Along with obtaining the proper licenses and permits, startups also must comply with all federal, state, and/or local government regulations that govern their activity. If they do not do so, they risk closure by one or more agencies. Startups face two challenges with this requirement. First, they may lack familiarity with all the regulations governing their business. Nonetheless, the startup bears responsibility to know the rules and regulations. Second, a disagreement about the applications of various rules and regulations could surface between a startup and governmental agencies. If this happens, a startup can take the matter to court and hope the court sides with its point of view. This exact situation played out for Flytenow, except the court ruled in favor of the government, causing Flytenow to shut down. Four founders launched Flytenow, which was an airplane ride-sharing service, in 2013. The company ran an Internet site where private pilots posted their flight plans and flight “enthusiasts,” as Flytenow’s website called them, could ride with the pilots and share the expenses. Flytenow earned money by taking a commission on funds exchanging hands between the pilots and their passengers. According to the company, during the short time it was in service, it attracted 25,000 members, including private pilots, travelers, and aviation enthusiasts. Most of the pilots on Flytenow’s service operated single-engine, propeller-driven, four-seat planes. The FAA challenged Flytenow’s service, citing a regulation that prohibits a pilot from accepting payment from passengers unless they have a commercial license. Applying that rule would ruin Flytenow’s business model, given the impracticality of a private pilot obtaining a commercial license. Flytenow fought back, arguing that flight sharing is nothing new. The firm said that it was not unusual at all for pilots to post notes on bulletin boards that read something like “Flying from Minneapolis to Chicago on Friday—looking for someone to ride along and share the costs.” The FAA acknowledged that that practice is acceptable. They also argued, however, that there is a difference between that practice and what Flytenow was doing. By operating an Internet site that made ride sharing widely available, Flytenow was operating as a common carrier (like Delta or Southwest). Pilots for common carriers need a commercial license. Flytenow did not accept the view that they were acting as a common carrier. The company argued that flights arranged through its service were not indiscriminately available but only available to “enthusiasts” demonstrating a common interest in the specific date, route, and adventure that the flight would entail. The case went to court, and the U.S. Court of Appeals for the District of Columbia upheld the FAA’s ruling. The founders of Flytenow reacted in a blog post, saying, “Unfortunately, we are left with no choice but to shut down Flytenow. However, we are still fighting as pilots to make this happen. Our amazing legal team at The Goldwater Institute is looking into options to appeal and help introduce a bill in Congress. Thanks to all our supporters, mentors, and investors who helped us along the way.” Flytenow’s experience is a reminder of the complicated legal environment in which startups may find themselves......

Discussion Questions:

1. With which side do you agree in this case—Flytenow or the FAA? Explain your answer.
2. If you started a business in an industry where you lacked familiarity, how would you go about determining the proper licenses and permits to obtain, and whether there are additional government regulations that affect the product you plan to offer?
3. If you were starting an aviation-related company, how would you go about locating an attorney specializing in aviation law?
4. Do you think Flytenow’s founders will find a way to resurrect the service, or do you think the company is out of business permanently? Explain your answer.