Uber is on a collision course with regulators and lawyers
© Greg Nash

By most measures, Uber is a runaway success. With big investments in artificial intelligence, self-driving cars and next-generation technologies, the company is now valued at close to $70 billion. In June 2016, Uber received $3.5 billion from Saudi Arabia's Public Investment Fund — the largest cash investment from a single investor — a testament to its transnational impact. Although it has not delivered profit to investors, Uber remains one of the most valuable startups in the world.

In short, Uber is a transportation service that calls itself a technology application, and it has become the latest global idiom. In the vernacular, Uber is now both a noun and a verb. For example, we can take an "Uber" just about anywhere. Or, as my two millennials point out, "You can Uber to the event and avoid the parking problem." In this sense, it joins Xerox, Google, Band-Aid, Coca-Cola, Fed-Ex, Kleenex and a few other platinum brands that have defined categories by a single name in our popular culture.

Uber has become such an ever-present and ubiquitous force that it has changed not only the way we drive, but also the way we live. It operates in over 200 cities across 45 different countries and is poised to expand into more regions with even more services. To be sure, a great number of people throughout the world cannot imagine life without it, and if you live in New York, Los Angeles, Washington, San Francisco, Miami or any big city, Uber can be as essential as your cellphone.

But even with its popular embrace and market ascendance, all is not well with Uber. Today, the technology company is on a collision course with two invariable realities of the modern marketplace that threaten its long-term financial well-being: federal regulation and class-action litigation.

Regulation

On the regulatory front, Uber's business practices have been flagged for a disproportionately high number of violations of federal laws over a relatively short period of time. From unfair labor practices to invasion of privacy, the company has faced a growing number of federal, state and international enforcement actions.

In 2014, Travis Kalanick, Uber’s CEO, received a letter from Sen. Al FrankenAlan (Al) Stuart FrankenTrump quietly putting his stamp on the courts Grassley shouldn't allow Senate Democrats to block judicial nominees Senate Dems push Trump admin to protect nursing home residents' right to sue MORE (D-Minn.), a member of the Judiciary Subcommittee on Privacy, Technology and the Law, chiding the company for a "troubling disregard for customer privacy," and for condoning the use of customers' data for questionable purposes.

On Feb. 27, 2015, Uber disclosed that it had suffered a data breach more than nine months earlier. Driver names and license plate information on approximately 50,000 drivers were inadvertently disclosed. Uber discovered this leak in September 2014 but waited more than five months to notify the people affected.

By comparison, Verizon recently shaved $350 million from its offered price for Yahoo because of a major data breach. Earlier reports alleged the recreational use of data by Uber staff, including using data to track the movements of its customers, including journalists and politicians, under something known as "God View."

High-stakes litigation

Once Uber moved into the financial stratosphere, it became a prime target for major class-action litigation. Lawsuits alleging labor violations, sexual harassment and intellectual property infringement are now pending against Uber. Some analysts see these developments as the inevitable price for phenomenal growth. Others see it as a deeper problem, unique to Uber's organic culture.

The truth lies somewhere in between.

One of Uber's biggest risks lies in impending class actions filed under the Telephone Consumer Protection Act (TCPA), a consumer protection law that prohibits auto dialer calls and texts to consumer telephones without express written consent. It has become a favorite cause of action for ambitious plaintiffs' lawyers, multiplying from about 40 in 2009 to over 2,500 in 2014.

While at the Federal Communications Committee (FCC), I met with many companies seeking Telephone Consumer Protection Act (TCPA) relief, but as I wrote in The Wall Street Journal, the commission's interpretation and enforcement of the TCPA departs from what Congress intended in 1991.

Thus, the TCPA is now the second-leading basis for class-action lawsuits — what I call the "Total Cash for Plaintiffs’ Attorneys Act." With all those telephone communications and millions of dollars at stake, Uber is a prime defendant under the TCPA.

Reputation management

As it should, Uber is concerned with its reputation, which has been besmirched from constituencies that count most: its drivers, passengers and employees. As the company hastens to conduct an internal investigation led by recently departed Attorney General Eric HolderEric H. HolderDOJ warrant of Trump resistance site triggers alarm Venture capital firm sues ex-Uber CEO for fraud Justice Dept. to meet with journalism group on subpoena guidelines MORE, it should be mindful of the mistakes other companies have made in the past.

In 1997, for example, Nike was one of the first companies to be charged with sweatshop labor and human rights abuses. It hired a former U.N. ambassador to conduct a report and investigation, but that ultimately became known as a whitewash of its operations. Holder should not hold back on clear-eyed criticism of the company, no matter how much the company pays him in fees.

Redemption

The problem with nouveau riche companies — especially in Silicon Valley — is their out-of-hand rejection of conventional models that have worked in the old economy. As Uber surrounds itself with a coterie of consultants, advisers, investors and cheerleaders, it is distant from the voice in the crowd that whispers, "the emperor has no clothes." Few of these companies want to hear about, or do, the socioeconomic corporate work that would solidify their long-term survival.

But all is not lost, and Uber is not doomed to the abyss. If the company is serious about curing its very transparent defects, it should develop an independent self-regulatory regime, a robust corporate responsibility program, and a group of external, independent advisers who will be undaunted by Kalanick's penchant for drowning out voices of dissent.

They should tell him that a brilliant idea, and millions in investment, are no panacea for basic, good business practices. If Uber can install these components into its corporate chassis, it will be better equipped to avoid what appears to be a head-on collision with society.

Adonis Hoffman is chairman of Business in the Public Interest and author of "Doing Good: The New Rules of Corporate Responsibility, Conscience and Character." He held senior legal positions at the Federal Communications Commission (FCC) and the U.S. House of Representatives, and is an adjunct professor at Georgetown University.


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