In November 2015, I had blogged about the prices charged by drives using the UBER app. The blog post had highlighted potential antitrust risks. In particular the potential to see the UBER arrangement as a hub-and-spoke horizontal price-fixing cartel. If UBER argues that it is not employing it’s drivers the defence against such a price-fixing claim is tricky.
Carlos Esguerra Cifuentes had replied with a blog post that I really enjoyed reading. He elaborated on what I think is likely to be the second best line of defence. UBER could argue that UBER and its drivers are one entity or form a certain franchise arrangement, like eg McDonalds.
A couple of days ago a colleague working on UBER and labour law has sent me an exciting judgment on the matter.
Apparently, a couple of weeks after my blog post (on the 16th Dec) a class action lawsuit has been filed against UBER which essentially mirrors the argument that I made.
The case was decided on the 31 March 2016 by Judge Jed S Rakoff of the United States District Court for the Southern District of New York (Spencer Meyer v Travis Kalanick, 15 Civ 9796; 2016 US. Dist. Lexis 43944).
The court was faced with a putative antitrust class action lawsuit against Travis Kalanick, the CEO and founder of UBER on behalf of every US customer who ever used UBER and paid the fair set by the algorithm. The court granted to motion and set the trial date for November.
Arguments before the Court
The claimants -along the lines of my blog post- alleged that UBER had orchestrated and facilitated a price-fixing cartel: UBER while claiming to be a transportation company had conspired with UBER drivers to restrict pricing competition amongst the drivers by means of UBER’s price setting algorithm. Moreover, UBER had organised meetings between the drivers. At these meetings, information about upcoming events that could increase demand was exchanged. In some instances UBER had raised prices after the drivers had voiced concerns about prices being too low.
UBER had asked the court to dismiss the motion. UBER’s argument was that there was no horizontal agreement as the individual drivers act indecently when entering into the agreement with UBER. The drivers would have on their own motion decided that it would be in their best interest to enter into a vertical agreement with UBER. The fact that the drivers agreed to use the UBER algorithm would not diminish the drivers independence.
Decision of the Court
The court allowed the motion and held that the claimant has sufficiently pleaded a horizontal as well as a vertical conspiracy within the meaning of the Sherman Act.
The court considered a horizontal conspiracy via the UBER terms and app plausible. The drivers would forgo competition because they were guaranteed that other UBER drivers would not undercut their prices. This assurance could stabilise the cartel and would allow for the realisation of the common motive to obtain supra-competitive prices. This was made even more plausible as UBER had organised events for the drivers and raised the fares after complaints.
The court was not convinced by the arguments advanced by UBER in terms of the horizontal conspiracy. The court pointed to Interstate Circuit vs US which concerned price restrictions in agreements between movie distributors and theatre operators as well as to hub-and-spoke conspiracies established in US v Apple and Laumann v National Hockey League.
The court also highlighted that an antitrust conspiracy is based on the common law of conspiracy which is not judged by ‘the technical niceties but by practical realities’. Drawing on the Silk road case the Court stressed that the app gave UBER the opportunity to organise a conspiracy amongst the drivers so that the UBER’s argument that it would be ‘wildly implausible’ and ‘physically impossible’ to organise an agreement amongst hundreds of thousands of drivers was rejected.
In terms of Leegin and recent verticals jurisprudence, the court found that this would not ‘undermined [the] plaintiff’s claim of a horizontal conspiracy.’ The court distinguished Leegin from the current case. UBER would not sell anything that is resold by the drivers. A potential for free-riding (sic!) by UBER drivers or for undermining efforts of UBER drivers to promote the app would not exist. Moreover, UBER’s claim that the algorithm would facilitate market entry would not prevent the establishment of a horizontal conspiracy. But more importantly, the Court found that a vertical conspiracy was also sufficiently supported by the facts.
[Finally, the court left us a bon mon: After UBER suggested that the relevant market included taxis, cars, public transport, personal vehicle use and walking, the court ‘encouraged [the defendant’s attorneys] to hereinafter walk from their offices to the courthouse to put their theory to the test’.]
It is important to keep in mind that this is not a final judgment. The court only allowed the claim to go ahead. The standard in this regard is whether all factual allegations, examined cursory might give rise to the relevant claim. The judgment, therefore, implies that the court was of the opinion that the facts and the claim presented deserve further investigation. Given that the claim is brought on behalf of every US customer who ever used UBER and paid the fare set by the algorithm the implication are broad and potential damages huge. It will be very interesting to see how the case proceeds.
For UBER and the sake of competition law, we can only hope that the arguments advanced by UBER become more sophisticated than: the drivers could potentially have charged a lower price and walking is in the same market as our service.
From the court’s decision, it seems that Interstate Circuit vs US will be of particular importance. This case established a violation of Sec 1 of the Sherman Act (prohibition on anticompetitive horizontal arrangements). In this case price competition between the movie theatres was eliminated because a clause in the distribution agreement ensured a minimum price per ticket.
We will await November to see how this case will proceed.