by Sabrina S. Saieh
In the last few months, Uber Technologies, Inc. has been hit with lawsuits and regulatory challenges arising out of its sharing economy business model. Most notably, Uber has been challenged based on the classification of its drivers as independent contractors rather than employees. However, most recently, a class-action lawsuit has emerged that claims Uber’s technology and pricing algorithm violates antitrust law. Specifically, the lawsuit alleges that the technology behind Uber’s on-demand ride-hailing application is used to illegally arrange regular fares and high surge-pricing fares. The basis for the antitrust complaint rests on Uber’s classification of its drivers as independent contractors. The complaint alleges that Uber drivers are classified as independent contractors, yet they do not compete with each other and instead charge customers the same rate as stipulated by Uber’s pricing algorithm. At the core of antitrust laws is the protection of consumers from unfair pricing manipulation and fixing. This lack of competition on fare pricing among Uber’s independently contracted drivers may raise antitrust implications. At the very least, it generates concerns over Uber’s use of anti-competitive practices and the future use of technology as a covert means to price-fix.
U.S. District Judge Jed Rakoff recently denied Uber co-founder Travis Kalanick’s motion to dismiss the class-action lawsuit. Kalanick argued that a conspiracy comprised of hundreds of thousands of drivers was both “wildly implausible” and “physically impossible.” Kalanick’s argument rests on the inability of all those drivers to reach an agreement—the basis for the conspiracy. However, Judge Rakoff dismissed this argument and credited the “’genius’” of Mr. Kalanick and his company” with the ability to do so. Judge Rakoff proclaimed, “The advancement of technological means for the orchestration of large-scale price-fixing conspiracies need not leave antitrust law behind.”
The class-action lawsuit alleging illegal price manipulation brought by a customer in Connecticut will now be allowed to move forward. Judge Rakoff’s decision denying dismissal of the case could potentially have significant consequences for other sharing economy based businesses. Essentially, the decision provides consumers another legal basis for claims against on-demand sharing economy companies.
Sabrina Saieh is an Articles/Comments Editor at the FIU Law Review. Ms. Saieh can be reached at ssaie001@fiu.edu.