Uber hit with antitrust suit by defunct rival Sidecar

12 December 2018 2:31pm

11 December 2018. By Mike Swift.

Soon after the start of the smartphone app ride-hailing industry nearly a decade ago, San Francisco had three viable startups competing for the market in a new type of transportation — Uber Technologies, Lyft and Sidecar. Uber and Lyft have flourished; Sidecar died.

The company behind now-defunct Sidecar alleged in a lawsuit today that Uber used “an array of anticompetitive acts” to drive it out of business, violating federal antitrust laws by using subsidized, sub-market pricing and interfering with the operation of Sidecar’s mobile app. Uber’s plan, backed by its top executives, was a two-step process to charge below-market prices to seize a dominant market position, and then to hike prices in a way that would foreclose new competitors from entering the market, the lawsuit claims.

“Uber’s most senior officers and executives specifically planned for this subsidized pricing strategy to foreclose competition,” SC Innovations, Sidecar’s parent, said in a suit filed in US District Court in San Francisco.

“Uber intentionally sustained near-term losses that were designed to drive Sidecar out of the market while Uber acquired a dominant market position. When the market finally tipped in Uber’s favor and Uber could leverage network effects to insulate itself from meaningful competition, it planned to raise prices. By imposing higher prices while it was protected by the substantial barriers to entry created by network effects, Uber planned to recoup the losses it had incurred while pushing out its rivals,” the suit said. “That plan has now come to fruition.”

The suit claims Uber also interfered with the apps of Sidecar and other competitors by submitting fraudulent passenger requests that appeared to come from people actually seeking a Sidecar ride, but who were actually Uber employees trying to damage the quality of Sidecar’s service.

“Uber’s senior officers and executives directed clandestine campaigns to submit fraudulent ride requests through its competitors’ ride-hailing apps,” SC Innovations said. “Uber intended for those requests to undermine its competition, including by (a) inundating competitors with fraudulent ride requests that were cancelled before the driver arrived; or (b) using fraudulently requested trips as an opportunity to convince drivers to work exclusively with Uber instead of its competitors.”

Because of Uber’s actions, the US market for app-based ride-hailing services has “effectively collapsed” into a duopoly composed of Uber and Lyft, the suit says. But Uber now holds at least 70 percent of the ride-hailing market in US cities such as New York, Washington,  Boston, Philadelphia and Austin, Texas, the suit claims.

“Uber has a dangerous probability of monopolizing the relevant markets for Ride-Hailing Apps in San Francisco, Austin, Los Angeles, Chicago, Philadelphia, Washington DC, New York, Seattle, San Diego, San Jose, and Boston,” the suit says.

Sidecar, which launched in 2012, ultimately failed in December 2015. SC Innovations claims that Uber’s actions violated both the Sherman and Clayton acts, as well as the California Unfair Practices Act, and it is seeking an “order requiring Uber to pay Sidecar damages in an amount adequate to compensate Sidecar” for those violations. Antitrust damages should be trebled, Sidecar said.

Uber and Lyft are both widely expected to go public with an initial public offering in 2019, with Uber potentially valued at $120 billion and Lyft at about $15 billion, according to reports this week. That, Uber suggested today, was part of the reason for the timing of the Sidecar suit.

In a written statement from a spokesman, Uber said that it faces strong competition from Lyft and newer entrants to the market.

“Ridesharing is a highly competitive industry, with many players coming and going over the years — like Sidecar, not all have survived,” Uber said in the statement. “Sidecar’s lawsuit has it backwards: New competitors, along with low prices, benefit consumers and reflect the exact type of competition that the antitrust laws are meant to protect. We believe the timing of this complaint, filed three years after Sidecar went out of business, is not a coincidence.”

Many of Uber’s questionable business practices under its founder and now-deposed CEO Travis Kalanick were detailed by witnesses last year and this year in trade secret litigation between Uber and Google’s autonomous car subsidiary, Waymo. Given Sidecar's allegations about Uber's clandestine efforts to interfere with its app, some of those claims could resurface as the new antitrust case by Sidecar moves forward.

During the Uber-Waymo case, Richard Jacobs, a former member of Uber’s security team, testified that Uber had a team that gathered secret information about competitors and used technology to avoid creating a paper trail, such as communicating through disappearing messages and using devices that stored information outside of Uber’s servers.

Sidecar is not the first competitor to allege that Uber charged sub-market prices to grab a dominant share of the ride-hailing market.

Uber faces similar claims about using sub-market prices to undermine competition in a suit filed by San Francisco cab company Flywheel Taxi. In an amended complaint filed last month in its litigation against Uber, Flywheel said Uber artificially deflated fares to prices below cost in an effort to drive competitors from the market for ride-hailing services.

"If permitted to continue without restraint, UBER’s predatory pricing will push out the remaining competitors in the San Francisco Ride-Hail Market. Once its competitors have been removed, UBER, free from the constraints of competition, will be free to implement unfettered price increases for its services, and consumers will be left with no choice but to pay the prices — however exorbitant — demanded by UBER," the Flywheel complaint alleges.

ABA 2019