Uber Technologies should be classified as a transport service and regulated like other taxi operators, the European Union's top court said in a ruling on Wednesday that could impact other online businesses in Europe.
Uber, which allows passengers to summon a ride through an app on their smartphones, has transformed the taxi industry since its launch in 2011 and now operates in more than 600 cities globally.
Uber had argued it was simply a digital app that acted as an intermediary between drivers and customers looking for a ride and so should fall under lighter EU rules for online services.
"The service provided by Uber connecting individuals with non-professional drivers is covered by services in the field of transport," the European Court of Justice (ECJ) said.
"Member states can, therefore, regulate the conditions for providing that service," it said.
The case follows a complaint from a professional taxi drivers' association in Barcelona that Uber's activities in Spain amounted to misleading practices and unfair competition from Uber's use of non-professional drivers - a service Uber calls UberPOP and which has since been suspended in Spain and other countries.
The ECJ's decision is unlikely to have an immediate impact on Uber's operations in Europe, where it has cut back its use of unlicensed services such as UberPOP and adheres to local transportation laws.
In a tweet Wednesday, Uber's chief executive Dara Khosrowshahi said that the ruling was "not a setback, since we've already changed our approach in the EU to follow transportation laws and work with professional drivers."
He said Uber will "keep talking with EU governments to enable affordable transportation services for millions more Europeans."
The tech industry said the ruling would impact the next generation of startups more than Uber itself.