Philadelphia Cabbies Lose Appeal in Monopoly Case Against Uber

In broad language, a Third Circuit panel affirmed a district court’s dismissal of a monopoly suit against Uber Technologies Inc. (“Uber”). Philadelphia Taxi Association Inc. v. Uber Technologies Inc., Case No. 17-1871 (3rd Cir. Mar. 27, 2018). The Philadelphia Taxi Association Inc. (“Taxi Association”) alleged that Uber’s entry into the Philadelphia market created an illegal monopoly in the vehicle-for-hire market by harming the business of traditional medallion cab companies. Its case failed under the primary tenet of antitrust law — that the laws are designed to protect competition, not competitors. The Third Circuit said that Uber was not violating the antitrust laws even if its purpose was to kill off its competition. In ruling for Uber, the Third Circuit commented that the Taxi Association asked that the laws be applied for the “express oppositepurposes of antitrust laws” (emphasis added) — to compensate them for lost profits due to increased competition in the market.

Background on Philadelphia Taxi Market

Taxicabs operating in Philadelphia are required to have a medallion and certificate of public convenience issued by the Philadelphia Parking Authority (“PPA”). Medallions are property and are often pledged as collateral to borrow funds to finance the purchase of taxicabs or to upgrade taxicabs. By October 2014, when Uber entered the Philadelphia market, medallions were worth an average of $545,000 according to the Taxi Association. When Uber entered the market, it did not pay the PPA or comply with PPA regulations. The Taxi Association alleged that made Uber’s operation illegal and enabled it to operate at significantly lower costs. In October 2016, the Pennsylvania legislature approved Uber’s operation in Philadelphia under the authority of the PPA. The new law required Uber and other vehicle-for-hire companies that operate through digital apps to obtain licenses and comply with certain requirements such as insurance obligations and safety standards. But the law allowed them to set their own fares and did not mandate minimum wages or limit the number of vehicles in operation, unlike the regulations for medallion taxicabs.

The Taxi Association was formed shortly after Uber entered the Philadelphia market and filed suit against Uber in March 2016. Its complaint highlighted its losses since Uber entered the market, claiming that the value of taxicab medallions dropped to $80,000, and that many taxi operators had switched to Uber. They also alleged that Uber operated illegally in Philadelphia by not complying with regulations imposed on taxis by the PPA. The district court dismissed the Taxi Association’s Second Amended Complaint in November 2016, holding that “Contrary to plaintiffs’ assertion, violation of state law or municipal regulations does not give rise to an antitrust injury. To establish antitrust injury, plaintiff must prove more than injury causally linked to an illegal presence in the market… Even if this court were to find Uber’s operation unlawful, it would do so under the PPA regulation, not antitrust law.”

In particular the Taxi Association took issue with Uber’s business, which it alleged illegally “flooded the market with non-medallion taxicabs.” The association also claimed that Uber knew of PPA’s regulatory jurisdiction and purposefully ignored it, and also, that Uber is “dangerously close to achieving monopoly power with its market share.”

Third Circuit’s Dismissal

The Third Circuit held that the Taxi Association failed to plausibly allege either an antitrust violation or an antitrust injury.

1. Attempted Monopolization

An attempted monopolization claim under Section 2 of the Sherman act requires plaintiff to prove (1) defendant engaged in predatory or anticompetitive conduct (2) with the specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.

The Third Circuit found that the Taxi Association “set forth a litany of ways in which Uber’s entry into the market has harmed [their] business and their investment in medallions; yet none of the allegations demonstrate a harmful effect on competition.” In holding that the Taxi Association failed to allege anticompetitive conduct, the Third Circuit first found that “inundating the Philadelphia taxicab market with Uber” “bolstered competition by offering customers lower prices…” Second, “[r]unning a business with greater economic efficiency is to be encouraged, because that often translates to enhanced competition…” Third, “Uber’s ability to attract these drivers was due to its cost efficiency and competitive advantage.”

Next, the Third Circuit found that, although Uber’s alleged conduct with regard to PPA laws might be a regulatory violation, its knowledge of existing regulations alone cannot be said to demonstrate specific intent to monopolize. It thus held that “Uber’s alleged competitive strategy of creating a vehicle-for-hire business model… does not reflect specific intent to monopolize.”

Finally, the Taxi Association also failed to plausibly allege a dangerous probability of achieving monopoly power. The Third Circuit found that the Taxi Association did not allege Uber’s market share nor barriers to entry or weak competition from other market participants. The complaint also failed to allege any potentially harmful industry developments.

2. Antitrust Standing

The Third Circuit alternatively held that the Taxi Association’s antitrust claim failed due to lack of standing. Unique to antitrust claims, for a party to have standing to bring an antitrust case, not only must courts consider whether a plaintiff has suffered an antitrust injury, but the plaintiff must also be “a proper party to bring a private antitrust action” — an antitrust injury alone, is insufficient.

This nuance, however, was of no moment in the case, and instead, the Third Circuit found that the Taxi Association failed to “aver an antitrust injury, such as a negative impact on consumer or to competition in general, let alone any link between this impact and the harms Appellants have suffered.” Notwithstanding taxicab companies’ allegations that they are on the verge of defaulting on their medallions and being driven out of business, the Third Circuit noted the Taxicab Association’s own admission that Uber’s entry into the marketplace had increased the available number of vehicles-for-hire to consumers, increasing competition.

Not mincing words, the Third Circuit’s opinion took issue with the fact that the Taxi Association brought suit “for the express opposite purpose of antitrust laws: to compensate for the loss of profits due to increased competition from Uber.” Moreover, it mattered not to the Third Circuit whether Uber was unlawfully operating in Philadelphia. Instead, it held, any finding that Uber’s operation in Philadelphia is unlawful would be under PPA regulations, not antitrust laws.

Conclusion

Entry of a new and disruptive technology can often spur litigation—particularly antitrust litigation. While entry of new market competition may be disruptive and cause certain parties to lose out on some share of the market, such a loss of market share does not usually equate to a violation of antitrust law. As Uber and other ride-sharing companies face increased scrutiny regarding their place in the marketplace, particularly in light of differing city and state regulations of taxicabs, antitrust plaintiffs will face an uphill battle in proving that ride-sharing has harmed consumers. If the Third Circuit’s views are any indication, Uber’s disruptive entry into the vehicle-for-hire market, along with its consumer-friendly pricing, will not be circumscribed by the antitrust laws.

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