Uber must answer antitrust lawsuit by now-defunct rival

Uber Technologies Inc. must answer an antitrust lawsuit claiming its predatory pricing and other anticompetitive practices drove a now-defunct rival out of business, a U.S. magistrate judge in San Francisco ruled.

Chief Magistrate Judge Joseph Spero found Uber cannot escape allegations from SC Innovations Inc., successor to ride-hailing pioneer Sidecar Techonologies Inc., that it has cornered the ridesharing market in the absence of other companies able to effectively compete. Because it's now so dominant, he said Uber could possibly set monopoly prices through increases to passenger fares and decreases to driver commissions.

The ruling is a rare loss amid a wave of court victories in lawsuits targeting the ride-hailing giant's allegedly hardball tactics. Spero repeatedly referred to arguments that Uber, unlike Lyft, could subsidize losses to wait until rival companies fold.

"Uber can leverage its dominant market share to raise both passenger fares and commissions withheld from drivers without a rival increasing output to restore competitive equilibrium," he wrote.

An Uber spokesperson declined to comment Monday.

In 2018, SC Innovations sued Uber for offering above-market incentives to drivers and below-market rides to passengers in a bid to monopolize the market only to slash payments and raise fares after doing so. The plaintiff also accused Uber of illegally booking and canceling rides under programs such as "SLOG" and "Project Hell" to frustrate users and prompt drivers to work exclusively for them.

Spero dismissed the lawsuit in January, finding Uber is actually an oligopoly because of Lyft's presence in the market. He rejected arguments 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.

Ruling for Sidecar, Spero was convinced by new arguments that Uber enjoys a monopoly on both sides of a "two-sided market" of drivers and riders Lyft is unable to challenge. Uber's market dominance shields it from market forces, the judge concluded. SC Innovations, Inc. v. Uber Technologies, Inc., 18-CV-07440 (N.D. Cal., filed Dec. 11, 2018).

"Sidecar has plausibly alleged that Uber could unilaterally raise the 'price' that it keeps for itself from ride-hailing transactions to supracompetitive levels ... while insulated by network effects from Lyft or a new market entrant usurping Uber's market share," the judge wrote.

Uber can do so, Spero said, "through fare increases not fully passed on to drivers, commission increases reducing drivers' pay not offset by discounts for passengers, or a combination of the two." The company is likely to recoup any losses once it drives competitors out of business, he continued.

According to plaintiffs' attorneys, an analysis of more than a million Chicago rides in 2019 found total ridership fell when Uber raised prices on lower-end services to steer customers toward higher-end rides. Lyft did not grow its market share during this time.

Lewis LeClair of McKool Smith PC, representing SC Innovations, said this is a real-world example disproving Uber's defense Lyft would slash prices if Uber raised theirs to seize market share.

Given Lyft has significantly fewer drivers and longer wait times for rides, Spero similarly found a consumer who abandons Uber may not turn to competitors.

Dan Swanson, a partner at Gibson, Dunn & Crutcher LLP, represented Uber. In 2019, attorneys at Quinn Emanuel Urquhart & Sullivan LLP were disqualified from representing SC Innovations because of their past work in a similar antitrust lawsuit defending Uber.

In March, Uber convinced a state appellate court to affirm a finding it's not subject to a California law prohibiting below-cost sales. It also beat another antitrust lawsuit federal court in San Francisco filed by Flywheel Taxi alleging predatory pricing.