Court Rules that Uber Must Face Antitrust Suit

The Northern District of California issued an order regarding a motion to dismiss SC Innovations’ complaint against Uber Technologies. SC Innovations (Sidecar) is a “defunct ‘transportation network company’ that claims it was driven out of business” by Uber. The court denied Uber’s motion, except for an Unfair Practices Act claim, which was stricken from the Second Amended Complaint. 

Sidecar sued Uber in 2018, and in January the court held that Sidecar’s “allegation of a relevant market – app-based ride-hailing services, excluding taxis – was sufficiently plausible to survive [the first] motion to dismiss.” The court previously dismissed Sidecar’s Sherman Act claim because it did not sufficiently provide allegations of market power and its claims of monopolization were inadequate. Sidecar filed a Second Amended Complaint explaining how Uber shifted its business model when it introduced Uber X, which then closely competed with Sidecar because both platforms allowed “drivers to use their personal, non-limousine vehicles” for ride-hailing apps. Sidecar alleges that Uber “consistently set its prices below cost in an effort to achieve a ‘winner takes all’ outcome due to the ride-hailing market’s barriers to entry.” Sidecar claims this is unfair.

Specifically, Sidecar claims Uber “engaged in predatory pricing on each of the two ‘sides’ of the ride-hailing market.” As a result, Sidecar states that “Uber’s strategy is premised on the goal of establishing a monopoly and reaping the reward of supracompetitive monopolist pricing in order to recoup early losses. Uber would recoup the losses it has accrued by lowering payments to drivers and raising fares for passengers.” Sidecar also claims that Uber’s “surge pricing” is “price discrimination.” Sidecar alleges that Uber has attempted to monopolize that market, which ultimately drove Sidecar out of business. Sidecar declares that Uber has raised its prices and increased its “commission” since Sidecar stopped operating. Sidecar sought relief from monopolization, which violates the Sherman Act; attempted monopolization, and California Unfair Practices Act violations.

Uber claimed that Sidecar did not remedy the shortcomings of its previous complaint, specifically its market power claim “because Sidecar still does not allege that Uber has the unilateral power to raise prices by reducing its own output.” Uber states that Sidecar’s price discrimination and “two-sided transaction market” allegations are insufficient. Rather, Uber declared that Sidecar is still relying on an oligopoly allegation. Uber sought for Sidecar’s Sherman Act violation claims to be dismissed and for the court to strike Sidecar’s Unfair Protection Act claims.

Sidecar claimed Uber’s market power has left another competitor, Lyft, “unable to respond effectively or to increase its own share of rides as a restraint on Uber’s pricing.” The court agreed with Sidecar, finding these practices could potentially hinder a competitor from expanding. While Uber claimed that Sidecar only addressed one side of the market, the court states that they adequately addressed both sides, the driver fee as well as passenger price.

The court stated that Sidecar “has plausibly alleged that Uber could unilaterally raise the ‘price’ that it keeps for itself from ride-hailing transactions to supracompetitive levels – through fare increases not fully passed on to drivers, commission increases reducing drivers’ pay not offset by discounts for passengers, or a combination of two – while insulated by network effects from Lyft or a new market entrant usurping Uber’s market share.” The court added that this illustrates that it would be possible for Uber to recoup its losses from its supposed predatory pricing.

The court previously dismissed Sidecar’s Unfair Practices Act violation claims with prejudice in an earlier complaint, and Uber has asked the court to strike these allegations. As a result of this previous dismissal, the court granted Uber’s motion to trike the Unfair Practices Act claim.

Sidecar is represented by McKool Smith. Uber is represented by Gibson, Dunn & Crutcher.