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Uber Court Victory In Philadelphia Unlikely To Dispel Antitrust Woes

Uber Court Victory In Philadelphia Unlikely To Dispel Antitrust Woes

Founded just seven years ago, Uber has already become a dominant force worldwide in the ride-for-hire market. As a classic disruptive entrant, it has laid waste to the business model of market incumbents, mainly taxicab companies. The latter have responded with regulatory complaints, legislative initiatives, and lawsuits.[1] The lawsuits have alleged a variety of bases for liability. On November 3, 2016, a federal district court in Pennsylvania dismissed one such suit, brought under the federal antitrust laws, on the ground that the harm to the taxis’ businesses did not confer antitrust standing.[2]  Philadelphia Taxi Ass’sn, Inc. v. Uber Technologies, Inc., Civil Action No. 16-1207 (E.D. Pa.)(Philadelphia Taxi). The decision is grounded in clear precedent and will likely deter similar lawsuits by aggrieved taxi owners in other markets. However, by no means does it signal an end to Uber’s antitrust woes.

The plaintiffs in Philadelphia Taxi were taxicab owners and an association formed to advance their interests as owners of medallions issued by the Philadelphia Parking Authority (PPA). The PPA requires taxicab companies to comply with regulations designed to protect taxi drivers from exploitation and to protect the public from unsafe and unfair practices. Plaintiffs alleged that Uber operated unlawfully by offering taxi services without holding medallions or otherwise complying with PPA regulations, and that it was flooding the market with unlicensed cars and drivers to their detriment.  These actions, they charged, amounted to an attempt to monopolize the taxicab market in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

The court cited five factors to consider in assessing whether the plaintiffs had standing to pursue their antitrust claim:

(1) the causal connection between the antitrust violation and the harm to the plaintiff and the intent by the defendant to cause that harm, with neither factor alone conferring standing; (2) whether the plaintiff’s alleged injury is of the type for which the antitrust laws were intended to provide redress; (3) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (4) the existence of more direct victims of the alleged antitrust violations; and (5) the potential for duplicative recovery or complex apportionment of damages.

Philadelphia Taxi, slip op. 3, quoting from In re Lower Lake Erie Ore Antitrust Litigation, 998 F.2d 1144, 1165 (3rd Cir. 1993).

The court noted that while the factors suggest that a balancing test should be applied, the second factor, antitrust injury, is a necessary but insufficient factor. Id., citing Barton & Pittinos, Inc.v. SmithKline Beecham Corp., 118 F.3d 178, 182 (3rd Cir. 1997).  A plaintiff must allege more than injury from mere presence in the market where the harmful activity is occurring; it must allege that the injury is “of the type the antitrust laws were intended to prevent and that flows from that which makes defendant[‘s] acts unlawful. Id., quoting from Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).

The court found that while the plaintiffs had “undoubtedly suffered injury since Uber began operating in Philadelphia,” the injury was to plaintiffs as competitors, which is distinct from injury to competition.  Id.  “Plaintiffs have extensively pleaded detriment to their own welfare,” the court said,  “but [they have] failed to alert this Court of any negative impact Uber’s presence in the marketplace has had on the price, quality, or quantity of taxicab or vehicle-for-hire services- essential indications of antitrust injury.” Id.

 Plaintiffs also contended that  they had antitrust standing because Uber was operating in violation of state and local regulations, which indicated an intent to destroy competition or obtain a monopoly. The court found this argument unpersuasive as well, since violations of state or municipal law do not give rise to antitrust injury. The court pointed to Judge Posner’s recent decision in Illinois Trans. Trade Ass’n v. Chicago, __F.3d ___, 2016 WL 5859703 (7th Cir. Oct. 7, 2016), rejecting a taxicab association’s argument that Chicago was unlawfully depriving its members’ of their property interest in medallions by permitting Uber to operate without medallions. While based on property interests rather than antitrust, the court found that the basis of the argument in the Chicago case was the same:

Uber should not be permitted to operate in the relevant market without complying with the market’s regulation on taxicabs. As the Seventh Circuit found, “[a]ll that the City gives taxi-medallion owners is the right to operate taxicabs in [the City],” which isn’t a right to exclude competitive providers of transportation.” … If Plaintiffs seek to prevent Uber from operating in the Philadelphia market, it may seek refuge in PPA regulations, not antitrust law.

Philadelphia Taxi, slip op. 4. For these reasons, the court granted Uber’s motion to dismiss.

Uber’s victory in court was hardly the last word, as Pennsylvania Governor Wolf signed legislation the next day legalizing ride-for-hire companies like Uber and Lyft.[3]

As noted, however, Philadelphia Taxi does not signal the end of Uber’s antitrust concerns. One day before the ruling in that case, a taxicab company in San Francisco filed a complaint in federal court alleging that Uber was monopolizing the market through predatory pricing.[4] Uber also faces continued antitrust exposure from a 2015 class action suit filed by an Uber customer alleging a horizontal and vertical conspiracy to fix prices charged by Uber drivers.  Meyer v. Kalanick, No. 15-civ-9796 (S.D.N.Y ).

The essence of the alleged conspiracy in Meyer is that Uber’s CEO orchestrated a scheme whereby Uber drivers agreed to set fares established by Uber’s pricing algorithm.[5] As plaintiffs alleged that the conspiracy raised fares, standing was not in issue. The defendant moved to dismiss, claiming that the plaintiff had not sufficiently alleged a conspiracy, as Uber drivers contracted individually to become Uber drivers, and were free to offer fare discounts. On March 31, 2016, Judge Rakoff of the Southern District of New York denied defendant’s motion, holding in essence that antitrust conspiracies need not be explicit, but rather can be inferred from conduct of the nature alleged by the plaintiff. While the court ordered the parties to be ready for trial by November 1, 2016, the proceedings have been stayed while the defendants pursue an interlocutory appeal to the Second Circuit of an order denying their motion to compel the plaintiff to pursue his claims through arbitration. Id., Memorandum Order dated August 26, 2016.

Antitrust litigation is an assumed risk to insurgents like Uber that threaten the competitive position of market incumbents. Grounded in clear Supreme Court precedent, Philadelphia Taxi’s decision denying standing to a marketplace incumbent may modestly reduce that risk for Uber. Given the high stakes to taxicab companies, however, it may be a while before that risk goes away.

 

[1] See, e.g., Kendall, M., “Uber Battling More than 70 Lawsuits in Federal Courts,” Mercury News, July 4, 2016, updated August 11, 2016, available at http://www.mercurynews.com/2016/07/04/uber-battling-more-than-70-lawsuits-in-federal-courts/.

[2] The court also dismissed state law claims of unfair competition and tortious interference with contractual relations.

[3] Philly.com, “Wolf  Signs Bill  Making Uber, Lyft Legal in Philly” (Nov. 4, 2016).

[4] DeSoto Cab Co. v. Uber Technologies, Inc., Case No. 3:16-cv-06385 (N.D. Ca. Nov. 2, 2016).

[5] While the plaintiff only  named Uber’s CEO as a defendant, the court subsequently granted the CEO’s motion to join Uber as a defendant. Meyer v. Kalanick, Memorandum Order dated June 20, 2016.


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