Big Tech Guide for State Lawmakers: Cap Delivery App Corporation Fees and Ban Abusive Tactics That Harm Restaurants

November 9, 2021 State and Local PolicyTech

The Problem:

Delivery app corporations such as DoorDash, Grubhub, and UberEats use a variety of abusive and anticompetitive tactics to insert themselves between restaurants and their customers. They then use that position to extract fees from restaurants that total 30 percent – or even more – of every individual order.[1] During the pandemic, Economic Liberties spoke with restaurant owners who reported that delivery app fees eclipsed their costs for labor and rent.

Chief among these tactics is posting a restaurant’s menu without its permission, to give the appearance of an official partnership, then refusing to take it down or alter it, or suggesting that the restaurant is closed or not accepting orders if the restaurant owner does not agree to such a partnership. These deceptive listings will often include restaurants’ own trademarked logos or other intellectual property.[2]

The delivery app corporations also list their own phone numbers on their online properties or those they affiliate with, instead of the restaurant’s phone number, to direct calls to themselves and then charge restaurants for “lead generation.”[3]

The end goal of all of these tactics is to insert the delivery app corporations between restaurants and their customers, thus enabling them to levy the assortment of fees they charge.

The Policy:

Lawmakers in more than 70 states, counties, and cities capped the fees that delivery apps can charge restaurants in response to the coronavirus pandemic, as many restaurants were forced to turn to delivery-only or majority-delivery business models due to state-required shutdowns.[4] State governments can permanently cap those fees, ideally with one cap for delivery and a separate cap for marketing fees. They can also require a detailed breakdown of fees be presented to the consumer on each bill, to increase transparency.

State lawmakers can also make it illegal for delivery app corporations to post a restaurant’s menu or use other intellectual property without receiving explicit permission from the restaurant first, as California and New Hampshire have done.

Model bills:

AB2149, California, 2020 (prevents menu/trademark stealing); City of Chicago rules for third-party delivery services (require fee transparency)

The Pushback:

Critics claim that fee caps are a form of price control that interferes with a free market, but they’re a straightforward structuring of the market for a particular service within a state. Furthermore, there’s little “free market” about how the delivery apps operate: They use no-price-discrimination clauses to mandate that prices remain the same across the apps and for on-site dining, and as the apps have consolidated, they have raised fees in concert. Menu stealing and trademark infringement, meanwhile, are simply fraudulent business practices that should be treated as such.

[1] Moe Tkacik, “Rescuing Restaurants: How to Protect Restaurants, Workers, and Communities from Predatory Delivery App Corporations,” American Economic Liberties Project, September 18, 2020, https://www.economicliberties.us/our-work/rescuing-restaurants-how-to-protect-restaurants-workers-and-communities-from-predatory-delivery-app-corporations/.

[2] Ibid.

[3] Natt Garun, “Yelp swaps restaurant phone numbers with Grubhub-affiliated ones when you call from the app,” The Verge, August 6, 2019, https://www.theverge.com/2019/8/6/20756878/yelp-grubhub-commission-fees-restaurant-fake-phone-numbers-app.

[4] Protect Our Restaurants fee cap tracker, https://www.protectourrestaurants.com/.