Philadelphia taxi drivers fail to revive antitrust claims against Uber
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Thursday, March 29, 2018

Philadelphia taxi drivers fail to revive antitrust claims against Uber

By Brandi O. Brown, J.D.

Philadelphia cab drivers who claimed that Uber attempted to monopolize the taxicab market when it burst onto the scene in the city were unable to revive their antitrust claims against the rideshare juggernaut. The Third Circuit agreed with the district court below that Uber’s alleged conduct fell short of what was necessary to constitute an attempted monopoly under antitrust laws. The district court’s judgment in favor of Uber and against the drivers, the Philadelphia Taxi Association, and more than 80 individual taxicab companies was affirmed (Philadelphia Taxi Association, Inc. v. Uber Technologies, Inc., March 27, 2018, Rendell, M.).

Uber comes in, breaks rules. From 2005 to 2014 taxicab operators in Philadelphia, who had been required by the Philadelphia Parking Authority (PPA) to have a medallion (and certification) to operate in the city, saw the value of those medallions climb from a worth of $65,000 to $545,000, on average. In 2014, Uber began operating in the city, without securing the medallions. Uber also did not comply with the PPA’s rules or pay the fines it imposed. In October 2016 the state legislature approved Uber’s operation in the city, under the PPA’s authority, as Transportation Network Companies (TNCs), the city’s classification for vehicle-for-hire companies that operate through digital apps. The TNCs had to obtain licenses and comply with some requirements, but they were excluded from several other requirements.

Medallions lose value, quickly. By November of 2016, the medallions held by the taxicab drivers were worth only $80,000 on average. Because some of the drivers had used the medallions, which are property, as collateral on loans, the reduction in their value led to default and confiscation of approximately 15 percent of the medallions. Moreover, between 2014 and 2016 nearly 1,200 medallion drivers left their employment and began to drive for Uber. There were over 1,700 Uber drivers operating during that time and they served over 700,000 riders during that time. The taxicab drivers alleged that medallion rides reduced by 30 percent and they experienced a commensurate decrease in earnings.

Claims dismissed. The Philadelphia Taxi Association, along with individual taxicab companies, filed suit against Uber alleging one count of attempted monopolization under Section 2 of the Sherman Act and seeking treble damages under Section 4 of the Clayton Act. Uber filed a motion to dismiss, which was granted, and the drivers appealed.

Competition is king. The taxicab drivers alleged that Uber had flooded the market, operating illegally and, thus, at a lower cost, and stealing away their drivers. They alleged that Uber broke the rules knowingly and is now close to achieving monopoly power because it had created an unfair playing field. They argued that the new legislation that authorized TNCs to operate will facilitate the monopoly’s creation. But the appeals court was unpersuaded. “Competition is at the heart of the antitrust laws,” it explained, and only reduction of competition or anticompetitive conduct is problematic under those laws. The underlying principle is “to protect competition, not competitors.”

Consumers benefited. First, the allegations of purportedly anticompetitive conduct were unsupported by any allegations demonstrating a harmful effect on competition. Uber’s conduct, as alleged—its flooding of the market, its illegal and noncompliant operation, and its luring away of taxicab drivers—was not anticompetitive or violative of the antitrust laws. Flooding the market favors competition because it leads to lower prices for customers, greater availability of rides, and “a high-tech alternative to the customary method of hailing taxicabs and paying for rides,” the appeals court explained. Lower prices benefit consumers and “lost business alone cannot be deemed a consequence of ‘anticompetitive’ acts by the defendant.”

Also, Uber’s ability to operate at a reduced cost is a good business practice, not an anticompetitive act. “Running a business with greater economic efficiency is to be encouraged, because that often translates to enhanced competition among market players, better products, and lower prices for consumers.” Moreover, hiring a rival’s employees is anticompetitive only in certain circumstances that did not exist in this case.

No dangerous probability. The drivers also alleged that Uber had a dangerous probability of achieving monopoly power because its actions had pushed several competitors out of the market. The allegations, however, fell short of the mark and showed only that Uber and medallion taxicabs had similar numbers of cars operating in the city. Nor was the court persuaded that Uber had the power to bar others from entering the market. Other competitors, like Lyft, could enter without difficulty, as had Uber itself. None of the other elements of the drivers’ claims would allow the court to infer a dangerous probability either.

No antitrust standing. An alternative basis for the ruling was that the claim failed for lack of antitrust standing. The taxicab drivers could not prove an antitrust injury. Although they lamented Uber’s entry into the market “as a campaign to inflict economic harm and cause Appellants to lose their market share,” they alleged only their own financial hardship as injury. “Tellingly,” the appeals court explained, “they fail to aver an antitrust injury, such as a negative impact on consumers or to competition in general, let alone any link between this impact and the harms Appellants have suffered.” In fact, according to their own pleadings, Uber’s entry into the market increased the availability of vehicles and competition. The taxicab drivers therefore are urging the court to apply antitrust laws “for the express opposite purpose of antitrust laws: to compensate for their loss of profits due to increased competition from Uber.”

Finally, the argument that Uber’s conduct was illegal, and thus created a violation, also held no water because the U.S. Supreme Court has already “squarely rejected illegal conduct as a basis for antitrust injury.”

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