US magistrate judge indicates Uber must face antitrust suit

SAN FRANCISCO -- Uber will likely not be able to avoid an antitrust lawsuit alleging it enjoys the power to dramatically raise prices for riders in the absence of competitors able to respond by undercutting the ride-hailing giant, a U.S. magistrate in San Francisco signaled Friday.

Despite Lyft's presence in the market, U.S. Magistrate Judge Joseph Spero found Uber has enough drivers and riders to potentially charge monopoly prices without surrendering its substantial market share. He indicated the company's defense the market is actually an oligopoly is not enough to dismiss the claims.

SC Innovations Inc., successor to now-defunct ride-hailing pioneer Sidecar, sued Uber in 2018 for allegedly employing anticompetitive practices to stifle competition and drive rivals out of business. It held 10% to 15% of market share in San Francisco, Los Angeles and Chicago before shuttering in 2015.

Spero previously dismissed the lawsuit in January, finding Uber does not have sufficient monopoly power to control prices and exclude competition. He rejected the argument that Lyft is not a major competitor because it willingly chooses not to compete with Uber, fearing retaliation that could drive it out of business.

The judge, however, gave SC Innovations a chance to amend its complaint.

Plaintiffs' attorneys now claim Uber enjoys a monopoly on both sides of a "two-sided market" made up of drivers and riders Lyft is unable to challenge.

"The more riders Uber has, the more drivers it is able to attract, and the increased driver availability attracts even more riders," wrote plaintiffs' attorney Lewis LeClair of McKool Smith, P.C.

During the Friday Zoom video hearing, defense attorney Dan Swanson, a partner at Gibson, Dunn & Crutcher LLP, argued little has changed from SC Innovations' initial complaint. He said it still claims the market is an oligopoly, which would be insufficient to allege violations of antitrust law.

"They've alleged two players with substantial market share that's going to be here for foreseeable future," he said. "If there are monopoly prices, then Lyft will be able to undercut those prices and earn a profit."

Spero was skeptical. Given it has significantly fewer drivers, he reasoned Lyft could instead be forced to "decrease prices to attract people" because it has longer wait times for rides. He further questioned the assumption a consumer who abandons Uber will turn to its rival.

"Just because something is a substitute doesn't mean people switch to it," the judge said. "Antitrust reasoning recognizes that under certain circumstances, there are barriers that prevent people from picking up market share."

Uber commands 70% of the domestic ride-hailing market opposed to 30% for Lyft, according to the complaint. SC Innovations, Inc. v. Uber Technologies, Inc., 18-CV-07440 (N.D. Cal., filed Dec. 11, 2018).

According to LeClair, an analysis of more than one million Chicago rides in 2019 revealed total ridership fell when Uber raised the prices on its lower-end services to steer customers toward its higher-end rides. He claimed this is a real-world example disproving Uber's defense Lyft would slash prices if Uber raised theirs.

"In the real world, Uber is not constrained," he said. "It raised prices 13%, and instead of Lyft growing market share, the entire output of that segment fell by 10%."

Lyft does not have the market power to limit Uber's ability to price at monopoly levels, LeClair summarized. Uber could adopt the practice by simply accepting a lower market share its rival would be unable to pick up.

Disputing the claim that Lyft's current market share is frozen no matter what Uber does, Swanson replied SC Innovations have offered no evidence to support the assertion. He said "this is an oligopoly," and "it's going to be an oligopoly."

Spero took the matter under submission.