In the first case of its kind in China, a court in Jinan, Shandong province has been asked to determine the legality of a private car driver touting for passengers by using taxi-hailing apps.
The lawsuit, filed by Chen Chao against the city's passenger transport management office, is likely to set a judicial precedent over the validity of a private driver engaging in a "taxi-like" business.
Chen was fined 20,000 yuan ($3,200) after being stopped on Jan 7 carrying two passengers who had hired his vehicle through Didi Dache, a private car booking app developed by the Beijing Xiaoju Technology Company and funded by Tencent Holdings and Alibaba Group Holdings.
The office fined him for conducting an illegal transport business and defended itself in court saying that Chen has not obtained a taxi-driver's license and his car doesn't have a taxi license.
Under regulations in some cities, private car drivers, or vehicles without taxi licenses, cannot carry passengers for profit. Taxi drivers are required to rent authorized cabs from licensed companies and pay rental fees often criticized as being exorbitant.
Franchises for taxis are owned by governments. It is common practice in the trade for companies to buy licenses from the government then sell the right to run taxis to drivers and rent cabs to them.
In Shanghai a license costs 500,000 yuan for a 50-year franchise. In Shenzhen it is 350,000 yuan for a 14-year franchise.
Operators of illegal taxis can be fined up to 20,000 yuan, but drivers have little fear as the business is lucrative and they cannot be easily detected.
Since car-hailing apps were introduced in Sept 2012, many Chinese have questioned the system of franchising taxis.
Two taxi-hailing apps that merged in Feb issued a set of standards on Monday to govern their ride-on-demand service, which has fallen foul of state and local regulators over passenger safety concerns, according to the Xinhua News Agency.
Under the guidelines issued by Didi Dache and Kuaidi Dache, drivers must have at least three years' driving experience, be screened for criminal and traffic violation records and undergo training and tests before being employed for ride-on-demand services.
It also laid out requirements for vehicles, requiring them to be monitored through GPS and the Internet. The company will also be obliged to compensate passengers for accidents occurring during trips.
Didi Dache and Kuaidi Dache announced a merger in Feb that could value the firm at $6 billion after a year of fierce competition for market share.
Wednesday's hearing was broadcast live online, focusing attention on whether the monopoly of taxi firms should be protected and initiating a discussion on whether passengers should have more choice, including hiring private cars through apps.
The court delayed announcing a verdict due to the complexity of the case.
