The Unfranchised Competitor Doctrine

Volume 66 Issue 2 Article 3 7-1-2021 The Unfranchised Competitor Doctrine John Greil Follow this and additional works at: https://digitalcommons.law.villanova.edu/vlr Part of the Intellectual Property Law Commons Recommended Citation John Greil, The Unfranchised Competitor Doctrine, 66 Vill. L. Rev. 357 (2021). Available at: https://digitalcommons.law.villanova.edu/vlr/vol66/iss2/3 This Article is brought to you for free and open access by Villanova University Charles Widger School of Law Digital Repository. It has been accepted for inclusion in Villanova Law Review by an authorized editor of Villanova University Charles Widger School of Law Digital Repository. Greil: The Unfranchised Competitor Doctrine 2021] THE UNFRANCHISED COMPETITOR DOCTRINE JOHN GREIL* ABSTRACT Courts have long resolved claims of unfair competition and protected property rights from unlawful interference. But when Uber upset the property right of the taxi medallion, medallion holders were almost entirely unsuccessful in the resulting litigation. Takings claims against local governments failed, as did unfair competition and antitrust claims against the company. They failed because courts supposed the taxi companies’ property did not include the right to exclude competition, and medallion holders lacked a cause of action to privately enforce regulations limiting the number of market participants. This Article examines these suppositions and finds that both are misguided. To explain why, it unearths a long-neglected doctrine that turns some of competition law’s foundational premises on their head. One type of public franchise right—which this Article calls a protected special franchise—includes the right to exclude unauthorized competition. Courts of equity (as well as of law) recognized a cause of action to protect this right. This kind of claim—which the Article names “the unfranchised competitor doctrine”—allows a franchisee to enjoin a competitor that is operating without lawful authorization. At law, it permits the franchisee to recoup lost custom from the competitor. This Article applies the doctrine to reveal its departure from takings, antitrust, and unfair competition doctrine. These points of departure inform how the law can and should inform market disruptions, especially when the government has insulated an incumbent player from competition. A better understanding of the unfranchised competitor doctrine provides broader lessons for how property law and equity doctrine can shape today’s marketplace. It highlights the shift in regulation of “big tech” companies towards private regulatory enforcement. And it presents a variety of competition law, operating outside of the consumer welfare paradigm, that provides leverage for a variety of stakeholders. * Associate, Vinson & Elkins LLP. J.D., Harvard Law School, 2017. This Article was submitted and accepted for publication before my employment with Vinson & Elkins and does not represent the views of my employer or its clients. I am grateful to Maureen Brady, Samuel Bray, Eric Claeys, Colin Doyle, Graham Hodges, Daniel Kelly, Paul Larkin Jr., Douglas Laycock, Mark Lemley, Clayton Masterman, Mark McKenna, Caleb Nelson, Edward Rogoff, Henry Smith, Trenton Van Oss, Katrina Wyman, and the participants of the James Wilson Institute’s The Moral Ground of Rights of Property conference for helpful comments and considerations. Finally, I would like to thank Lauren Greil. (357) Published by Villanova University Charles Widger School of Law Digital Repository, 2021 1 Villanova Law Review, Vol. 66, Iss. 2 [2021], Art. 3 358 VILLANOVA LAW REVIEW [Vol. 66: p. 357 This Article is the first scholarly treatment of the unfranchised competitor doctrine in over fifty years. It clarifies the law of unfair competition in times of technological upheaval and regulatory transition. And it details a new way of thinking about who will pay for the costs of technological and market change. https://digitalcommons.law.villanova.edu/vlr/vol66/iss2/3 2 Greil: The Unfranchised Competitor Doctrine 2021] THE UNFRANCHISED COMPETITOR DOCTRINE 359 CONTENTS INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. MARKET BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. The Traditional Taxi Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Uber Enters the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. The Uber Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II THE UNFRANCHISED COMPETITOR DOCTRINE . . . . . . . . . . . . . . . . A. The Unfranchised Competitor Doctrine . . . . . . . . . . . . . . . . . . . . B. The Franchise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Franchise or “Mere License?” . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. UNFRANCHISED COMPETITION TODAY . . . . . . . . . . . . . . . . . . . . . . . A. Occupational Licenses and Public Franchises . . . . . . . . . . . . . . B. The Taxi Medallion as Franchise . . . . . . . . . . . . . . . . . . . . . . . . 1. Taxi Operation as Common Right . . . . . . . . . . . . . . . . . . . . 2. Re-regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Medallion Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Transferability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Other Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. The Alternative—Medallion as Franchise . . . . . . . . . . . . . . C. The Taxi Medallion and the Unfranchised Competitor Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV. IMPLICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Beyond the Consumer-Welfare Paradigm . . . . . . . . . . . . . . . . . . . B. Private Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Transition Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Published by Villanova University Charles Widger School of Law Digital Repository, 2021 360 366 366 369 375 379 379 385 388 391 392 392 395 397 397 398 400 401 403 405 405 407 408 412 3 Villanova Law Review, Vol. 66, Iss. 2 [2021], Art. 3 360 VILLANOVA LAW REVIEW [Vol. 66: p. 357 For instance, a man has a right to set up a shop in a small village which can support but one of the kind, although he expects and intends to ruin a deserving widow who is established there already. —Oliver Wendell Holmes, Jr.1 INTRODUCTION I T is commonly accepted that a business is not legally injured by facing competition. As Judge Rich (...truncated)