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Uber antitrust lawsuit over pricing green-lighted by judge

March 31, 2016

Uber Technologies Inc. and its co-founder Travis Kalanick will have to defend a lawsuit that accuses them of running an antitrust scheme by using an app to set high surge fares.

A Connecticut man can move forward with a claim that the company sets prices through an illegal algorithm, U.S. District Judge Jed Rakoff in Manhattan ruled on Thursday. Spencer Meyer is vying to seek damages on behalf of millions of riders nationwide.

Meyer’s lawsuit opens a new line of legal attacks on sharing-economy businesses. Uber, the world’s largest ride-hailing company, faces other lawsuits and regulatory challenges over its business model, including demands that its drivers be classified as employees instead of independent contractors.

New York Attorney General Eric Schneiderman and other regulators have also complained about Uber’s pricing algorithm, which ensures standard fares. In certain situations, such as bad weather or on holidays, the fares rise sometimes to many times their normal rate in a practice known as surge pricing The company pledged to limit the increases in emergencies under an agreement with Schneiderman in 2014.

Price fixer

Meyer alleged in his complaint that Kalanick designed the company “to be a price fixer” because its drivers “do not compete” but rather charge fares set by the algorithm. Uber takes a cut of the fares. The business plan amounts to an antitrust scheme because the drivers, despite charging the same prices, are supposedly independent service providers, according to Meyer.

“Kalanick has long insisted that Uber is not a transportation company and that it does not employ drivers,” Meyer’s lawyers said in his complaint. “Instead, Uber is a technology company, whose chief product is a smartphone app.”

Rakoff said Meyer has plausibly alleged a conspiracy and the case should go to trial.

"Of course, whether plaintiff’s allegations are in fact accurate is a different matter, to be left to the fact-finding process," Rakoff said. At this point in the case, the plaintiff doesn’t need to present a “direct, ’smoking gun’ evidence of a conspiracy," the judge said.

Kalanick’s lawyers argued that Uber is providing an innovative option that serves to increase competition, not detract from it.

New entrant

“As a new entrant in the transportation marketplace, Uber has vastly increased options, reduced prices and improved service for millions of Americans,” the company said in a court filing. Moreover, Meyer’s allegations of a conspiracy “among hundreds of thousands of independent transportation providers” are implausible, the company and its co-founder said.

Andrew Schmidt, Meyer’s lawyer, didn’t immediately respond to a voicemail and email messages seeking comment on the ruling.

Uber is set for a trial in June in San Francisco federal court in a case brought by drivers seeking to collect pay and benefits as employees. A victory for the drivers may upend Uber’s business model and cut into its more than $60 billion valuation.

Uber and its competitors are able to keep down their costs by using contractors rather than employees. Typically, contractors pay their own expenses and aren’t protected by minimum wage and overtime laws. Companies don’t pay for their unemployment insurance, workers compensation or Social Security.

The ride-hailing service, launched in 2010, has grown rapidly and now has a presence in 65 countries.

The case is Meyer v. Kalanick, 1:15-cv-09796, U.S. District Court, Southern District of New York (Manhattan).

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