DoorDash sued New York City on Wednesday over a new law that requires the firm to share customer data with restaurants, arguing that the rule is unconstitutional.
The San Francisco-based delivery company called the law a “compulsion of speech” that violated the First Amendment and an unconstitutional taking of its commercial information.
The suit was filed in Manhattan federal court.
At the heart of the suit is an uneasy deal that New York City restaurants have struck with the three big delivery companies—Grubhub, DoorDash, and UberEats—whose apps function as marketplaces for New Yorkers seeking to order in a meal. In exchange for reaching the apps’ large population of diners, city restaurants cede some control over the delivery transaction, including information about their customers.
“It’s not the most profitable dollar you’ll make, but there’s no better way to reach a new audience and build your brand than through the apps,” said Richard Zaro, the owner of Cutlets, a sandwich company that has used the third-party delivery apps to launch its business.
Delivery companies are incentivized to keep their take-out fans happy by promoting variety over loyalty. Restaurants, on the other hand, would prefer to market directly to customers acquired through the apps, a business development need that became crucial to an industry hard hit by the pandemic closures, according to Councilman Keith Powers, who sponsored the bill.
Yet sympathy for the restaurant industry should not outweigh its right to hold onto its hard-won data, DoorDash argues.
“By forcing DoorDash to disclose that trade secret to restaurants, the ordinance eliminates DoorDash’s central property right in the trade secret—the right to exclusive use,” the company charged in the lawsuit. “And the right to exclusive use is the reason the trade secret has economic value." No one is compensating DoorDash for the taking, it says.
DoorDash in fact has a product called Storefront, which lets restaurants accept orders on their own sites, without its marketing aid. In that case, the restaurants do maintain a direct relationship with customers and are able to access their information.
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In addition to the claims that the rule is unconstitutional, DoorDash’s suit argues that the data-sharing requirement is an invasion of customer privacy because it gives the city’s small businesses the names, addresses, phone numbers and other data collected from customers unless customers opt out during each order. Several city groups, including some representing Hispanic immigrants, spoke out against the bill on privacy grounds while it was being considered in the Council.
Third-party companies including DoorDash reserve the right to collect and share certain customer information themselves. DoorDash can grab information from social media accounts if customers use the same login credentials, and it can share data with partners like payment processors, advertising services, marketing partners and web analytics though only “for the purpose of performing services on our behalf," according to its terms of service.
This is the second lawsuit DoorDash has brought against New York City in a week. On Sept. 10, it took issue with another recent law that puts a limit on how much restaurant delivery apps can charge restaurants for delivery and marketing services.
