If you’re driver for the monopolist Über ride hailing service, you should be feeling a surge coming on right about now. Why? Über made a key decision that affects you: Über decided to go to court rather than force passengers to go to arbitration as your terms of service require. Über consulted with you about that, right? They put the decision to a vote of the drivers through their little app thingy, right? Because the Internet, right?
In a nutshell, when it was sued by an Über passenger for price fixing Über decided not to enforce the arbitration clause in the Über terms of service. Instead, it opted for letting a curious U.S. federal judge examine the consumer protection and antitrust claims against its monopoly ride hailing business–and expose Über drivers (all of them) to potential court claims for collusion and price fixing through the use of the Über app.
According to The Guardian:
Travis Kalanick, the chief executive of Über, has failed to win the dismissal of an antitrust lawsuit accusing him of scheming to drive up prices for passengers who use the popular ride-hailing service.
District judge Jed Rakoff in Manhattan said on Thursday that Kalanick must face claims he conspired with drivers to ensure they charge prices set by an algorithm in the Über smartphone app to hail rides, including “surge pricing” during periods of peak demand.
Led by Spencer Meyer of Connecticut, passengers claimed that drivers conspired with Kalanick to charge fares set by the algorithm, with an understanding that other Über drivers would do the same, even if they might do better by acting on their own.
Rakoff said the plaintiffs “plausibly alleged a conspiracy” to fix prices in this manner, and could also pursue claims that Kalanick’s actions drove out rivals such as Sidecar, enabling Über to command 80% of mobile-app generated ride shares.
How does this work? Veteran legal reporter Alison Frankel tells us in Reuters:
The plaintiffs have been shrewd about this case from the beginning. There are two good reasons why their complaint named Über’s CEO – but not the company itself – as a defendant. The tactic raised doubts about the application of Über’s mandatory arbitration provision, since the user agreement is between the company and its users, not Kalanick and users. (Über has argued that because the allegations all involve Kalanick’s conduct as a company official, the user agreement should apply.)
But wait, there’s more:
Naming the CEO personally also allowed plaintiffs to claim a per se illegal price-fixing conspiracy across the ranks of Über drivers, because Kalanick has personally driven Über customers a few times. Kalanick is the only Über driver identified by name in the complaint.
Because Travis Kalanick is just like you guys, see? He’s a driver, too. So now you are tainted with his conspiracy. I’m sure he thought about that every time he had to clean puke out of the back seat.
A word about Judge Jed Rakoff–he’s the judge who rejected Wall Street settlements with the SEC as going too easy on the Too Big To Fail crowd as reported by The Nation. A frequent opinion writer for the New York Review of Books, Judge Rakoff’s 2014 piece “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” may be a little bed side reading for Uber drivers and fans of The Big Short.
Judge Rakoff’s ruling on March 31 allows the case to go forward on the antitrust and price fixing claims with a November 1 trial date. Frankel got a quote from the passenger’s counsel:
“In creating Über, Kalanick organized price fixing among independent drivers who should be competing with one another on price,” Meyer’s lawyer Andrew Schmidt said. “Today’s decision confirms that apps are not exempt from the antitrust laws.“
Remember how Über treats its drivers as independent contractors so they don’t have to pay benefits like everyone else?
Über is not only having to pay a $100 million settlement over this mischaracterization issue, it now is facing what sometimes are criminal price fixing charges. And any time your judge analogizes your actions to the Silk Road case it can be a Maloxx Moment. Here’s Frankel’s reporting:
But the [Über passengers argued that] Über can’t enjoy the benefits of its disruptive business model without suffering the consequences. Because Über drivers aren’t traditional employees, but independent contractors who assented to Über’s anticompetitive terms, they are plausibly co-conspirators under the U.S. Supreme Court’s 1939 ruling in Interstate Circuit v. U.S., according to the plaintiffs. And by insisting that it is not a taxi company or car service, they argued, Uber cannot claim it competes with those businesses. According to the plaintiffs, the relevant market for antitrust claims against Uber is mobile app-generated ride-share services – and Uber controls 80 percent of that market.
Deciding the “relevant market” is a key part of antitrust analysis. Sometimes this is tricky because you have to decide the apples and the oranges, so to speak. Just ask Apple. In Über’s case, it has used the fact that it is not a taxi company to get out of paying payroll taxes for its drivers, workers comp, etc. So the Über passengers have argued–persuasively so far–that instead of comparing apples to oranges, just compare the apples to apples, which would be other “app-generated ride-share services.”
And that’s when it does not pay to be a unicorn–Über has an 80% share of those apples which could take it all the way to being a monopolist.
[Judge] Rakoff found those points persuasive. “Uber’s digitally decentralized nature does not prevent the app from constituting a ‘marketplace’ through which Mr. Kalanick organized a horizontal conspiracy among drivers,” he said, citing (as plaintiffs did) a ruling by his Manhattan federal court colleague Katherine Forrest that held online narcotics sales at the Silk Road site to be part of a single, overarching conspiracy.
There it is–Über is like the Silk Road.
[Judge Rakoff went on to say that] “[t]he fact that Uber goes to such lengths to portray itself – one might even say disguise itself – as the mere purveyor of an ‘app’ cannot shield it from the consequences of its operating as much more.”
So stay tuned Über drivers. What’s really interesting about Uber’s campaign in Austin is how much denial people are in about Uber’s ultimate goal which has its own implications for collusion. Here’s a good snapshot of The Plan directly from the company’s CEO, Travis Kalanick as reported by The Verge:
Über will eventually replace the people who drive its cars with cars that drive themselves, CEO Travis Kalanick said today at the Code Conference. A day after Google unveiled the prototype for its own driverless vehicle, Kalanick was visibly excited at the prospect of developing a fleet of driverless vehicles, which he said would make car ownership rare.
Just so you get the idea, Google Ventures was an early and major investor in Über. $285 million, to be precise. That 2013 investment put Über on the map in a serious way.
He goes on:
“The reason Über could be expensive is because you’re not just paying for the car — you’re paying for the other dude in the car,” Kalanick said. “When there’s no other dude in the car, the cost of taking an Über anywhere becomes cheaper than owning a vehicle. So the magic there is, you basically bring the cost below the cost of ownership for everybody, and then car ownership goes away.”
Yes, that’s right. “Magic.”
Then the question is do robots dream of electric price fixing.