Innovation and regulation have clashed again in the Bay Area, where a company started by three teenagers is doing to the airport car rental business what app-driven services like Uber have done to the taxi industry—turned it on its head.

Last month, San Francisco City Attorney Dennis Herrera filed a lawsuit (pdf) against FlightCar, Inc. in San Francisco County Superior Court for renting cars to airport travelers without paying fees usually associated with the business. The recent startup says it won’t pay because it’s a hybrid ride-sharing/off-site parking enterprise, not a car rental company.

This is how it works. People who are flying from San Francisco Airport leave their vehicles at FlightCar’s offsite facility. The company gives them a free limo drive to the airport, washes their car, lets them avoid parking fees and pays them a percentage of the money made renting it while they are out of town.

Interested rental parties get cars at bargain basement prices because FlightCar doesn’t have the same overhead costs of a regular rental outfit like Hertz. Each car is insured for $1 million and renters are pre-screened, according the company’s website. FlightCar brings the vehicle to the owner at the airport upon their return. Parking and valet services are free even if the car isn’t rented.

It’s a win-win situation, but not a win-win-win because the city loses out on fees that can amount to 10% of a company’s gross profits and $25 per rental, according Joshua Melvin at  the Bay Area News Group. The San Francisco Airport reportedly made $94 million last year, equal to 10% of its operating budget, from rental companies. 

“How does it make sense that there's one parking lot at the airport where there are thousands of cars sitting there and people are paying for them to sit there and do nothing, and there's another parking lot with thousands of cars owned by Hertz?” FlightCar CEO Rujul Zaparde, 18, told the Associated Press.

The city wants the company to pay the car rental fees and abide by rules that require pickups and drop-offs at designated areas in the airport.

Two of the three teens who started FlightCar, Kevin Petrovic and Zaparde, are dropouts from Princeton and Harvard, respectively, while the third, Shri Ganeshram, put off starting college to start the company earlier this year. They have opened a second outlet at Boston’s Logan Airport.

–Ken Broder

To Learn More:

FlightCar Lawsuit: Rental Car Startup Faces Suit from City of San Francisco (by Mihir Zaveri, Associated Press)

Flightcar: San Francisco Sues Unruly SFO Car Rental Startup from Santa Clara (by Joshua Melvin, Bay Area News Group)

Don’t Just Leave Your Car at the Airport—Rent It (by Scott Kirsner, Boston Globe)

Rental Car Co. Run by Teenagers Undercuts Hertz, Avis (by Alan Farnham, ABC News)

California v. FlightCar, Inc. (San Francisco County Superior Court) (pdf)