By Nicole D. Prysby, J.D.
The taxi company’s monopolization, PUC, and the bulk of its UCL claims against Uber failed but its UCL claim based on violation of the Lanham Act went forward.
A taxicab company failed to allege market barriers related to its monopolization claims against Uber Technologies, Inc., held a federal district court in California. The taxi company alleged that Uber prices fares below cost in the San Francisco area, in an effort to drive competitors from the market. The monopolization claims failed because the taxi company’s theory of liability was based on a two-sided platform comprised of riders and drivers, and evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power. The taxi company’s claims that Uber violated the California Public Utilities Code (PUC) also failed because adjudication of the PUC claims would usurp the authority of the California Public Utilities Commission (CPUC), which is in the process of constructing a regulatory framework for ride share companies. Claims under California’s Unfair Competition Law (UCL) failed to the extent they were predicated on Sherman Act or PUC violations. UCL claims based on alleged violations of the Americans with Disabilities Act (ADA) failed because the taxi company did not allege facts to show that its costs to comply with the ADA increased as a result of Uber’s actions. A UCL claim predicated on alleged violations of the Lanham Act went forward (Desoto Cab Company, Inc. v. Uber Technologies, Inc., November 18, 2021, White, J.).
DeSoto Cab Company, doing business as Flywheel Taxi, is a taxicab company operating in the San Francisco area. DeSoto alleged that Uber, which entered the San Francisco ride-hail market in July 2012, has artificially deflated fares of UberX in the San Francisco area to prices below cost in an effort to drive competitors from the market in the hope of recouping its losses once Uber’s competition has been eliminated. Since July 2012, the taxicab industry has experienced an approximately 65 percent decline in ridership and has lost more than 30 percent of its drivers as a result of Uber’s illegal actions, Flywheel alleged. Flywheel alleged claims for monopolization and attempted monopolization under Section 2 of the Sherman Act, false advertising claims under the Lanham Act, violation of California’s Unfair Competition Law (UCL) and violations of the PUC for failure to charge just and reasonable rates, providing free or reduced rate transportation, failure to file rate schedules, changing rates without notice, and charging rates different than those specified in a schedule. Uber moved to dismiss the claims.
Sherman Act and PUC claims failed. Flywheel’s Sherman Act claims failed because its allegation concerning market barriers and danger of recoupment were deficient. For example, Flywheel alleged that only one competitor has entered the San Francisco ride-hail market in five years. But competition may result in the exit of competitors. Flywheel’s allegations that Uber’s brand awareness and customer loyalty present a barrier to entry and a barrier to expansion are not sufficient to show market power. Flywheel alleges that capital markets no longer exist because investors have learned of “the liquidity network effects at play” and alleged that competitors have been unable to raise capital because of those network effects. Flywheel’s network effects theory consists of a two-sided platform that is comprised of riders and drivers, and evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power. Flywheel also alleged Uber created programs that allow drivers to buy or lease vehicles at a low cost, but did not allege that Uber restricts its drivers from contracting with other ride share companies such as Lyft.
The PUC claims failed because adjudication of each of the PUC claims would usurp the authority of the CPUC under California law. The CPUC has the authority to adopt a policy with regard to ride-hail services and it has exercised that authority in that it is correctly collecting information about ride share fares, including information about how Uber calculates its fares. Court action would hinder CPUC policy—because the CPUC has not completed constructing a regulatory framework for ride share companies, including regulations for rate-related concerns, adjudicating Flywheel’s PUC claims would hinder the CPUC’s exercise of authority.
UCL claims failed in part. Flywheel based its UCL claim on the alleged violations of the Sherman Act, the PUC claims, the Lanham Act claim, and alleged violations of the ADA, non-compliance with insurance requirements, and failure to comply with certain San Francisco regulations. Because Flywheel’s Sherman Act and PUC claims failed, the UCL claim failed to the extent it is premised on those claims. With respect to the UCL claim based on ADA violations (e.g., the requirement to provide accessible vehicles) the court held that Flywheel lacked statutory standing to bring the claim. Flywheel alleged that it was required to spend approximately $250.00 per vehicle per month to comply with the ADA, while at the same time, Uber enjoyed increased revenues of approximately $250 per vehicle per month due to its failure to comply with the ADA. But although Flywheel claimed it suffered harm “in the form of increased costs,” Flywheel did not allege that it would not have been required to expend those sums if Uber had complied with those laws and regulations. Flywheel did not allege facts to show that its costs to comply with these various laws and regulations increased as a result of Uber’s actions or that it was required to lower its prices in order to compete. The court also found that Flywheel failed to allege facts to show it would be entitled to restitution on its UCL claim.
The case is No: 4:16-cv-06385-JSW.
Attorneys: Joseph Isaac Bautista (Seibert Bautista Montoya) for Desoto Cab Co., Inc. Brian C. Rocca (Morgan, Lewis & Bockius LLP) for Uber Technologies, Inc., Uber USA, LLC and Rasier, LLC.
Companies: Desoto Cab Co., Inc.; Uber Technologies, Inc.; Uber USA, LLC; Rasier, LLC
Cases: Antitrust StateUnfairTradePractices CaliforniaNews GCNNews