1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 SC INNOVATIONS, INC., Case No. 18-cv-07440-JCS
8 Plaintiff, ORDER REGARDING MOTION TO 9 v. DISMISS SECOND AMENDED COMPLAINT 10 UBER TECHNOLOGIES, INC., et al., Re: Dkt. No. 76 Defendants. 11
12 I. INTRODUCTION 13 Plaintiff SC Innovations, Inc. (“Sidecar”) is a defunct “transportation network company” 14 that offered services matching passengers with drivers for on-demand transportation, also known 15 as “ride-hailing,” through a smartphone app. Sidecar claims that it was driven out of business by 16 Defendants, Uber Technologies, Inc. and a number of its subsidiaries (collectively, “Uber”).1 The 17 Court previously dismissed Sidecar’s first amended complaint with leave to amend its Sherman 18 Act claim, and with prejudice as to its claim under California’ Unfair Practices Act. Sidecar filed 19 a second amended complaint, and Uber now moves once again to dismiss. The Court held a 20 public hearing by videoconference on April 24, 2020. For the reasons discussed below, Uber’s 21 motion is DENIED, except as to the Unfair Practices Act claim previously dismissed with 22 prejudice, which is STRICKEN from the second amended complaint.2 23 A case management conference will occur on July 31, 2020 at 2:00 PM. The parties shall 24 file a joint case management statement no later than July 24, 2020. 25
26 1 The remaining defendants are Rasier, LLC; Rasier-CA, LLC; Rasier-PA, LLC; Rasier-DC, LLC; Rasier-NY, LLC; and Uber USA, LLC. The parties do not suggest that there is any distinction 27 among the various defendants relevant to the present motion. 1 II. BACKGROUND 2 A. Procedural History and Previous Order 3 Sidecar filed this action on December 11, 2018. On May 2, 2019, the Court granted a 4 motion to disqualify Sidecar’s previous counsel based on a conflict of interest. See Order Re Mot. 5 to Disqualify Counsel (dkt. 41).3 Uber moved to dismiss Sidecar’s initial complaint on July 10, 6 2019 (dkt. 57), Sidecar elected to file its first amended complaint (dkt. 60) rather than oppose the 7 motion, and the Court denied that first motion to dismiss as moot on September 25, 2019 (dkt. 63). 8 On January 21, 2020, the Court granted Uber’s motion to dismiss the first amended complaint, 9 dismissing Sidecar’s Sherman Act claims with leave to amend and its Unfair Practices Act claim 10 with prejudice. See generally Order Granting Mot. to Dismiss Am. Compl. (“Order re FAC,” dkt. 11 71).4 12 The Court held that Sidecar’s allegation of a relevant market—app-based ride-hailing 13 services, excluding taxis—was sufficiently plausible to survive a motion to dismiss. Id. at 10–11. 14 The Court also rejected suggestions by Uber that Sidecar had not alleged below-cost pricing, id. at 15 12, as well as arguments that Uber’s delayed entry to the non-limousine ride-hailing market and 16 asserted pro-competitive purposes were sufficient for dismissal at the pleading stage, id. at 16–18. 17 The Court nevertheless dismissed Sidecar’s Sherman Act claims for failure to provide sufficient 18 allegations of market power, particularly its failure to allege “that Uber has the power to raise 19 market prices above competitive levels simply by reducing its own output, or that Lyft”— 20 allegedly Uber’s only remaining competitor—“could not respond to such a reduction by 21 increasing its own output.” Id. at 12–14. Absent such allegations, the Court held that Sidecar 22 alleged no more than a “disciplined oligopoly,” which the Ninth Circuit has held insufficient to 23 state a claim for either monopolization or attempted monopolization, due to “a gap in the Sherman 24 Act that allows oligopolies to slip past its prohibitions,” in Rebel Oil v. Atlantic Richfield Co., 51 25
26 3 SC Innovations, Inc. v. Uber Techs., Inc., No. 18-cv-07440-JCS, 2019 WL 1959493 (N.D. Cal. May 2, 2019). 27 4 SC Innovations, Inc. v. Uber Techs., Inc., No. 18-cv-07440-JCS, __ F. Supp. 3d __, 2020 WL 1 F.3d 1421 (9th Cir. 1995). See Order re FAC at 12–16. 2 The Court dismissed Sidecar’s Unfair Practices Act claim with prejudice, holding that 3 Uber fell within an exemption from that statute for products and services for which rates are set 4 under the jurisdiction of the California Public Utilities Commission (“CPUC”), following a line of 5 cases construing that exemption as based on the scope of the CPUC’s authority, not based on 6 whether the CPUC had in fact acted to set rates for a particular product or service. Id. at 18–21. 7 B. Allegations of the Second Amended Complaint 8 Because a plaintiff’s factual allegations are generally taken as true in resolving a motion 9 under Rule 12(b)(6), this section summarizes the allegations of Sidecar’s second amended 10 complaint as if true. Nothing in this order should be construed as resolving any issue of fact that 11 might be disputed at a later stage of the case. Moreover, this summary is intended only as 12 background to the issues in dispute in the present motion, and is not a comprehensive recitation of 13 Sidecar’s allegations. 14 Uber launched its smartphone app in 2009, offering a service for passengers to arrange for 15 transportation in limousines driven by licensed chauffeurs. 2d Am. Compl. (“SAC,” dkt. 73) ¶¶ 5, 16 42. Sidecar launched its own ride-hailing app in 2012, allowing passengers to hail drivers who 17 used their own personal vehicles, and pioneering a number of features including estimated fares 18 before booking and carpool rides for multiple passengers traveling in the same direction. Id. ¶¶ 6– 19 7, 43, 45–47. Lyft—which is now Uber’s only remaining competitor in the ride-hailing market— 20 introduced a similar service the same year. Id. ¶ 44. Sidecar’s app also allowed drivers to set their 21 own proposed fares and compete against one another. Id. ¶ 7. Over the course of its existence, 22 Sidecar operated in San Francisco, Austin, Los Angeles, Chicago, Philadelphia, New York, 23 Seattle, San Diego, San Jose, Boston, and Washington, DC, obtaining market share of between 24 10% and 15% in some of those cities. Id. ¶¶ 50–51. Uber, which at the time was rapidly growing, 25 accumulating significant investment capital, and becoming the dominant ride-hailing platform in 26 the United States, debuted its “UberX” product in 2013, following Sidecar’s lead in allowing 27 drivers to use their personal, non-limousine vehicles, and directly competing with Sidecar and 1 all of the same cities as Sidecar by mid-2014, id. ¶ 113, and now has a market share of between 2 60% and 75% in each of those cities, id. ¶¶ 133–43. 3 Ride-hailing apps allow participating passengers to request rides and drivers to accept 4 those requests. See id. ¶¶ 32–34. The passenger pays a fare for the ride, of which a portion is 5 retained by the ride-hailing company and the balance is paid to the driver. Id. ¶ 39. Sidecar 6 alleges that Uber has, since its inception, consistently set its prices below cost in an effort to 7 achieve a “winner takes all” outcome due to the ride-hailing market’s barriers to entry—in 8 particular, network effects caused by passengers preferring a platform with a large supply of 9 drivers and drivers preferring a platform with a large supply of passengers, because a larger supply 10 of both means drivers will make more money by spending less time waiting for passengers and 11 passengers will obtain a more convenient service if they do not need to wait as long for rides. See 12 id. ¶¶ 2–3, 69–74. The market also includes other barriers and economies of scale, including the 13 benefits to customers of knowing they will be able to use the same app in multiple cities, and the 14 benefits to the ride-sharing company of collecting data on how large numbers of customers and 15 drivers use the service. Id. ¶¶ 78–80. 16 Uber has engaged in predatory pricing on each of the two “sides” of the ride-hailing 17 market, offering above-market incentive payments to drivers, and offering below-market fares to 18 passengers. Id. ¶¶ 11, 96. Uber has in at least some circumstances priced its rides below the costs 19 that it pays drivers, and has lost billions of dollars in the process. Id. ¶¶ 9, 102. According to 20 Sidecar, Uber’s strategy is premised on the goal of establishing a monopoly and reaping the 21 reward of supracompetitive monopolist pricing in order to recoup early losses. Id. ¶ 4. Uber 22 would recoup the losses it has accrued by lowering payments to drivers and raising fares for 23 passengers. Id. ¶ 11. 24 Uber has also engaged in what Sidecar characterizes as price discrimination, initially by 25 using “surge pricing” to set higher prices at times of high demand, and later by using “dynamic 26 pricing” to set different prices for different users based on factors including the users’ perceived 27 price sensitivity and ability to pay. Id. ¶¶ 84–85. 1 monopolize the ride-hailing market by interfering with its competitors Lyft and Sidecar, engaging 2 in “clandestine campaigns”—with names like “Project Hell” and “SLOG”—to either submit 3 fraudulent requests for rides on competitors’ platforms and cancel before the drivers arrived, or 4 have Uber representative request rides in order to start a conversation with Sidecar and Lyft 5 drivers and convince them to work exclusively for Uber. Id. ¶ 13. Those tactics violated 6 Sidecar’s terms of service and increased wait times for both drivers and passengers to obtain 7 legitimate rides, causing them to become frustrated with Sidecar. Id. ¶¶ 14, 116–17. As a result of 8 network effects, reduced numbers of passengers and drivers created a vicious cycle of declining 9 usage. Id. ¶ 118. Unable to compete with Uber’s predatory pricing, Sidecar exited the ride- 10 hailing market in December of 2015. Id. ¶¶ 8, 123. 11 Uber has begun to increase its prices since Sidecar ceased operations, including in the 12 particular geographic markets where Sidecar formerly competed. Id. ¶¶ 103–04. Uber has also 13 reduced payments to drivers by increasing the “commission” percentage of each fare that it keeps 14 for itself in cities including San Francisco, San Diego, and New York, and “effective” 15 commissions have risen in other cities due to booking fees and other charges. Id. ¶¶ 105–07, 109. 16 Uber’s ride-hailing business became profitable by at least one measure (“positive EBITDA”) in 17 2018. Id. ¶ 109. 18 Lyft’s ability to act as a check on unilateral supply constriction and price increases by Uber 19 is of particular importance to the parties’ arguments on the present motion. Sidecar’s allegations 20 relevant to that issue include the following:
21 . . . In addition, because of the network effects resulting from Uber’s size and dominance on both the customer and driver side, and because 22 of and because of [sic] Uber’s discriminatory pricing, Lyft is unable to respond effectively or to increase its own share of rides as a 23 restraint on Uber’s pricing. Further, Lyft’s current status as a public company requires it to recoup its own massive losses through higher 24 prices. Thus, Lyft has not been willing, even if it were able to do so, to respond to Uber’s price discrimination strategy by expanding its 25 output or seizing significant additional market share through price competition. Uber now is able to impose its will on both passengers 26 and drivers in the form of higher, supra-competitive prices. Indeed, drivers are now receiving reduced compensation; and passengers 27 must endure discriminatory pricing tactics, such as surge pricing, and for any competitor or customer to address or constrain Uber’s 1 monopoly power. 2 Id. ¶ 12.
3 . . . Uber’s only remaining significant competitor, Lyft, is unable to expand its ride offerings in the face of price discrimination because 4 the network effects of Uber’s vast driver pool render that impossible or ineffective. Further, the financial pressures on Lyft and its status as 5 a public company with a need to recoup its own enormous financial losses, means that Lyft has no incentive to undercut Uber. In fact, in 6 response to Uber’s conduct, Lyft is itself implementing a similar dynamic pricing model, substantially reducing Lyft as a competitive 7 constraint on Uber’s unilateral ability to exercise monopoly power through recoupment and supra-competitive pricing. Lyft has a strong 8 incentive to adopt such a dynamic pricing model because in order for Lyft to attract Drivers to Lyft’s platform, Lyft cannot undercut the 9 higher prices that the Drivers would otherwise obtain from customers if they were to drive for Uber instead of Lyft 10 Id. ¶ 85. 11 As a result of Uber’s monopoly conduct (predatory pricing and 12 tortious conduct), Lyft has become a less effective competitor. Lyft has incurred enormous losses and faces significant pressure to achieve 13 profitability and recoup prior losses now that it is a public company with more of a need to focus on short term results. Given these factors, 14 and because of (a) Uber’s monopoly power arising from network and brand effects and economies of scale, and (b) Uber’s use of its 15 monopoly power to engage in price discrimination, Lyft has no ability to respond to Uber’s imposition of monopoly pricing and no incentive 16 to do so given its own urgent need for short term profits. Lyft also has been limited in its ability to capture market share with regard to the 17 more profitable segments of the ride-hailing market (e.g., business users and the higher end rides designated as “premium” in Uber’s 18 platform, i.e., Uber Black and Uber Black SUV). 19 Id. ¶ 90.
20 Uber’s actions have harmed competition in the ride-hailing applications market by eliminating an innovative maverick in Sidecar 21 and severely weakening Lyft. Given the enormous losses suffered by Lyft, it remains to be seen whether Lyft will remain a viable 22 competitor in the market over the long term. Even if it remains, however, Lyft will not, and cannot, act as a check on the ability of 23 Uber to charge supra-competitive prices, above the level that would have prevailed if Sidecar had been able to remain in the market, as a 24 result of network effects, the two-sided nature of the market, Lyft’s own financial losses which it must recoup, and Lyft’s own adoption 25 of dynamic pricing 26 Id. ¶ 92; see also id. ¶ 76 (“Significant new rivals have not emerged to challenge Uber’s market 27 dominance, which it has maintained, with a weakened Lyft as its only significant competitor in the 1 entrants in trying to compete with Uber’s vast network and the strong network effects created by 2 Uber’s dominance of drivers and riders.”). 3 Sidecar asserts the following claims for relief: (1) monopolization in violation section 2 of 4 the Sherman Act, based both on predatory pricing and on exclusionary tortious conduct, id. 5 ¶¶ 130–59; (2) attempted monopolization in violation of section 2 of the Sherman Act, id. ¶¶ 160– 6 68; and (3) violation of the California Unfair Practices Act, id. ¶¶ 169–75, despite the Court 7 having previously dismissed that claim with prejudice, see Order re FAC at 18–21. 8 C. The Parties’ Arguments 9 Uber argues that Sidecar has not cured its previous failure to allege market power because 10 Sidecar still does not allege that Uber has the unilateral power to raise market prices by reducing 11 its own output. Mot. (dkt. 76) at 3–4. According to Uber, Sidecar’s new allegations of price 12 discrimination cannot substitute for the ability to restrict output. Id. at 4–5. Uber also argues that 13 Sidecar has not sufficiently addressed both parts of the “two-sided transaction market” for ride- 14 hailing platforms, instead focusing on passengers and neglecting the effect of the symbiotic market 15 for drivers. Id. at 5–8. Uber relies on the Supreme Court’s decision in Ohio v. American Express 16 Co., 138 S. Ct. 2274 (2018), which held, in the context of terms imposed on merchants by a credit 17 card company, that courts should analyze two-sided markets as a whole because network effects 18 can cause a reduction of supply in one side of the market to reduce demand in the other. See Mot. 19 at 5–8. In Uber’s view, Sidecar’s complaint still ultimately relies on an oligopoly theory of 20 market power of the type the Ninth Circuit rejected in Rebel Oil. Id. at 8–10. Uber contends that 21 Sidecar’s theory of likely recoupment through an oligopoly with Lyft is similarly not cognizable. 22 Id. at 10–12. Uber argues that Sidecar’s claim for tortious interference under the Sherman Act 23 also must be dismissed, not only because Sidecar has not alleged cognizable market power, but 24 also because Sidecar’s allegations that the purported tortious conduct harmed competition are 25 speculative at best. Id. at 12–15. Finally, Uber asks the Court to strike Sidecar’s claim under the 26 Unfair Protection Act, which Sidecar includes once again in its current complaint despite the 27 Court having previously dismissed that claim with prejudice. Id. at 15. 1 “‘(1) define the relevant market, (2) show that the defendant owns a dominant share of that 2 market, and (3) show that there are significant barriers to entry and show that existing competitors 3 lack the capacity to increase their output in the short run.’” Opp’n (dkt. 77) at 4 (quoting Rebel 4 Oil, 51 F.3d at 1434). Sidecar argues, however, that its allegations of price discrimination, in 5 conjunction with Uber’s large market share and the ride-hailing market’s inherent barriers to entry, 6 are sufficient to imply market power and monopoly power. Id. at 4–6. Sidecar also contends that, 7 contrary to Uber’s argument that it failed to address both sides of the relevant market, its 8 allegations cover both payments to drivers and fares charged to passengers, including allegations 9 that Uber has increased its commission rates and thus reduced the share of passengers’ fares that it 10 pays to drivers. Id. at 6. According to Sidecar, the lack of correlation between fares charged to 11 passengers and rates paid to drivers demonstrates that the market is not behaving as a competitive 12 two-sided market should. Id. at 6–7. 13 Sidecar argues that its allegations go beyond mere oligopoly by alleging that Lyft cannot— 14 as opposed to merely will not—check anticompetitive conduct by Uber, because Lyft trails Uber 15 in the same network effects and other barriers that prevent new entrants from competing 16 effectively in the market. Id. at 8–9. Sidecar contends that it has plausibly alleged a dangerous 17 probability of recoupment based on Uber’s market share and the market’s barriers to entry, and 18 that Uber’s intent, while not sufficient in itself to support an antitrust claim, is relevant to whether 19 Sidecar’s allegations are plausible. Id. at 9–11. Sidecar also alleges that its Sherman Act claim 20 based on tortious interference should proceed, whether viewed independently or in conjunction 21 with its predatory pricing claim, id. at 11–14, and that the Court should not dismiss its antitrust 22 claims based on a footnote in Uber’s motion discussing the CPUC’s regulatory authority, id. at 23 14–16. Sidecar acknowledges that the Court dismissed its Unfair Practices Act claim with 24 prejudice, and states that it repleaded the claim only in an abundance of caution to avoid waiving it 25 on appeal. Id. at 16. 26 Uber argues again in its reply that Sidecar has neither alleged that Uber can raise prices by 27 restricting its own output nor sufficiently addressed the two-sided nature of the ride-hailing 1 cannot substitute for either of those requirements. Reply (dkt. 78) at 1–9. Uber also argues that 2 Sidecar’s own allegations indicate that its theory of recoupment is premised on an oligopoly 3 between Uber and Lyft, which the Ninth Circuit has held is not sufficient to support a claim for 4 actual or attempted monopolization. Id. at 10–11. Uber argues that Sidecar’s tortious interference 5 claims are subject to dismissal because Uber had a legitimate business purpose of recruiting 6 drivers, and because Sidecar has not alleged that Uber’s conduct was sufficiently pervasive to 7 have more than a de minimis effect on competition. Id. at 11–13. 8 III. ANALYSIS 9 A. Legal Standard 10 A complaint may be dismissed for failure to state a claim on which relief can be granted 11 under Rule 12(b)(6) of the Federal Rules of Civil Procedure. “The purpose of a motion to dismiss 12 under Rule 12(b)(6) is to test the legal sufficiency of the complaint.” N. Star Int’l v. Ariz. Corp. 13 Comm’n, 720 F.2d 578, 581 (9th Cir. 1983). Generally, a claimant’s burden at the pleading stage 14 is relatively light. Rule 8(a) of the Federal Rules of Civil Procedure states that a “pleading which 15 sets forth a claim for relief . . . shall contain . . . a short and plain statement of the claim showing 16 that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a). 17 In ruling on a motion to dismiss under Rule 12(b)(6), the court takes “all allegations of 18 material fact as true and construe[s] them in the light most favorable to the non-moving party.” 19 Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Dismissal may be based on a 20 lack of a cognizable legal theory or on the absence of facts that would support a valid theory. 21 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). A pleading must “contain 22 either direct or inferential allegations respecting all the material elements necessary to sustain 23 recovery under some viable legal theory.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 562 (2007) 24 (citing Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)). “A pleading 25 that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action 26 will not do.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 555). 27 “[C]ourts ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’” 1 complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Iqbal, 2 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). Rather, the claim must be “‘plausible on its 3 face,’” meaning that the claimant must plead sufficient factual allegations to “allow the court to 4 draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (quoting 5 Twombly, 550 U.S. at 570). 6 B. Sherman Act Claims 7 Section 2 of the Sherman Act prohibits “monopoliz[ing], or attempt[ing] to monopolize . . . 8 any part of the trade or commerce among the several States.” 15 U.S.C. § 2. Under the Clayton 9 Act, “any person who shall be injured in his business or property by reason of anything forbidden 10 in the antitrust laws may sue therefor,” and may recover treble damages. 15 U.S.C. § 15(a). 11 “Simply possessing monopoly power and charging monopoly prices does not violate § 2; rather, 12 the statute targets ‘the willful acquisition or maintenance of that power as distinguished from 13 growth or development as a consequence of a superior product, business acumen, or historic 14 accident.’” Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 447–48 (2009) (quoting 15 United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966)).
16 In order to state a claim for monopolization under [section 2 of the Sherman Act], a plaintiff must prove that: (1) the defendant possesses 17 monopoly power in the relevant market; (2) the defendant has willfully acquired or maintained that power; and (3) the defendant’s 18 conduct has caused antitrust injury. SmileCare Dental Group v. Delta Dental Plan of California, Inc., 88 F.3d 780, 783 (9th Cir. 1996) 19 (citations omitted).
20 In order to state a claim for attempted monopolization, a plaintiff must prove: (1) specific intent to control prices or destroy competition; (2) 21 predatory or anticompetitive conduct to accomplish the monopolization; (3) dangerous probability of success; and (4) causal 22 antitrust injury. Id. (citations omitted). 23 Cost Mgmt. Servs., Inc. v. Wash. Nat. Gas Co., 99 F.3d 937, 949–50 (9th Cir. 1996) (footnote 24 omitted; line break added). 25 One means of monopolization recognized by the courts—albeit with skepticism—is 26 predatory pricing, in which an aspiring monopolist sets “below-cost prices that drive rivals out of 27 the market and allow the monopolist to raise its prices later and recoup its losses.” Pac. Bell, 555 1 (“[T]here is a consensus among commentators that predatory pricing schemes are rarely tried, and 2 even more rarely successful.”). Such a claim requires the plaintiff to show both pricing below 3 costs and a probability of recoupment:
4 “[C]utting prices in order to increase business often is the very essence of competition.” Matsushita Elec. Industrial Co. v. Zenith 5 Radio Corp., 475 U.S. 574, 594 (1986). In cases seeking to impose antitrust liability for prices that are too low, mistaken inferences are 6 “especially costly, because they chill the very conduct the antitrust laws are designed to protect.” Ibid.; see also Brooke Group [Ltd. v. 7 Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993)]; Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 121–122, n. 17 8 (1986). To avoid chilling aggressive price competition, we have carefully limited the circumstances under which plaintiffs can state a 9 Sherman Act claim by alleging that prices are too low. Specifically, to prevail on a predatory pricing claim, a plaintiff must demonstrate 10 that: (1) “the prices complained of are below an appropriate measure of its rival’s costs”; and (2) there is a “dangerous probability” that the 11 defendant will be able to recoup its “investment” in below-cost prices. Brooke Group, supra, at 222–224. “Low prices benefit consumers 12 regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition.” Atlantic Richfield 13 Co. v. USA Petroleum Co., 495 U.S. 328, 340 (1990). 14 Pac. Bell, 555 U.S. at 451. “That below-cost pricing may impose painful losses on its target is of 15 no moment to the antitrust laws if competition is not injured: It is axiomatic that the antitrust laws 16 were passed for ‘the protection of competition, not competitors.’” Brooke Grp., 509 U.S. at 224 17 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). 18 Uber argues that Sidecar’s Sherman Act claims are subject to dismissal for failure to allege 19 market power, a dangerous probability of recouping losses due to predatory pricing, or sufficient 20 injury to competition from Uber’s alleged tortious interference. See Mot. at 2–15. 21 1. Market Power 22 In order to state a claim for monopolization, Sidecar must plausibly allege monopoly 23 power, which “the Supreme Court has defined . . . as the power to ‘control prices or exclude 24 competition.’” Cost Mgmt. Servs., 99 F.3d at 950 (quoting Grinnell Corp., 384 U.S. at 571). 25 “Whether monopoly power exists depends on a variety of factors,” with market share relevant to 26 that analysis but not the only factor; depending on market conditions, courts have found both 27 market power and a lack of market power when a defendant’s market share is in the sixty to 1 1980). The typical way in which an incomplete monopolist—a defendant with less than full 2 control of the market—can nevertheless exert monopoly power is when that party controls enough 3 of the market that “by restricting its own output, it can restrict marketwide output and, hence, 4 increase marketwide prices.” Rebel Oil, 51 F.3d at 1434; see also Am. Express, 138 S. Ct. at 2288 5 (“‘Market power is the ability to raise price profitably by restricting output.’” (quoting a treatise; 6 emphasis added in Am. Express)). “Prices increase marketwide in response to the reduced output 7 because consumers bid more in competing against one another to obtain the smaller quantity 8 available.” Rebel Oil, 51 F.3d at 1434. 9 As this Court previously held, Sidecar cannot base its Sherman Act claims on a theory that 10 Uber has market power through a “disciplined oligopoly” with Lyft. Order re FAC at 12–16. The 11 Ninth Circuit has held that any anticompetitive effects of oligopolies constitute a “gap in the 12 Sherman Act” that must “slip past its prohibitions” unless Congress alters the scope of the statute. 13 Rebel Oil, 51 F.3d at 1443. Accordingly, Sidecar’s allegations that Lyft merely will not constrain 14 Uber’s ability to reduce market output and collect supracompetitive prices are not sufficient to 15 support cognizable market power. See, e.g., SAC ¶ 85 (alleging that “financial pressures on Lyft 16 and its status as a public company with a need to recoup its own enormous financial losses, means 17 that Lyft has no incentive to undercut Uber”). 18 Unlike Sidecar’s previous complaint, however, the second amended complaint now also 19 alleges that “Lyft is unable to respond effectively or to increase its own share of rides as a restraint 20 on Uber’s pricing,” in part due to the network effects of Uber’s market dominance. Id. ¶ 12 21 (emphasis added); see also id. ¶ 85. Uber argues that this assertion is implausible because 22 network effects serve as a barrier to entry, not expansion, and that network effects in fact “operate 23 by definition to reward output expansion by incumbents.” Reply at 9. While Uber is correct that 24 the alleged network effects reward increasing output if a ride-hailing company is able to, the same 25 effects could also prevent a smaller competitor from doing so, in much the same way as they 26 would prevent a new entrant from gaining a foothold. As an example, Sidecar alleges that Uber’s 27 campaign of hailing and canceling rides on Sidecar caused both drivers and passengers to become 1 decreasing efficiency as Sidecar had fewer drivers and passengers available to match with each 2 other. See SAC ¶¶ 14, 118; cf. Am. Express, 138 S. Ct. at 2287 (“A credit-card company that 3 processed transactions for merchants, but that had no cardholders willing to use its card, could not 4 compete with Amex.”). Although Sidecar was at the time an established ride-hailing company, it 5 lacked the ability to increase output to counteract that decline; to the contrary, network effects 6 rendered its relatively small user base compared to Uber a competitive disadvantage. Similarly, in 7 geographic markets where Lyft has a smaller market share than Uber—as Sidecar alleges is the 8 case in all of the markets at issue here—Lyft would be expected to offer a less efficient matches 9 between drivers and passengers than Uber, and some portion of drivers and passengers might not 10 view Lyft as an acceptable substitute for Uber. Thus, with a sufficient disparity of market share, 11 network effects could—as Sidecar alleges—prevent rather than enable Lyft increasing its output to 12 counteract a reduction by Uber.5 13 As a practical matter, Sidecar is of course more likely to succeed in proving such market 14 power where the gap between Uber and Lyft’s market share is large in cities like New York, 15 where Uber allegedly controls at least 75% of the ride-hailing market and Lyft therefore controls 16 no more than 25%, see SAC ¶ 88(f), than in cities where it Lyft is more competitive like San 17 Francisco, where Sidecar alleges only a 60% market share for Uber and Lyft presumably controls 18 the remaining 40%, see id. ¶ 88(a). On the pleadings, however, the Court has no basis to draw a 19 line for what degree of disparity is necessary to state a plausible claim. So long as Uber does not 20 restrict its output below Lyft’s, it is plausible that network effects might prevent Lyft from 21 overtaking Uber and claiming for itself a relative advantage from those effects, or from otherwise 22 increasing its own output sufficiently to maintain overall market output and prices at a competitive 23 equilibrium. Whether that dynamic in fact describes any of the geographic markets at issue is a 24 5 Uber’s argument that no ride-sharing company could curtail market output because such 25 companies do not control “the underlying productive assets in the business”—drivers and cars— wholly neglects the barriers to entry and expansion allegedly caused by network effects. See Mot. 26 at 7–8 (citing Rebel Oil, 51 F.3d at 1442, and Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1414 (7th Cir. 1989), neither of which involved two-sided markets with significant 27 network effects). Whether Uber “employs drivers or provides transportation,” as it argues here 1 fact question to be resolved at a later stage of the case, with the benefit of evidence. 2 Along the same lines, Uber’s argument that the prospect of reducing its own benefit from 3 network effects would dissuade it from reducing output, see Mot. at 6, Reply at 9, is a factor that 4 must be balanced on the merits, see Am. Express, 138 S. Ct. at 2280–81 & n.1, but no more 5 precludes a theory of monopolization than any other monopolist’s loss in volume of sales prevents 6 it from benefiting, on balance, from a supracompetitive price in an artificially restricted market. 7 So long as Uber is able to maintain a higher market share than its only remaining competitor, 8 network effects will redound to its relative advantage. The effect of a potential reduction in the 9 degree of that advantage is not amenable to resolution on the pleadings. 10 Uber argues that Sidecar’s claim must be dismissed for failure to address sufficiently both 11 “sides” of the two-sided market for ride-hailing, as required by American Express. Mot. at 6–7. 12 That case was decided after a lengthy trial, not on the pleadings, and certainly did not hold that 13 market power cannot be established in a two-sided market. See Am. Express, 138 S. Ct. at 2283, 14 2287. The American Express Court instead held only that the government plaintiffs failed to 15 prove such power and anticompetitive effect where they addressed only the interaction between 16 credit card companies and merchants, and not the interaction between credit card companies and 17 cardholders. See id. at 2285–87. Unlike in that case, where the “plaintiffs stake[d] their entire 18 case on proving that Amex’s agreements increase merchant fees,” id. at 2287 (emphasis added), 19 Sidecar alleges that Uber has increased the commissions it withholds from driver compensation in 20 some of the markets at issue, SAC ¶¶ 106–07, and more generally that “Uber intends to extract 21 supra-competitive profits by reducing the payments it makes to drivers,” id. ¶ 105.6 Uber 22 6 Sidecar does not specifically allege, word for word, that Uber can restrict market output by 23 restricting its own output. At the hearing, Sidecar’s counsel argued that a news article cited in the complaint describes a reduction of output in Chicago, but the article in fact describes only a 24 reduction in the percentage of all ride-hailing rides that are shared rides, which is merely a distinction of types of rides within the relevant market alleged here. See Tina Bellon (Reuters), A 25 New Chicago Ride-Hailing Law Reveals for the First Time What Uber and Lyft Really Charge, Business Insider, Nov. 26, 2019, https://www.businessinsider.com/ubers-carpool-pricing-strategy- 26 revealed-by-chicago-fare-data-2019-11; SAC ¶ 108 n.2 (citing that article). Even so, it is reasonable to infer from Sidecar’s allegations that Uber can raise both passenger fares and driver 27 commissions, and that Lyft cannot respond effectively by increasing its market share, that some 1 addresses those allegations only in a footnote, arguing that they are insufficient because Sidecar 2 has alleged that passenger price discrimination is Uber’s “primary” means of extracting 3 supracompetitive profits and that the majority of passengers’ fares are remitted to drivers. Reply 4 at 3 n.2. The fact remains that Sidecar has addressed both sides of the market, as opposed to “only 5 one side of the platform in isolation,” cf. Am. Express, 138 S. Ct. at 2287, and has plausibly 6 suggested a mechanism—the same network effects addressed in American Express—by which 7 Uber can leverage its dominant market share to raise both passenger fares and commissions 8 withheld from drivers without a rival increasing output to restore competitive equilibrium. The 9 fact that drivers would also benefit from increased passenger fares, at least absent further increases 10 in Uber’s commissions, does not render fare increases inherently procompetitive, but instead 11 presents a fact-intensive issue to be resolved on an evidentiary record. 12 Uber suggests in a footnote of its motion, and argued at the hearing, that the CPUC’s 13 regulatory authority over ride-hailing prices precludes a finding of market power. See Mot. at 4 14 n.3 (citing Metro Mobile CTS, Inc. v. NewVector Commc’ns, Inc., 892 F.2d 62, 63 (9th Cir. 15 1989)). Unlike California’s Unfair Practices Act, the Sherman Act contains no express exception 16 for industries that fall within the CPUC’s rate-setting authority. Cf. Order re FAC at 18–21 17 (dismissing Sidecar’s claim under the Unfair Practices Act). Because the CPUC has not exercised 18 that authority, this case does not fall within the “filed rate doctrine,” which exempts rates set 19 pursuant to regulation from antitrust scrutiny. Cf. Carlin v. DairyAmerica, Inc., 705 F.3d 856, 870 20 (9th Cir. 2013) (holding the doctrine applicable where “Congress has given the USDA authority to 21 set rates under 7 U.S.C. § 608c(5) and the USDA has exercised that authority” (emphasis added)). 22 Nor is this case analogous to Metro Mobile, where the Ninth Circuit affirmed summary judgment 23 (rather than dismissal on the pleadings) based in part on the fact that the market at issue was 24 “heavily regulated,” including “price regulation” that “constrained” the defendant’s ability to 25 control prices. See 892 F.2d at 63. Here, the possibility of regulation by the CPUC is speculative. 26 Moreover, even if the CPUC’s mere jurisdiction to regulate prices were sufficient to preclude 27 1 showing market power—which it is not—Uber has not suggested that the CPUC has such 2 jurisdiction with respect to most of the geographic markets at issue, which are outside of 3 California. 4 At this stage, the Court finds Sidecar’s allegations of market power to be sufficiently 5 plausible to avoid dismissal. The Court need not reach the parties’ arguments regarding price 6 discrimination, including whether allegations of price discrimination can in themselves support a 7 plausible inference of market power. The Court notes, however, that if the “‘reason price 8 discrimination implies market power is that assuming the lower of the discriminatory prices covers 9 cost, the higher must exceed cost,’” Opp’n at 4 (quoting In re Brand Name Prescription Drugs 10 Antitrust Litig., 186 F.3d 781, 783 (7th Cir. 1999)), it is not clear that such an assumption would 11 hold true in a market where below-cost pricing has been employed since the birth of the industry. 12 See SAC ¶ 2 (alleging that Uber “has pursued since its inception [a strategy] of predatorily pricing 13 below its costs”). The Court also notes that while Sidecar’s allegations regarding Uber’s more 14 recent “dynamic pricing” based on passengers’ individual price sensitivity generally resembles a 15 traditional model of price discrimination that might implicate antitrust concerns, see SAC ¶ 85, its 16 earlier use of “surge pricing” could arguably be considered no more than a competitive response to 17 increased market demand, see id. ¶ 84. 18 2. Probability of Recoupment 19 Uber’s arguments that Sidecar has not sufficiently alleged a dangerous probability of 20 recoupment, as required by the Supreme Court’s decision in Matsushita, boils down to the same 21 issues—because, in Uber’s view, Sidecar has alleged market power only through a “disciplined 22 oligopoly” with Lyft, Uber contends that any risk of recoupment is not cognizable in light of Rebel 23 Oil and this Court’s previous order. See Mot. at 10–12; Reply at 10–11. As discussed above, the 24 Court concludes that Sidecar has plausibly alleged that Uber could unilaterally raise the “price” 25 that it keeps for itself from ride-hailing transactions to supracompetitive levels—through fare 26 increases not fully passed on to drivers, commission increases reducing drivers’ pay not offset by 27 discounts for passengers, or a combination of two—while insulated by network effects from Lyft 1 provides a plausible means for Uber to recoup its losses from alleged predatory pricing. The fact 2 that Sidecar still also alleges that Lyft has no incentive to compete on price against Uber does not 3 negate Sidecar’s new allegations that Lyft could not do so even if it wanted to. See, e.g., SAC 4 ¶¶ 12, 85, 90, 92. 5 3. Tortious Interference 6 While the antitrust laws “do not create a federal law of unfair competition or ‘purport to 7 afford remedies for all torts committed by or against persons engaged in interstate commerce,’” 8 Brooke Grp., 509 U.S. at 225 (quoting Hunt v. Crumboch, 325 U.S. 821, 826 (1945)), 9 “‘[a]nticompetitive conduct’ can come in too many different forms, and is too dependent upon 10 context, for any court or commentator ever to have enumerated all the varieties,” Caribbean 11 Broad. Sys., Ltd. v. Cable & Wireless P.L.C., 148 F.3d 1080, 1087 (D.C. Cir. 1998). Sidecar 12 seeks to base its Sherman Act claims in part on Uber’s alleged campaigns to disrupt rivals 13 (including Sidecar) by submitting requests for rides through rivals’ platforms and either canceling 14 the requests before the drivers arrived—frustrating drivers and wasting their time, and causing 15 delays for real passengers waiting to be matched with drivers—or having Uber representatives 16 actually ride with rival ride-hailing companies’ drivers and attempt to convince them to drive 17 exclusively for Uber. SAC ¶¶ 13, 114–22. 18 Uber contends that Sidecar “must overcome a presumption that such alleged [tortious] 19 conduct has a de minimis effect on competition,” Mot. at 13, but the case that it cites for that 20 standard describes it as applicable specifically to claims based on “false and misleading 21 advertising,” Am. Prof’l Testing Serv., Inc. v. Harcourt Brace Jovanovich Legal & Prof’l 22 Publications, Inc., 108 F.3d 1147, 1152 (9th Cir. 1997), and the Second Circuit case on which the 23 Ninth Circuit in turn relied cites reasons specific to false advertising claims, such as the 24 “‘prevalence of arguably improper utterance,’” Nat’l Ass’n of Pharm. Mfrs., Inc. v. Ayerst Labs., 25 850 F.2d 904, 916 (2d Cir. 1988) (quoting a leading antitrust treatise). Uber cites no case applying 26 this presumption of de minimis effect outside of the context of false advertising, much less at the 27 pleading stage. 1 allegations that the campaigns continued from mid-2014 through Sidecar exiting the market in 2 2015, that Uber conducted the campaigns specifically to harm its only two significant competitors, 3 that both drivers and passengers were harmed by Uber’s “fraudulent” ride requests, that network 4 effects amplified the harm to Sidecar and caused a “downward spiral” ending with one of only 5 three participants exiting the market, and that Uber used those campaigns to obtain and 6 consolidate monopoly power are sufficient at the pleading stage—in conjunction with the 7 allegations of market power discussed above—to plausibly allege harm to competition. See SAC 8 ¶¶ 114–22. The Court declines to resolve Uber’s argument that the requests through which it 9 sought to recruit competitors’ drivers are “‘redeemed by a legitimate business purpose,’” see 10 Reply at 13 (quoting Universal Analytics, Inc. v. MacNeal-Schwendler Corp., 914 F.2d 1256, 11 1258 (9th Cir. 1990)), because Uber offers no legitimate purposed for the requests it allegedly 12 canceled before drivers arrived. See SAC ¶ 13 (alleging that Uber “inundate[ed] competitors with 13 fraudulent ride requests that were cancelled before the driver arrived”); id. ¶ 116 (alleging that 14 “[d]rivers were sent on a wild goose chase”). 15 * * * 16 For the reasons discussed above, Uber’s motion to dismiss is DENIED as to Sidecar’s 17 Sherman Act claims for monopolization and attempted monopolization, with respect to both 18 Sidecar’s theory of predatory pricing and its theory of tortious interference. 19 C. Unfair Practices Act Claim 20 Uber asks the Court to strike Sidecar’s complaint under the Unfair Practices Act, which the 21 Court previously dismissed with prejudice. Although the Court understands that Sidecar realleged 22 that claim solely to preserve its right to appeal its dismissal, the Ninth Circuit no longer requires a 23 plaintiff to do so. Lacey v. Maricopa Cty., 693 F.3d 896, 928 (9th Cir. 2012) (en banc) (“For 24 claims dismissed with prejudice and without leave to amend, we will not require that they be 25 repled in a subsequent amended complaint to preserve them for appeal.”); see also Opp’n at 16 26 (acknowledging that decision). As discussed in Lacey, repleading claims previously dismissed 27 with prejudice causes confusion and inefficiency, with no practical benefit. Uber’s motion to ] through 175 of the second amended complaint. 2 || IV. CONCLUSION 3 For the reasons discussed above, Uber’s motion to dismiss is DENIED, except as to the 4 || previously-dismissed Unfair Practices Act claim, which is STRICKEN from the second amended 5 complaint. 6 IT ISSO ORDERED. 7 || Dated: May 1, 2020 CZ J PH C. SPERO 8 ief Magistrate Judge 9 10 1]
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