If you think Tada is a taxi, it is, prosecutors argueSince the van-hailing service was started in October 2018, Tada hasn’t had a moment of peace, with taxi drivers especially seeing the company as public enemy No. 1.
Now, the law is coming down on the mobility start-up.
On Monday, prosecutors indicted two Tada executives for illegally operating a paid transportation service following a complaint lodged by the Seoul Private Taxi Association (SPTA).
Socar CEO Lee Jae-woong, who is being charged but not being detained, seems unconcerned, taking the opportunity to rage against the regulators.
VCNC CEO Park Jae-wook is also charged and is also not being detained.
At issue is an exception in the law that allows rented 11-to-15-passenger vans to be offered with drivers. Normally, the local transportation law bans unlicensed companies from offering paid ride services.
Tada claims all it is doing is linking customers with 11-passenger vans and with the drivers of those vans.
Prosecutors concluded otherwise. Their rationale was based on how consumers regard the service: If Tada users treat its vans more or less the same as taxis, the start-up should obtain the government license required for offering paid transportation services.
“What’s important is how the users perceive the service,” said a prosecution source. “To claim that Tada offers a rented car with drivers isn’t justifiable in a situation where all of its users think Tada is similar to taxis.”
The local taxi industry has argued that the exception for rented vans was intended to serve tourists and boost the tourism industry, not to allow vans to offer taxi services. Tada has fiercely fought back.
When SPTA directors filed a complaint in February, the company disclosed a determination by the Seoul Metropolitan Government saying that Tada’s service is legal.
Last June, prosecutors requested the Transport Ministry to review the matter but did not get a response.
“The prosecutors’ indictment was always a variable, but the government’s stance was that the issue should be resolved through regulation,” said a ministry source. “The government has its own job to do, and the prosecutors are doing theirs.”
The taxi industry welcomed the decision.
A day after the prosecutor’s announcement, the SPTA said the prosecutor’s decision “clearly demonstrates Tada’s illegality.”
“The government’s neglect is what dragged the situation to its current state,” the association representative said at the press conference. “Tada has mocked Korea’s law, and the government should immediately order it to halt services. Hesitating to do so is clearly a dereliction of duty.”
Socar CEO Lee, founder of Daum and a well-known figure in Korea’s IT scene, has been critical of regulations preventing the growth of start-ups.
“Today, the president promised a shift to a ‘negative’ regulatory framework that will allow everything except what’s banned by law. On the same day, prosecutors indicted Tada, Socar and its two leaders,” he wrote in a Facebook post Tuesday.
“Domestic law states [Tada] can work; the police concluded it doesn’t breach the law; for over a year, the Transport Ministry never stopped us for reasons of illegality,” he added.
The Korea Startup Forum, which advocates for local start-ups, released a statement in support of Tada Tuesday, saying the indictment shows how the “government, National Assembly and prosecutors” are suffocating the local start-up ecosystem.
“Regulation is not a problem - new services naturally entail conflict with existing regulation. What’s important is the process of resolving it. But in the last few years, ‘rationality’ was barely present when start-ups struggled to untangle regulation issues. How can they venture into new areas and lead innovation in such an environment?” the statement said.
VCNC and Socar vowed to vigorously fight the charges. For now, Tada said it does not plan to halt services, but it is unclear whether the service can continue to operate before the court rules. In other similar cases, companies halted operation as the court heard the case.
The punishment for violating laws on paid ride services is two years in prison or a fine of under 20 million won ($17,166).
“It may be possible to offer services before the court’s final ruling, but if the court does find them guilty, having done so will increase their burden because the court can see it from a negative view to consider their crime to be heavier,” said Kim Han-gyu, a lawyer and former chair of the Seoul Bar Association.
In additional to the indictment, Tada faces issues that threaten its survival. Liberal Democratic Party Lawmaker Rep. Park Hong-keun recently submitted a bill to eliminate the clause that Tada had used to justify its operation.
Other local start-ups that offer van-hailing services, like ChaCha and Papa, are also exposed to the ruling.
“The indictment will decide Tada’s current fate, while the bill will decide its future,” said an anonymous mobile start-up source.
“It’s regrettable that [prosecutors] would make a start-up founder into a criminal.”
BY PARK MIN-JE, JEONG JIN-HO AND SONG KYOUNG-SON [firstname.lastname@example.org]