A Tada in action in Seoul. Photo: G3 Partners

In what may be a precedent-setting decision that favors an innovative company over powerful vested interests, ride-hailing app Tada has overcome a legal challenge and will continue to roam streets in and around Seoul.

Seoul Central District Court on Wednesday acquitted Lee Jae-woong, the CEO of car-sharing app operator SoCar, and Park Jae-uk, CEO of SoCar’s subsidiary Value Creators & Company (VCNC), on charges of violating the country’s Passenger Transportation Service Act.

Presiding Judge Park Sang-gu ruled that Tada – operated by VCNC, using vans rented from SoCar – constitutes a contractually-based rental car service based on the terms and conditions to which users agree and the contract they sign using the service’s mobile app.

Prosecutors had indicted Lee and Park last October, accusing them of using a legal loophole to operate an illegal taxi service.

The duo argued – successfully, in this case – that the transportation law allows rental vans with 11 to 15 seats to be offered with drivers. Tada uses distinctive, rented 11-seat, white Kia Carnival vans, driven by outsourced drivers.

South Korea is widely seen overseas as a hotbed of innovation and high technology. However, on-the-ground entrepreneurs often complain that regulation can be stifling. The Tada operators had previously argued that the indictment presented a clear and present danger to Korea’s startup ecosystem, threatening to throttle innovation. Tada faced this first hand when it failed to land a $500-million investment from Softbank due to regulatory concerns hampering the company’s future growth.

“I hope I am the last head of a startup that created an innovative service who stands in a courtroom,” wrote Park on his Facebook page after the ruling. “I hope society develops in a direction of embracing innovative services and giving them opportunities to challenge themselves in trying something new.”

Positive steps

While the South Korean public have been quick to adopt new technologies, other sectors of society have been less favorable to shifts away from the status quo.

Started in October 2018, Tada is South Korea’s most popular ride-offering service, its app boasting over 1.7 million users.

However, the service has earned the ire of the country’s taxi drivers, who accuse it of illegally destroying their livelihood. 

Some critics also slam the service for allegedly taking advantage of the so-called “gig economy” to exploit its drivers, a criticism commonly leveled against sharing-economy platforms reliant on freelance labor.

To South Korea’s emerging startup community, however, Tada’s travailles represented yet another attempt by vested interests and conservative elements to strangle innovation in its crib. 

Reacting to Lee and Park’s indictment in October, the Korea Venture Business Association and 16 other organizations released a statement decrying the move

“If a court judges the service offered by the innovative company to be illegal, it will be almost impossible to develop new businesses here,” the groups said. “There have already been many cases of companies abandoning new businesses, such as fintech, ride-sharing and remote medical services, due to protests from existing industries and regulations.”

Tada found sympathy within the administration of the current president, Moon Jae-in, which has prioritized boosting South Korea’s startup ecosystem and has committed billions to developing it.

South Korea’s prime minister, finance minister and minister of land, infrastructure and transport have expressed concern about the indictment.

Minister of SMEs and Startups Park Young-sun even accused prosecutors of being stuck in “traditional thinking.” Park issued a statement Wednesday welcoming the acquittal.

Tada is not the only Korean startup to face resistance from regulators or established economic players. Fintech unicorn Toss spent much of its early days negotiating for its very survival with skeptical regulators who initially shut down the service.

Even Korean tech giant Kakao’s attempt last year to launch a car-sharing service sparked bitter protests from taxi drivers. Kakao launched the service, but only in a much curtailed form following negotiations with the government and taxi unions. The service operates with, rather than in competition with, regular taxis.

As a result, many Seoulites complain that it remains virtually possible to hail either taxis or Kakao taxis in Seoul’s jammed entertainment districts at peak evening hours, or during heavy rain or snow flurries. That’s a complaint Tada has resolved for its customers.

It’s also a complaint that was addressed by ride-sharing pioneer Uber, when it launched Korea operations in 2013. However, the company’s abrasive attitude toward regulation and the powerful local taxi union saw the service all but shut down within a year. Uber was only permitted to serve tiny portions of the market including foreigners, pregnant women and government employees. 

‘Obstacle course’

Though Tada and the startup community welcomed Wednesday’s acquittal, the service still faces what Yonhap news agency calls an “obstacle course.”

Prosecutors may appeal the acquittal, and the court ruling is likely to outrage South Korea’s already embittered taxi drivers and could lead to even stronger protests.

One ruling party lawmaker has attempted to shut down Tada by penning a bill that would close the legal loophole that allows it to operate. Commonly called the “Tada Banning Law,” the bill would restrict the renting of vans with drivers to periods of at least six hours or to or from airports or ports.