SC Innovations, Inc. v. Uber Technologies, Inc.

Background

SC Innovations, Inc., described in the opinion as Sidecar, was a defunct transportation network company that used a smartphone application to match passengers with drivers. Sidecar alleged that Uber Technologies, Inc. and several subsidiaries drove it out of business through anticompetitive conduct.

Sidecar asserted two claims under section 2 of the Sherman Act: monopolization and attempted monopolization. It alleged that Uber charged passengers prices below Uber’s variable costs, intended to eliminate competing ride-hailing platforms, and would later recover its losses through higher prices. Sidecar also alleged that Uber personnel made fraudulent ride requests on competing platforms, causing delays and attempting to persuade drivers to work exclusively with Uber. Sidecar separately asserted a claim under California’s Unfair Practices Act based on below-cost pricing intended to harm competition.

Motion to Dismiss

Uber moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not adequately state a legally valid claim. Uber challenged Sidecar’s definition of the relevant market, its allegations of below-cost pricing and market power, and its allegations of a dangerous probability that Uber could recover losses from predatory pricing. Uber also argued that the California claim was barred by the Unfair Practices Act’s exemption for services subject to the jurisdiction of the California Public Utilities Commission.

Sherman Act Claims

The court held that Sidecar plausibly alleged a relevant product market consisting of app-based ride-hailing services that excluded taxis. At the pleading stage, the court had to treat Sidecar’s factual allegations as true. Sidecar alleged that consumers viewed ride-hailing services as different from taxis because of features such as driver ratings, shared rides, and advance fare estimates. The court stated that Uber could challenge that market definition later on the factual record.

The court also held that Sidecar sufficiently alleged below-cost pricing. Sidecar alleged that, from 2013 through 2016, Uber’s average passenger prices in markets where it competed with Sidecar were lower than Uber’s average variable cost per transaction.

The court nevertheless held that Sidecar did not plausibly allege monopoly power. Monopoly power is the ability to control prices or exclude competition. Sidecar alleged that Uber had disciplined Lyft, so that Lyft would follow Uber’s future price increases and both companies could recover losses. The court held that this alleged coordinated behavior between Uber and Lyft described a “disciplined oligopoly,” not power held unilaterally by Uber. Under Ninth Circuit precedent discussed in the opinion, such oligopoly power was insufficient for a Sherman Act section 2 claim.

The court applied the same reasoning to attempted monopolization. Although an attempted-monopolization claim can require a lower showing of market share than an actual-monopolization claim, the court held that market power could not be inferred solely from entry barriers and a dominant market share. Sidecar had not alleged that Lyft could not increase its own output in response to Uber. The attempted-monopolization claim was therefore dismissed.

The court granted Sidecar leave to amend because it was conceivable that Sidecar could allege that Uber could raise prices unilaterally by restricting its own output. The court reserved a final ruling on whether Sidecar’s alternative theory—that Lyft could not increase output without facing severe retaliation from Uber—would be legally viable.

The court rejected Uber’s arguments that Uber’s later entry into the non-limousine ride-hailing segment or its asserted pro-competitive reasons for low prices required dismissal. Those arguments did not independently defeat the claims at the pleading stage. The court stated that, if Sidecar adequately amended its claims, Uber could attempt to prove acceptable business reasons for below-cost pricing.

California Unfair Practices Act Claim

The California Unfair Practices Act prohibits certain below-cost sales made to injure competitors or destroy competition. The statute exempts services for which rates are established under the jurisdiction of the California Public Utilities Commission and sold or provided by a public utility corporation.

Sidecar conceded that Uber was subject to the Commission’s jurisdiction but argued that the exemption applied only if the Commission had actually set Uber’s rates. The court rejected that interpretation. Relying on California and federal decisions discussed in the opinion, the court held that the exemption applied when the Commission had authority to regulate the rates, even if it had not actually exercised that authority.

The court held that Uber was exempt from the Unfair Practices Act because it fell within the Commission’s jurisdiction. Sidecar’s Unfair Practices Act claim was dismissed with prejudice.

Disposition

The court granted Uber’s motion to dismiss the amended complaint. Sidecar’s Sherman Act claims were dismissed with leave to amend, and its Unfair Practices Act claim was dismissed with prejudice. The court permitted Sidecar to file a second amended complaint by February 4, 2020, if it believed it could cure the defects in the Sherman Act claims.