintain such accreditation in good standing in order to continue operating legally. In other words, the LTFRB considered the dichotomy in determining the extent of its authority even if, by its own definition, the TNC’s technology-enabled role in the process is indispensable in delivering the service.

In this regard, it would not be surprising if the LTFRB disregards the Kutz ruling which was decided in 1916. More than a century of political, social, economic, legal and technological developments have happened during the past century to assume that the Kutz ruling would stand under the present environment.

The potential of new technologies to change the way we deal with our everyday affairs and its impact on existing legal understanding makes law and technology a very interesting topic. While the existence of “technology law” as a distinct legal field is debatable, developments in this area cannot be simply ignored as it continues to challenge our traditional legal understanding and the existing legal framework.

While state regulation of technology-driven businesses and activities at the administrative level is almost always viewed reluctantly, regulators (and even policy-makers) can consider this as an opportunity to innovate and deliver better public services within the confines of their mandate but at the same time carefully ensuring that fundamental rights are respected. Inasmuch as the law should not stifle innovation, the innovation if possible should also be able to mold itself under existing law. In this regard, the collaborative effort between and among the regulators, stakeholders, legally-guided businesses, and the public is, thus, indispensable.

*****

ABOUT THE AUTHOR:


Atty. Jay-r C. Ipac is a Senior Associate  at DivinaLaw.


[1] https://hbr.org/2017/06/uber-cant-be-fixed-its-time-for-regulators-to-shut-it-down (last accessed 22 July 2017).
[2] Article 12, Section 11, 1987 Constitution.
[3] JG Summit Holdings v. Court of Appeals, G.R. No. 124293, September 24, 2003.
[4] Article 1732, New Civil Code.
[5] De Guzman v. Court of Appeals, G.R. No. L-47822, December 22, 1988; Perena v. Spouses Nicolas, G.R. No. 157917, August 29, 2012.
[6] http://www.rappler.com/business/industries/215-tech-biz/74696-uber-franchise-regulation-ltfrb (last accessed 23 July 2017)
[7] Department Order No. 2015-011.
[8] https://www.entrepreneur.com/article/286683 (last accessed, 23 July 2017)
[9] Memorandum Circular No. 2015-015.
[10] Memorandum Circular No. 2015-017.
[11] Memorandum Circular No. 2015-016.
[12] http://www.demystifyasia.com/grab-taxi-asias-taxi-booking-app/http://uberestimate.com/about-uber/ (last accessed, 23 July 2017)
[13] http://cnnphilippines.com/news/2016/12/27/LTFRB-orders-Grab-Uber-surge-cap.html (last accessed, 23 July 2017)
[14] 241 U. S., 252.
[15] G.R. No. L-19857, March 2, 1923.