New Uber CEO Faces Hefty Antitrust Challenges

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By Liz Crampton

Incoming Uber CEO Dara Khosrowshahi is no stranger to antitrust.

As longtime CEO of Expedia Inc., Khosrowshahi helped lead the charge against Google Inc.’s alleged antitrust violations in Europe. Google was fined $2.7 billion in June by EU regulators for skewing searches to its own shopping service. Expedia joined several other Google competitors in complaining to the European Commission about the behavior.

But Khosrowshahi’s also been on the flip side. He has faced antitrust complaints about Expedia’s guarantees to customers that they’re getting the best prices when they book a hotel or car rental through the site. Some European regulators have said those guarantees, which are included in Expedia’s contracts with providers, restrict competition by barring individual hotels or other vacation establishments from setting prices below Expedia’s quoted rate.

Uber faces bigger antitrust problems that could threaten its core functions. Khosrowshahi must decide how to proceed in several lawsuits in federal courts around the country that allege Uber engaged in illegal price-fixing, according to Evan Rawley, a professor at the University of Minnesota who has analyzed Uber’s business strategy.

A price fixing suit against Uber pending in New York federal court is considered the most prominent because it is aimed at Uber’s pricing structure. “It’s a pretty important case,” Rawley told Bloomberg BNA. “I don’t think Uber has done well with their side of the story, and maybe with the new CEO they’ll come in and take a more professional approach with this issue.”

“It’s an important strategic issue that he’s going to have at least some passing familiarity with, and is going to have to deal with this,” Rawley said.

Pricing Structure at Risk

In the New York case, Meyer v. Kalanick, an Uber user argued on behalf of all customers that the company’s pricing algorithm violates antitrust laws designed to protect customers from price manipulation. The 2016 suit alleges that Uber has conspired with its drivers to set the prices charged to riders. Uber responded that drivers are free to charge lower prices than what the app suggests.

Rawley said this is the most important legal challenge facing Uber because a decision against Uber could hurt the pricing structure that’s fundamental to the ride-hailing company’s success.

So far the dispute has centered on whether the plaintiff, Spencer Meyer, needs to take his claim to arbitration. Uber includes an arbitration stipulation in its terms for customers who download its app.

U.S. District Court for the Southern District of New York Judge Jed Rakoff sided with Meyer, stating Uber’s online user agreement didn’t provide sufficient notice of its arbitration policy.

But the U.S. Court of Appeals for the Second Circuit then handed Uber a win earlier this month by ruling the lawsuit may still be heard by an arbitration panel, bolstering Uber’s strategy to keep lawsuits away from public courtrooms. The appeals court said the Uber app offered “reasonably conspicuous notice” of its terms of service and that Meyer “unambiguously manifested his assent.”

Unionization and Antitrust

The ride-sharing company is also entangled in a lawsuit filed in Washington federal court involving the rights of Uber, Lyft Inc. and other for-hire drivers to unionize. Seattle’s city council in 2015 passed an ordinance allowing the drivers to organize for collective bargaining, which was promptly challenged by the U.S. Chamber of Commerce on grounds that it violates federal antitrust law.

The case, in the U.S. District Court for the Western District of Washington, also has the potential to affect Uber’s bottom line. If its drivers are allowed to unionize, rather than be classified as independent contractors as they are now, the company could be required to provide benefits like insurance and pay at least minimum wage.

Earlier this month, Judge Robert Lasnik gave Seattle a win when he dismissed the chamber’s suit, saying Seattle had the authority to regulate ride-sharing even if the regulations suppressed competition because the services are “vital to the state’s transportation system.”

Lasnik has heard 14 antitrust cases and granted motions to dismiss in half of them, according to Bloomberg Law’s Litigation Analytics.

Uber’s drivers remain independent contractors for now. Seattle’s ordinance is still under injunction pending resolution of a federal labor law suit. That case, Clark v. City of Seattle, is before the U.S. Court of Appeals for the Ninth Circuit.

The Dealmaker

Khosrowshahi will also provide a boost to Uber’s dealmaking abilities. Expedia’s loss is Uber’s gain, said RBC Capital Markets analyst Mark Mahaney in a note to investors. Under Khosrowshahi’s leadership, Expedia has “consistently expanded and grown,” Mahaney said.

Some of Expedia’s most notable acquisitions include competitors Orbitz Worldwide Inc. and HomeAway Inc. That raises the question of what deals Khosrowshahi will negotiate in his new job.

According to Rawley, a merger with Lyft is almost certainly off the table due to the antitrust issues it would raise. Together, the two companies dominate nearly the entire ride-sharing market, depending on the region. Uber has about an 80 percent share nationwide, and Lyft controls about 20 percent, according to court filings in the New York price-fixing dispute.

Uber could explore vertical deals that wouldn’t catch the attention of antitrust regulators, like buying new technology companies to elevate its autonomous vehicle and delivery ventures, Rawley said.

To contact the reporter on this story: Liz Crampton in Washington at lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

For More Information

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