Antitrust Law Daily Wrap Up, TOP STORY—S.D.N.Y.: Uber CEO must face price fixing claims, (Apr 1, 2016)

By Greg Hammond, J.D.

The CEO and co-founder of Uber Technologies, Inc.—the producer of a smartphone application that matches riders with drivers—continues to face class action claims that he orchestrated and facilitated an illegal price fixing conspiracy. The federal district court in New York City denied the CEO’s motion to dismiss, finding that the consumer-plaintiff adequately alleged both a horizontal and vertical price fixing conspiracy (Meyer v. Kalanick, March 31, 2016, Rakoff, J.).

The consumer claimed that Uber CEO and co-founder Travis Kalanick violated the Sherman Act and New York Donnelly Act by conspiring with Uber drivers to use a pricing algorithm to set the prices charged to Uber riders, thereby restricting price competition among drivers to the detriment of riders. Kalanick moved to dismiss.

Horizontal conspiracy. The court first determined that the consumer adequately alleged a horizontal conspiracy—that Uber drivers agree to participate in a conspiracy among themselves when they assent to the terms of Uber’s written agreement and accept riders using the Uber App. In particular, the court found that: (1) the consumer plausibly alleged a conspiracy in which drivers sign up for Uber with the understanding that other drivers have agreed to the same pricing algorithm and that agreements with Uber would be against their own interest were they acting independently; (2) drivers’ ability to benefit from reduced price competition with other drivers by agreeing to Uber’s driver terms plausibly constitutes a “common motive to conspire”; and (3) the fact that drivers may also seek to benefit from other services that Uber provides, such as connecting riders to drivers and processing payment, is not to the contrary. In addition, the court found that the horizontal conspiracy claims are bolstered by allegations that Uber organizes events for drivers to get together and that Kalanick agreed to raise fares following drivers’ efforts to negotiate higher rates in September 2014.

Vertical conspiracy. The consumer also adequately alleged a vertical conspiracy, the court concluded. In particular, the consumer claimed that: (1) all of the independent drivers have agreed to charge the fares set by Uber’s pricing algorithm and that Kalanick designed this business model; (2) the unlawful arrangement consists of a series of agreements between Kalanick and each of the Uber drivers, as well as a conscious commitment among the Uber drivers to the common scheme of adopting the Uber pricing algorithm; (3) Kalanick is per se liable as organizer of the conspiracy and as an occasional Uber driver; and (4) in the alternative, Kalanick is liable under Section 1 of the Sherman Act under a “quick look” or “rule of reason” analysis.

The court also found that the consumer adequately pleaded a plausible relevant market—the “mobile app-generated ride-share service market”—and adverse effects in the relevant market. In particular, the consumer alleged that Uber has an approximately 80 percent market share in the United States; that the company’s chief competitor—Lyft—has nearly a 20 percent market share; and that a third competitor left the market at the end of 2015. In addition, the consumer claimed that traditional taxi service and traditional cars for hire are not reasonable substitutes for Uber. To demonstrate adverse effects, the consumer claimed that Kalanick’s actions have further restrained competition by decreasing output; Uber’s market position has already helped force a competitor out of the marketplace; and Uber’s dominant position and considerable name recognition has also made it difficult for potential competitors to enter the marketplace.

The court consequently denied Kalanick’s motion to dismiss the Sherman Act claim and—for the same reasons—the New York Donnelly Act claim.

The case is No. 15 Civ. 9796.

Attorneys: Brian Marc Feldman (Harter, Secrest & Emery, LLP) for Spencer Meyer. Peter M. Skinner (Boies, Schiller & Flexner LLP) for Travis Kalanick.

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