Chuck Schumer calls for federal investigation of GrubHub

After a New Food Economy investigation, the Small Business Administration is looking into fake websites and erroneous fees.

New York Democratic Senator Chuck Schumer on Sunday demanded that GrubHub stop setting up fake websites and charging inaccurate fees for phone orders. His press conference followed revelations first reported by The New Food Economy that the company had registered more than 20,000 web domains, many of which match the names of its restaurant customers. 

Schumer said he’d written a letter to Matt Maloney, CEO of GrubHub, asking that the company change its ways, adding that he’d “asked the appropriate federal agencies to look into this.” He also tweeted on Sunday evening that the Small Business Association is investigating the matter. Schumer said he would get the Federal Trade Commission involved if GrubHub does not solve the problems on its own: “If you don’t do it, we’re going to get the feds to go after you.”

GrubHub has denied that it engaged in “cybersquatting,” an illegal practice defined as the bad-faith registration of another person’s trademark in a web domain. The company claims that it obtained explicit permission from restaurants to purchase domains in their name and create “nanosites” on their behalf. It also claims that it ended this practice in 2018. The New Food Economy spoke to several restaurant owners affected by this policy before and after we published our story, and none of them were aware that they had granted permission for the creation of these sites or the registration of domains in their names.

Restaurants have complained about GrubHub and its subsidiary Seamless’ business tactics for years.
Schumer also took GrubHub to task for fees it charges restaurants based on phone orders. GrubHub has said it uses a statistical model to determine whether or not a phone call routed through its network results in an order. (Calls made through the GrubHub platform or through websites operated by GrubHub go through company-owned phone lines and are forwarded to the restaurant. GrubHub charges restaurants for commissions based on these phone calls.) Restaurant owners argue that this method can result in erroneous charges. In a hearing last month, GrubHub executives testified that the responsibility to audit phone calls to catch mistakes falls on restaurant owners. They also testified the company makes about $30 million a year from phone commissions.

Schumer’s press conference followed similar calls from New York City Council member Mark Gjonaj, who asked state Attorney General Letitia James to launch an antitrust investigation into the company. Additionally, the New York Post reports that the New York State Liquor Authority is developing new rules that could cap allowable commission fees at 10 percent. They currently top out at around 30 percent, according to testimony from executives at the city council hearing. 

Restaurants have complained about GrubHub and its subsidiary Seamless’ business tactics for years. Now, it appears lawmakers may finally be prepared to intervene. 

H. Claire Brown is a senior staff writer for The Counter. Her work has also appeared in The Atlantic, The Guardian, and The Intercept and has won awards from the Society for Advancing Business Editing and Writing, the New York Press Club, the Newswomen's Club of New York, and others. A North Carolina native, she now lives in Brooklyn.