Meyer v. Kalanick
2016 WL 1266801, 2016 U.S. Dist. LEXIS 43944, 174 F.Supp.3d 817 (2016)
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Rule of Law:
The Sherman Antitrust Act's prohibition against conspiracies in restraint of trade applies to "hub-and-spoke" arrangements where an entity coordinates an agreement among competitors, even if such competitors individually enter vertical agreements, when their participation is contingent on the understanding that other competitors are doing the same.
Facts:
- Uber, founded in 2009, is a technology company that developed a smartphone application ("Uber App") to connect riders with drivers (referred to as "driver-partners").
- Uber states that it is not a transportation company and does not employ drivers.
- Travis Kalanick is the co-founder and CEO of Uber, and also uses the Uber App as a driver.
- Spencer Meyer is a resident of Connecticut who used Uber car services in New York.
- Through the Uber App, drivers charge fares set by the Uber pricing algorithm, and there is no practical mechanism for drivers to negotiate or depart downward from these fares.
- Uber's "surge pricing" model, designed by Kalanick, permits fares to rise up to ten times the standard fare during times of high demand.
- Uber organizes meetings with potential drivers when entering new geographic locations and hosts "partner appreciation" events for drivers.
- In September 2014, drivers using the Uber App in New York City colluded with one another to negotiate the reinstitution of higher fares for Uber-BLACK and UberSUV services, which Kalanick directed or ratified, leading Uber to agree to raise fares.
Procedural Posture:
- Spencer Meyer filed a putative antitrust class action lawsuit against Travis Kalanick in the United States District Court for the Southern District of New York.
- Meyer filed a First Amended Complaint, alleging Kalanick orchestrated an illegal price-fixing conspiracy in violation of Section 1 of the federal Sherman Antitrust Act and the New York State Donnelly Act.
- Defendant Kalanick moved to dismiss the First Amended Complaint for failure to state a claim.
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Issue:
Does a plaintiff plausibly allege a horizontal price-fixing conspiracy under Section 1 of the Sherman Antitrust Act by claiming that Uber drivers agree to a uniform pricing algorithm, coordinated by Uber's CEO, with the understanding that all other drivers are doing the same, thereby forgoing independent price competition?
Opinions:
Majority - Jed S. Rakoff
Yes, a plaintiff plausibly alleges a horizontal price-fixing conspiracy under Section 1 of the Sherman Antitrust Act when claiming that Uber drivers agree to a uniform pricing algorithm, coordinated by Uber's CEO, with the understanding that all other drivers are doing the same, thereby forgoing independent price competition. The Court found that Meyer plausibly alleged a "hub-and-spoke" conspiracy, where Kalanick (the "hub") coordinated an agreement among Uber drivers (the "spokes") to adhere to Uber's pricing algorithm. Citing Interstate Circuit v. United States and United States v. Apple, Inc., the court reasoned that an agreement among competitors can be established if they accept an invitation to participate in a plan, knowing that concerted action is contemplated and that other competitors are agreeing to the same terms, especially when such individual agreements would be against their self-interest if acting independently. Here, Meyer alleged that drivers agree to Uber's Driver Terms, including fixed fares, with the clear understanding that all other drivers are agreeing to charge the same fares, which provides a common motive to conspire by benefitting from reduced price competition. The court also considered Uber's organized events for drivers and Kalanick's role in the 2014 fare negotiation as additional support for a horizontal conspiracy. The court distinguished this from vertical resale price maintenance agreements discussed in Leegin Creative Leather Products, Inc. v. PSKS, Inc., noting that Uber is not selling anything to drivers for resale and the pro-competitive justifications for vertical restraints are not directly applicable. The Court also found that Meyer plausibly alleged a vertical conspiracy between each driver and Kalanick and adequately defined the relevant market as the "mobile app-generated ride-share service market" and pleaded adverse effects on competition under a rule of reason analysis.
Analysis:
This case is significant for applying established antitrust principles, particularly the "hub-and-spoke" conspiracy theory, to the novel business model of a technology-driven "sharing economy" platform like Uber. It demonstrates that the technological means used to facilitate an agreement do not shield participants from antitrust scrutiny and that courts are willing to look beyond a company's self-description (e.g., "technology company" versus "transportation company") to assess the actual competitive dynamics and potential for collusion among users of a platform. The ruling allowed a price-fixing claim against Kalanick to proceed to discovery, indicating a potential broadening of antitrust liability in platform economies.
