Antitrust and Unfair Competition Law

Three Times Is Not a Charm: Uber Gets Desoto Cab Company’s Third Amended Complaint Alleging Anticompetitive Practices Dismissed

By Anthony Leon, in-house counsel in San Francisco, CA.

On November 18, 2021, United States District Judge Jeffrey S. White dismissed most anticompetition claims brought against Uber Technologies, Inc. by San Francisco’s oldest cab company Desoto, recently renamed as Flywheel. Desoto Cab Company, Inc. v. Uber Technologies, Inc., et al., Case 4:16-cv-06385-JSW (N.D. Cal. November 18, 2021)

After two prior dismissal orders, respectively in August 2019 and March 2020, it was Flywheel’s third attempt since 2016 to establish Uber’s practices have been driving competitors out of the ride-hailing and rideshare markets. Yet, the Court granted, in part, and denied, in part, Defendants’ motion to dismiss most of Plaintiff’s claim, leaving them only with an unfair competition and injunctive relief claim.

In its complaint, Plaintiff articulated ten causes of actions against Defendants including monopolization and attempted monopolization in violation of the Sherman Act, violation of the Lanham Act, violation of the California Unfair Competition Law, and six unreasonable rates claims in violation of the California Public Utility Code (PUC). Id. at 1.

The Court dismissed the Sherman Act claims and the unreasonable rates claims brought under the California PUC, with no leave to amend, but dismissed only in part the UCL claims.

Plaintiffs failed to establish a monopolization or attempted monopolization claim under the Sherman Act

The Court dismissed with prejudice Plaintiff’s monopolization and attempted monopolization claims under the Sherman Act. It reminded that showing monopoly power remains an essential part of such claims, and it shall not be evaluated based on an actor’s market share, but rather on its ability to maintain that market share. Id. at 3.

Here, Plaintiff failed to show Defendants have practiced in a such manner that it created barriers to entry for new competitors or barriers to expansion for existing competitors in the San Francisco Ride-Hail Market. The Court did not agree with Plaintiff’s allegations that, on its own, Defendants’ brand awareness and customer loyalty would be sufficient to cause a barrier to entry or expansion. Id. at 3. Also, Defendants’ programs to facilitate a driver’s leasing or purchase of a vehicle at a lower price is not on its own an anti-competitive action because Defendants do not restrict their drivers from contracting with other transportation network companies (TNC), such as Lyft. Id. at 5.

Further, Plaintiffs failed to show that network effects acted as barriers to entry and to expansion, unlike Sidecar did in their own case against Defendant. SC Innovations v. Uber Technologies, Inc. No. 18-cv-07440-JCS, 2020 WL 2097611 (N.D. Cal. May 1, 2020). In this case, Plaintiffs did not sufficiently allege that there were anticompetitive effects on both sides of the two-sided ride-hailing platform, nor did they sufficiently allege the liquidity network effects at play cause established and former competitors not to be able to raise capital. Id. at 4, 5.

Finally, the Court confirmed its previous conclusion from the original complaint that, while it agrees with Plaintiff’s allegations of below cost pricing, Plaintiff did not “sufficiently alleged a dangerous probability of recoupment because . . . it ha[d] not sufficiently alleged that barriers to entry will prevent competitors from entering the market.” Id. at 5.

The Court finds it has no authority to rule on the unreasonable rates claims

Plaintiffs brought unreasonable rates claims in violation of the California PUC, claims that would by statute be handled by the California Public Utility Commission (CPUC), Sec. 1759 of Cal. PUC. Plaintiffs alleged that, because the CPUC has not exerted its authority or exercised jurisdiction over, regulated, addressed, or ruled on the rates charged by TNCs, the Court should be allowed to rule on these claims.

Traditionally, Courts use the three-part Covalt test to determine whether they are deprived of jurisdiction over PUC claims under Section 1759 of the California PUC, San Diego Gas & Electric Co. v. Superior Court, 13 Cal. 4th 893, 916-18 (1996) (“Covalt”). If the answer to all of the following questions is “yes,” then the Court should not rule on the issue: (i) the CPUC has the authority to adopt a policy; (ii) has it exercised that authority, and (iii) whether the court action at issue would hinder that policy. Id. at 7.

The Court first recognized that the CPUC has the authority to adopt a policy about TNCs rates. Id. at 8. To answer the second prong, the Court recognized it must focus on whether the CPUC has exercised its authority over an issue rather than a particular utility. It therefore agrees with the Defendant that the CPUC did so by continuing to collect information about TNCs fares, including information about how Uber calculates its fares. Id. at 7, 8. Finally, the Court found that ruling on Plaintiff’s rates claims would hinder the CPUC’s exercise of authority, because the CPUC has yet to complete constructing a regulatory framework for TNCs, including regulations for rate-related concerns. Id. at 9.

Therefore, the Court disagreed with Plaintiff on its authority to rule on the unreasonable rates claims and dismissed them with no leave to amend. Id. at 9.

UCL claims are dismissed in part

Plaintiff’s UCL claim is based on the alleged violations under the Sherman Act, the PUC claims, the Lanham Act claim, as well as alleged violations of the Americans with Disabilities Act, non-compliance with insurance requirements, and failure to comply with certain San Francisco regulations. Id. at 9. Because the Court concluded Plaintiff has not alleged a violation of the Sherman Act and cannot state its PUC claims, the Court has granted Defendants’ motion to dismiss the UCL claim to the extent it is premised on those claims. Id. at 10.

On the other grounds, the Court dismissed the UCL claims in part and orders Plaintiff to limit the claims to alleged violations of the Lanham Act. Plaintiff failed to allege statutory standing by insufficiently showing an injury in fact, and a loss of money or property as a result of the unfair competition, Cal. Bus. & Prof. Code § 17204. Specifically, Plaintiff argued harm in the form of increased costs without showing that these costs would not have been required but for Defendants’ actions or inactions to comply with ADA and San Francisco’s regulatory requirements.  Id. at 11, 12.

The Court then dismissed Plaintiff’s allegation that they are entitled to restitution on their UCL claim, but denies the motion to dismiss the injunctive relief claim as Defendant did not challenge it. Plaintiff believed they had a vested interest in its drivers’ leasing fees who left and now drive using Defendants’ platform. The Court found that there are no sufficient facts supporting a reasonable inference that Plaintiff’s interest in its lease payments were vested. Further, it is insufficient to draw a reasonable inference that funds in Defendant’s possession could be traceable to those leases. Id. at 14.

Conclusion

The Court dismissed, in part, and granted, in part, Uber’s motion to dismiss, without further leave to amend. After amending their complaint for the third time, Flywheel’s case is left with only a handful of claims from their original complaint. This order marks another predatory pricing lawsuit avoided by Uber against competitors, particularly traditional cab services.


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