THEODORE J. BOUTROUS JR., SBN 132099 DANIEL G. SWANSON

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DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

Gibson, Dunn &

Crutcher LLP

THEODORE J. BOUTROUS JR., SBN 132099 [email protected]

DANIEL G. SWANSON, SBN 116556 [email protected]

GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, CA 90071-3197 Telephone: 213.229.7000 Facsimile: 213.229.7520 CYNTHIA E. RICHMAN, SBN 492089

[email protected] GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, DC 11101 Telephone: 202.955.8500 Facsimile: 202.467.0539

Attorneys for Uber Technologies, Inc, Rasier LLC, Rasier-CA LLC, Rasier-PA LLC, Rasier-DC LLC, Rasier-NY LLC, Uber-USA LLC

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

SC Innovations, Inc.,

Plaintiff,

v.

Uber Technologies, Inc; Rasier LLC; Rasier-CA LLC; Rasier-PA LLC; Rasier-DC LLC; Rasier-NY LLC; Uber-USA LLC,

Defendants.

CASE NO. 3:18-CV-07440-JCS

DEFENDANTS’ MOTION TO DISMISS SECOND AMENDED COMPLAINT

Hearing: Date: April 3, 2020 Time: 9:30 a.m. Place: Courtroom G, 450 Golden Gate

Avenue, San Francisco, CA Judge: Honorable Joseph C. Spero

Case 3:18-cv-07440-JCS Document 76 Filed 02/18/20 Page 1 of 23

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ii DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

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TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD:

PLEASE TAKE NOTICE that on April 3, 2020, before the Honorable Joseph C. Spero, in

Courtroom G of the United States District Court, Northern District of California, located at 450 Golden

Gate Avenue, San Francisco, CA 94102, Defendants Uber Technologies, Inc; Rasier LLC; Rasier-CA

LLC; Rasier-PA LLC; Rasier-DC LLC; Rasier-NY LLC; and Uber-USA LLC (“Defendants” or

“Uber”) will and hereby do move this Court to dismiss, with prejudice, the claims brought by Plaintiff

SC Innovations Inc. (“SCI”) pursuant to Federal Rule of Civil Procedure 12(b)(6).

This Court dismissed all claims asserted in SCI’s First Amended Complaint (“FAC,” dkt. 60).

Order Granting Mot. to Dismiss [First] Am. Compl. (“Order,” dkt. 71). This Court found that, as a

matter of law, Plaintiff’s factual allegations did not support a conclusion that Uber violated the Sherman

Act § 2. Id. Specifically, this Court found that SCI did not allege (1) market power or (2) a cognizable

probability of recoupment, and gave SCI the opportunity to amend its complaint to cure these defects.

Id. at 12-16. This Court dismissed SCI’s claim under California’s Unfair Practices Act (“UPA”) with

prejudice. Id. at 18-21.

SCI’s Second Amended Complaint (“SAC,” dkt. 73) offers no new allegations to correct the

deficiencies that condemned its FAC. Defendants’ motion to dismiss is based on the grounds that the

SAC fails to state any claim upon which relief can be granted because (1) the Sherman Act § 2 claims

fail to plead the possession (or a dangerous probability) of monopoly power; (2) the predatory pricing

claims under Section 2 fail to allege the requisite elements of predatory pricing (exclusion of

competition, dangerous probability of recoupment); (3) the “tortious interference” claims under Section

2 are conclusory and lack any factual support, plead no injury to competition, and are based on lawful

and justified conduct; and (4) the applicable statutes of limitations bar SCI’s claims in whole or in part.

SCI’s UPA claim should be stricken since the SAC repleads it after it was dismissed with prejudice.

This motion is based on this Notice of Motion and Motion, the concurrently filed Memorandum

of Points and Authorities, the pleadings and papers on file, and the argument received by the Court.


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iii DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

Gibson, Dunn &

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THEODORE J. BOUTROUS JR. DANIEL G. SWANSON CYNTHIA E. RICHMAN GIBSON, DUNN & CRUTCHER LLP

By: /s/ Daniel G. Swanson Attorneys for Uber Technologies, Inc, Rasier LLC, Rasier-CA LLC, Rasier-PA LLC, Rasier-DC LLC, Rasier-NY LLC, Uber-USA LLC


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i DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

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TABLE OF CONTENTS

Page

I. INTRODUCTION .................................................................................................................... 1

II. SCI’s REVISED ALLEGATIONS ........................................................................................... 1

III. LEGAL STANDARD ............................................................................................................... 2

IV. SCI FAILS TO PLEAD A CLAIM UNDER SHERMAN ACT § 2 ........................................ 2

A. SCI Fails To Plead Market Power ................................................................................. 3

1. SCI’s New “Price Discrimination” Theory of Market Power Fails as a Matter of Law .................................................................................................... 4

2. SCI Fails As a Matter of Law To Plead That Uber Has The Unilateral Power To Raise Overall Prices in a Two-Sided Transaction Market ............... 5

3. SCI Again Relies On An Impermissible Oligopoly Theory ............................. 8

B. SCI Fails to Plead a Cognizable Probability of Recoupment ..................................... 10

C. SCI Fails to Plead an Antitrust Claim for Alleged Tortious Interference ................... 12

D. SCI’s Unfair Practices Act Claim Should Be Stricken ............................................... 15

V. CONCLUSION ....................................................................................................................... 15


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ii DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

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TABLE OF AUTHORITIES

Page(s)

Cases

A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F. 2d 1396 (7th Cir. 1989) ........................................................................................................12

Am. Prof’l Testing Serv., Inc. v. Harcourt Brace Jovanovich Legal & Prof’l Publ’ns, Inc., 108 F.3d 1147 (9th Cir. 1997) ...................................................................................................13, 15

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ..........................................................................................................................2

Brooke Grp., Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) ....................................................................................................................5, 13

Copperweld Corp. v. Ind. Tube Corp., 467 U.S. 752 (1984) ........................................................................................................................13

GMA Cover Corp. v. Saab Barracuda LLC, 2012 WL 642739 (E.D. Mich. Feb. 8, 2012) ..................................................................................10

Harrison Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374 (3d Cir. 2005) ..............................................................................................................3

Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919 (9th Cir. 1980) .............................................................................................................3

Illinois Tool Works Inc. v. Independent Ink, Inc., 547 US 28 (2006) ..............................................................................................................................5

Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409 (7th Cir. 1989) ...............................................................................................8, 11, 12

Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) .........................................................................................................14

Kolon Indus. v. E.I. DuPont de Nemours & Co., 748 F.3d 160 (4th Cir. 2014) .............................................................................................................5

Malden Transp. v. Uber Techs., 321 F. Supp. 3d 174 (D. Mass. 2018) .............................................................................................15

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) ........................................................................................................................10

Metro Mobile CTS, Inc. v. NewVector Communications, Inc., 892 F.2d 62 (9th Cir. 1989) ...........................................................................................................3, 4


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iii DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

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Mount Hamilton Partners LLC v. Groupon, Inc., 2014 WL 1047408 (N.D. Cal. March 14, 2014) ...............................................................................4

Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013) .......................................................................................................13

Oahu Gas Serv., Inc. v. Pac. Res., Inc., 838 F.2d 360 (9th Cir. 1988) ...........................................................................................................15

Ohio v. American Express Co., 138 S. Ct. 2274 (2018) ................................................................................................1, 2, 6, 7, 8, 10

Phila. Taxi Ass’n, Inc. v. Uber Techs., Inc., 886 F.3d 332 (3d Cir. 2018) ......................................................................................................12, 15

Rebel Oil Co., Inc. v. Atl. Richfield Co., 146 F.3d 1088 (9th Cir. 1998) .........................................................................................................12

Rebel Oil Co., Inc. v. Atl. Richfield Co., 51 F.3d 1421 (9th Cir. 1995) ...........................................................................3, 4, 5, 8, 9, 10, 11, 12

Smilecare Dental Group v. Delta Dental Plan of California, Inc., 88 F.3d 780 (9th Cir. 1996) ...............................................................................................................3

Somers v. Apple, Inc., 729 F. 3d 953 (9th Cir. 2013) ............................................................................................................2

TI Inv. Servs., LLC v. Microsoft Corp., 23 F. Supp. 3d 451 (D.N.J. 2014) ...................................................................................................10

United States v. Grinnell Corp., 384 U.S. 563 (1966) ..........................................................................................................................3

Vess v. Ciba-Geigy Corp. USA, 317 F. 3d 1097 (9th Cir. 2003) ........................................................................................................13

Other Authorities

3 P. Areeda & D. Turner, Antitrust Law ¶ 7381 (1978) .......................................................................15

Philip E. Areeda & Herbert Hovenkamp, Fundamentals of Antitrust Law §7.08[A] ...........................13


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1 DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS

Gibson, Dunn &

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STATEMENT OF REQUESTED RELIEF

Uber requests that the Court dismiss all of Plaintiff’s claims with prejudice pursuant to Federal

Rule of Civil Procedure 12(b)(6).

MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

SCI has had three opportunities to state a claim under Section 2 of the Sherman Act. As with

its first two attempts, the allegations in the Second Amended Complaint (“SAC,” dkt. 73) are deficient

as a matter of law. SCI still admits—as it must—that Uber does not have the power to “reduc[e]

overall market output.” SAC ¶ 91 (emphasis added). Such allegations, among others, cannot be

squared with the Court’s Order, dismissing SCI’s claims. Order Granting Mot. to Dismiss [First] Am.

Compl. (“Order,” dkt. 71) at 13-14. The SAC should be dismissed with prejudice.

II. SCI’s REVISED ALLEGATIONS

Uber will not repeat the allegations of the SAC with which the Court is already familiar. See

Order at 2-6 (summarizing allegations in First Amended Complaint (“FAC,” dkt. 60)). Although SCI’s

SAC adds a dozen paragraphs and deletes some prior terminology (like “duopoly strategy”), in effect

it makes just three principal changes. First, SCI introduces a new theory alleging that Uber possesses

the unilateral power to engage in certain kinds of “price discrimination.” SAC ¶¶ 12, 80, 84-85, 90-

91, 103, 108, 112. According to SCI, passengers are subject to “discriminatory pricing tactics, such as

surge pricing, and more recently, ‘dynamic pricing,’” id. ¶ 12, which SCI defines as “charging different

customers different prices” based on the value they place on the service. Id. ¶ 85. SCI alleges that

such “price discrimination” is the “primary way” that Uber will charge “supra-competitive” prices and

realize “supra-competitive” profits. Id. ¶ 108.

Second, SCI’s new pleading emphasizes the “two-sided” nature of ride-sharing applications,

SAC ¶¶ 2, 11-12, 56, 70, 92, 110-11, and SCI repeatedly alleges that the relevant “ride-hailing market

is a two-sided market.” Id. ¶¶ 2, 92, 111. “[T]wo-sided platforms often exhibit what economists call

‘indirect network effects,’” which “exist where the value of the two-sided platform to one group of

participants depends on how many members of a different group participate.” Ohio v. American

Express Co., 138 S. Ct. 2274, 2280 (2018) (hereafter “Amex”). This is exactly what SCI’s new


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complaint pleads from the outset: “Both sides of the two-sided market are subject to substantial

[indirect] network effects—the more riders Uber has, the more drivers it is able to attract, and the

increased driver availability attracts even more riders.” SAC ¶ 2. These effects are particularly

significant here given that the SAC confirms that ride-hailing apps are “transaction” platforms, which

“facilitate a single, simultaneous transaction between participants.” Amex, 138 S. Ct. at 2286; see SAC

¶ 32 (ride-hailing platforms “facilitate transactions” between drivers and riders). Such “two-sided

transaction platforms exhibit more pronounced indirect network effects” than other two-sided

platforms. Amex, 138 S. Ct. at 2286 (emphasis added). To account for such effects, “[i]n two-sided

transaction markets, only one market should be defined” and that market must be analyzed “as a

whole.” Id. at 2287 (internal quotation marks and citation omitted).

Third, SCI adds various allegations throughout its amended pleading regarding the extent to

which Lyft has allegedly been “weakened” by below-cost pricing and is vulnerable to the threat of

continued losses. SAC ¶¶ 3, 12, 85, 90, 92, 110.

As discussed below, whether viewed individually or together, these changes do not suffice to

resurrect the claims under Section 2 of the Sherman Act that the Court previously dismissed.

III. LEGAL STANDARD

A complaint must be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) if it does not allege “enough

facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,

547 (2007). “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires

more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will

not do.” Id. at 555. “Factual allegations must be enough to raise a right to relief above the speculative

level[.]” Id. “As the Supreme Court has emphasized, its insistence on specificity of facts is warranted

before permitting a case to proceed into costly and protracted discovery in an antitrust case, especially

where, as here, the potential expense of discovery is obviously great.” Somers v. Apple, Inc., 729 F.

3d 953, 966 (9th Cir. 2013) (citing Twombly, 550 U.S. at 557-59).

IV. SCI FAILS TO PLEAD A CLAIM UNDER SHERMAN ACT § 2

SCI’s remaining claims arise under Section 2 of the Sherman Act. To plead a claim for

monopolization under Section 2, a plaintiff must allege that: (1) the defendant possesses monopoly


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power in the relevant market; (2) the defendant has willfully acquired or maintained that power; and

(3) the defendant’s conduct has caused antitrust injury. Smilecare Dental Group v. Delta Dental Plan

of California, Inc., 88 F.3d 780, 783 (9th Cir. 1996); see also United States v. Grinnell Corp., 384 U.S.

563, 570-71 (1966). To plead a claim for attempted monopolization under Section 2, a plaintiff must

allege: (1) specific intent to control prices or destroy competition; (2) predatory or anticompetitive

conduct; (3) dangerous probability of success; and (4) causal antitrust injury. Smilecare Dental, 88

F.3d at 783. As discussed below, the deficiencies the Court identified in the FAC have not been

corrected in the SAC, leading the Section 2 claims to fail again for the same reasons. As a result, there

is no need for the Court to address the additional flaws in SCI’s Section 2 claim based on alleged

“tortious interference” but, at any rate, that claim is also defective for independent reasons.

A. SCI Fails To Plead Market Power

In order to state a claim for monopolization, SCI must allege monopoly power. Order at 12.

“Monopoly power is defined as ‘the power to control prices or exclude competition,’” but “[m]ore

precisely, it is ‘the power to charge a price higher than the competitive price without inducing so rapid

and great an expansion of output from competing firms as to make the supracompetitive price

untenable.’” Harrison Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374, 380 (3d Cir. 2005) (citations

omitted). As this Court has previously held, SCI’s market share allegations do not alone suffice to

plead that Uber possesses market power. Order at 12. “‘Blind reliance upon market share, divorced

from commercial reality, [can] give a misleading picture of a firm’s actual ability to control prices or

exclude competition.’” Metro Mobile CTS, Inc. v. NewVector Communications, Inc., 892 F.2d 62, 63

(9th Cir. 1989) (quoting Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 924 (9th Cir.

1980)). Despite alleging that Uber holds ostensibly high market shares,1 SCI’s prior pleadings made

it clear that Uber actually lacks the unilateral power to “raise market prices above competitive levels

simply by reducing its own output.” Order at 13; see also Rebel Oil Co., Inc. v. Atl. Richfield Co., 51

1 SCI continues to exclude taxis from the relevant market definition. Given the Court’s ruling on this issue, Order at 10-11, Uber assumes for purposes of this motion (only) that taxi companies are not actual rivals or potential entrants in the alleged relevant market.


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F.3d 1421, 1434 (9th Cir. 1995).2 SCI’s third complaint does not change this picture. While the SAC

has added allegations about price discrimination, about the two-sided nature of the market and about

Lyft’s “significantly weakened competition,” these new allegations fail to show that Uber possesses

the requisite market power as a matter of law.3

1. SCI’s New “Price Discrimination” Theory of Market Power Fails as a Matter of Law

SCI’s amended complaint presents SCI’s latest theory of market power, asserting that Uber

possesses the unilateral power to engage in certain kinds of “price discrimination.” SAC ¶¶ 12, 80, 84-

85, 90-91, 103, 108, 112. For example, SCI pleads that Uber engages in price discrimination when it

uses “surge” pricing and charges “temporarily higher prices in situations [of] high demand.” Id. ¶ 84.

SCI also alleges that “[r]ecent reports indicate that Uber has moved to a more sophisticated form of

price discrimination through a pricing model known as ‘dynamic pricing.’”4 Id. ¶ 85. SCI alleges that

such “price discrimination” is the “primary way” that Uber will charge “supra-competitive” prices and

realize “supra-competitive” profits. Id. ¶ 108. But allegations that a defendant has the unilateral ability

to engage in price discrimination do not suffice to show the kind or degree of market power required

for a claim under Section 2 of the Sherman Act as a matter of law.

2 This failing was fatal to both SCI’s monopolization and attempted monopolization claims. Rebel Oil, 51 F.3d at 1437-43 (dangerous probability of monopoly power lacking as a matter of law where no unilateral power to raise price to supracompetitive levels).

3 Further, SCI does not address the Court’s holding regarding the significance of CPUC regulation. As this Court noted: “If the CPUC were primarily concerned with shielding consumers from excessive utility pricing, its decision not to interfere with Uber setting low prices might be a rational approach to that goal: consumers at least arguably benefited from those prices, and if Uber attempted to use the dominant market position that it obtained as a result to set supracompetitive prices in the future, the CPUC could exercise its regulatory authority at that time to prevent Uber from doing so.” Order at 21 n.9. In Metro Mobile CTS, 892 F.2d at 63, the Ninth Circuit held that similar state regulation was a factor that further confirmed that a defendant with a 100% market share lacked monopoly power. “Even if [defendant] were bold enough to attempt to control prices … it was constrained from doing so by the [Arizona Corporation Commission].” Id.

4 “Dynamic pricing” is a “time-honored business strategy” practiced by those who have perishable “seats” to fill, such as restaurants, airlines, hotels, rental car operators, movie theaters and the like. See, e.g. Mount Hamilton Partners LLC v. Groupon, Inc., 2014 WL 1047408 at *2 (N.D. Cal. March 14, 2014). Such pricing is common throughout the economy.


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To the extent that the “ability to price discriminate” may entail some degree of market power,

such a “showing of [defendant’s] ‘market power’ is not itself sufficient to prove that [defendant]

possesses ‘monopoly power.’” Kolon Indus. v. E.I. DuPont de Nemours & Co., 748 F.3d 160, 174 (4th

Cir. 2014) (emphasis added). Even in cases under Section 1 of the Sherman Act, which requires a

lesser showing of market power, price discrimination does not “give rise to a presumption of market

power … standing alone” since “it is generally recognized that it also occurs in fully competitive

markets.” Illinois Tool Works Inc. v. Independent Ink, Inc., 547 US 28, 45 (2006). Under Section 2,

the Sherman Act provision at issue here, “a predator has sufficient market power when, by restricting

its own output, it can restrict marketwide output and, hence, increase marketwide prices.” Rebel Oil,

51 F.3d at 1434 (emphasis added). But SCI’s theory does not address the power to raise prices

marketwide and to “sustain them for an extended period.” Id. Instead, SCI alleges that Uber can charge

temporary “surge” prices or otherwise raise prices selectively for some riders at some times in some

locations.5 Nor does SCI’s theory entail any power to restrict marketwide output since SCI concedes

that Uber’s alleged price discrimination occurs “without reducing overall market output.” SAC ¶ 91

(emphasis added). But truly “[s]upracompetitive pricing entails a restriction in output.” Brooke Grp.,

Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 233 (1993) (emphasis added). SCI’s theory

simply “does not prove … market power, at least not the degree of market power to raise the concerns

of the Sherman Act.” Rebel Oil, 51 F.3d at 1442. This failing alone compels dismissal.

2. SCI Fails As a Matter of Law To Plead That Uber Has The Unilateral Power To Raise Overall Prices in a Two-Sided Transaction Market

SCI now emphatically embraces the definition of the relevant market as a two-sided transaction

market, a market definition whose legal consequences are governed by the Supreme Court’s seminal

Amex decision. This market definition, however, does not assist SCI in pleading market power for two

reasons. First, even if SCI’s “price discrimination” theory had any legal merit in a one-sided market

case—and as discussed above, it does not—it would fail to show market power in a two-sided

transaction market as a matter of law. That is, SCI’s theory ignores one entire side of the market (i.e.,

5 Indeed, the factors that govern dynamic pricing—“ability to pay,” “price sensitivity” and demand-supply balance, SAC ¶ 85—can easily result in lower prices.


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drivers) and disregards the indirect network effects that are the hallmark of a two-sided transaction

platform. Second, the necessary implications of SCI’s two-sided transaction market definition validate

Lyft’s ability to expand output to defeat any attempt by Uber to charge monopoly prices.

As SCI’s complaint concedes, and as Amex teaches, two-sided transaction markets are

characterized by indirect network effects.6 Amex, 138 S. Ct. at 2280. Thus, SCI’s amended complaint

pleads that “[b]oth sides of the two-sided market are subject to substantial [indirect] network effects—

the more riders Uber has, the more drivers it is able to attract, and the increased driver availability

attracts even more riders.” SAC ¶ 2. The numerous added references to such network effects in SCI’s

latest complaint suggest that SCI (mistakenly) believes that these effects ease rather than heighten

SCI’s burden in pleading market power. But the reverse is true. As the Supreme Court has held,

“[i]ndirect network effects … limit the platform’s ability to raise overall prices and impose a check on

its market power.” Amex, 138 S. Ct. at 2281 n.1 (emphasis added).

In view of such considerations, the Supreme Court has commanded that a two-sided transaction

market must be analyzed “as a whole” because “[a]ny other analysis would lead to mistaken inferences

of the kind that could chill the very conduct the antitrust laws are designed to protect,” including

“legitimate price competition.” Amex, 138 S. Ct. at 2287 (citations and internal quotation marks

omitted). But SCI’s approach to pleading market power is exactly the kind of partial analysis that the

Supreme Court has warned against. Rather than address Uber’s ability to persistently raise overall

prices in the market as a whole, SCI’s “price discrimination” theory improperly focuses only on Uber’s

ability to raise prices to customers on one side (the passenger side) of a two-sided transaction market

and, even then, only for some customers in some places at some times. In fact, SCI alleges that Uber

has engaged in “discriminatory” surge pricing from the beginning while losing billions of dollars in the

6 “In other words, the value of the services that a two-sided platform provides increases as the number of participants on both sides of the platform increases. A credit card, for example, is more valuable to cardholders when more merchants accept it, and is more valuable to merchants when more cardholders use it. To ensure sufficient participation, two-sided platforms must be sensitive to the prices that they charge each side. Raising the price on side A risks losing participation on that side, which decreases the value of the platform to side B. If participants on side B leave due to this loss in value, then the platform has even less value to side A—risking a feedback loop of declining demand. Two-sided platforms therefore must take these indirect network effects into account before making a change in price on either side.” Amex, 138 S. Ct. at 2281 (citations omitted).


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market as a whole. Id. ¶ 9, 84.7 SCI’s approach is not legally valid in a case alleging a two-sided

transaction market.

As the Supreme Court explained in Amex, even charging uniformly higher prices to one side of

the market (which SCI does not allege) is not in itself proof of “market power or anticompetitive

pricing.” Amex, 138 S. Ct. at 2285-86. That is, “[e]vidence of a price increase on one side of a two-

sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power.”

Id. at 2287. And even when the overall price of transactions has increased in the market as a whole,

such evidence “does not prove … the power to charge anticompetitive prices” where there is no

corresponding showing of output restriction. Id. at 2288. “Market power is the ability to raise price

profitably by restricting output.” Id. (original emphasis; internal quotation marks omitted). This of

course accords with the Ninth Circuit’s holding in Rebel Oil. But SCI alleges no such power to restrict

market output. As already noted, SCI makes the damning admission that Uber’s alleged price

discrimination occurs “without reducing overall market output.” SAC ¶ 91 (emphasis added). Nor

could SCI honestly allege otherwise given that it recently affirmed (in opposing dismissal of its prior

complaint) that the market “has grown significantly … and likely will continue to grow.” Pl.’s Resp.

to Defs.’ Mot. to Dismiss FAC at 11 (dkt. 67). SCI’s price discrimination theory thus fails to plead

that Uber has the ability to restrict overall output in a two-sided transaction market.

But this is not the only legal defect in SCI’s complaint injected by its own market definition.

The existence of a two-sided transaction market also undermines SCI’s conclusory assertions that Lyft

would be unable to expand output in response to monopoly prices. That is so because if Uber were to

reduce output, it would lose the benefit of indirect network effects, see, e.g., SAC ¶¶ 73-75, while Lyft

would gain those benefits by expanding output. Because of such network effects, “[g]aining market

share puts [Lyft] in a better position to gain more market share.” SAC ¶ 74 (internal quotation marks

omitted; emphasis added). Moreover, in a two-sided transaction market, the relevant output is the

7 See SAC ¶¶ 9 (“There is no dispute that Uber has and continues to price below cost, however cost may be measured”), 11 (“Uber continued to price below cost in an ongoing effort to weaken the only remaining significant US competitor, Lyft”). As the Court previously noted, this “failure to allege that Uber has in fact set prices at profitable and supracompetitive levels … might call into question the plausibility of allegations that Uber currently has the power to do so.” Order at 14 n.6.


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volume of transactions. Amex, 138 S. Ct. at 2286. Thus, even if Uber reduces its own output of

transactions, this cannot reduce the volume of cars and riders remaining in the marketplace, which

stand available for Lyft to increase its own transactions. That is, SCI’s complaint overlooks the fact

that neither Lyft nor Uber controls the underlying productive assets in the business. Neither owns cars,

employs drivers or provides transportation. Rather, drivers “provid[e] transportation services with their

own personal cars.” SAC ¶ 41. The ready availability of rideshare cars and drivers means that

“competitors would not need to build new productive assets or otherwise take a long time to supply

customers’ wants” so that Uber “or any competitor would probably have little success in attempting to

curtail total market output.” Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1414 (7th

Cir. 1989); see also Rebel Oil, 51 F.3d at 1442 (since “gasoline stations do not produce gasoline” and

“are merely retail distribution outlets,” a “would-be monopolist must control market output at the

wholesale supply level in order to pose any threat of monopolizing the retail market” (original

emphasis)). SCI’s own complaint demonstrates this phenomenon by pleading that when “Uber and

Lyft pulled out” of Austin in 2016, the output of transactions in the market continued as four

competitors promptly “stepped in to offer ride-hailing,” including two local companies. SAC ¶ 89.

While three of the four exited when “Uber and Lyft returned to the market,” SCI makes no allegation

that overall transaction volume was ever restricted. Id. Indeed, SCI makes no claim that output

declined when Sidecar exited the market.

In sum, SCI’s conclusion that Uber possesses market power cannot be legally reconciled with

its two-sided definition of the relevant transaction market.

3. SCI Again Relies On An Impermissible Oligopoly Theory

In its last complaint, SCI relied on a legally invalid theory of oligopoly power rather than

unilateral market power to support its Section 2 claims. Order at 13-14; see Rebel Oil, 51 F.3d at 1447-

48 (claiming that defendant had “sufficient market power to enforce supracompetitive oligopoly

pricing” sufficed under Robinson-Patman Act but not Section 2 of the Sherman Act). In particular,

SCI’s theory was “that Uber has disciplined Lyft to the point that Lyft chooses not to compete against

Uber in price, and that Lyft will respond to Uber’s signals regarding increased prices to recoup its own

losses.” Order at 14. Although SCI has erased such telltale words as “duopoly” and “signaling” from


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its latest complaint, such word play has not purged the “discipline” theory from its case.8 All of the

elements of that theory remain at the heart of the SAC. Thus, SCI continues to allege that Uber priced

“below cost in an ongoing effort to weaken the only remaining significant US competitor, Lyft,” SAC

¶ 11, but as before, “Sidecar has not alleged that Uber seeks to or is likely to drive Lyft out of the ride-

hailing market.” Order at 15 n.7. Once again, SCI alleges that Lyft incurred “enormous losses,” id. ¶

90, 92, is “severely” weakened, id. ¶¶ 3, 76, 92, 110, and “faces significant pressure to achieve

profitability and recoup prior losses.” Id. ¶ 90. And it asserts again that as a result of these losses and

pressures, Lyft is following Uber’s pricing lead, albeit now in the form of alleged price discrimination:

“in response to Uber’s conduct, Lyft is itself implementing a similar dynamic pricing model,

substantially reducing Lyft as a competitive constraint.” Id. ¶ 85 (emphasis added). All this merely

repeats the same old refrain that “Uber can raise prices above competitive levels by disciplining Lyft,”

Order at 14, and repaints the same legally invalid picture: that of an “oligopolist [who] can increase

market price, but only if the others go along.” Rebel Oil, 51 F.3d at 1443. But evidence “of oligopoly

pricing to prove market power on [a] price discrimination claim … cannot support a claim of

monopolization under the Sherman Act.” Id. at 1448.

As the Court previously held, this picture does nothing to refute the reality that Lyft can respond

to monopoly pricing and the attendant output reduction by expanding its own output. Order at 13-14

(“Sidecar does not allege that … Lyft could not respond to such a reduction [in output by Uber] by

increasing its own output”). While the SAC adds additional rhetorical flourishes about Lyft’s supposed

“weakened” state, Lyft’s “weakness” was a prominent theme in SCI’s last complaint (as noted above).

Consistent with the concession of SCI’s counsel that “Lyft could increase output ‘in theory,’” Order at

15, the SAC offers nothing—beyond conclusory assertions—to show that Lyft could not expand output

in fact. While SCI avers that “Lyft’s current status as a public company requires it to recoup its own

massive losses through higher prices,” SAC ¶ 12, this is just a retread of SCI’s previous allegation that

Lyft is “in need of the financial umbrella to be provided by Uber pricing in order to recover from its

own bruising losses.” FAC ¶ 8. In any event, none of this addresses the relevant legal question, which

8 Merely erasing the words cannot change the fundamental reality that SCI is still alleging “classic duopoly behavior,” FAC ¶ 8, and a “classic duopoly market strategy.” Id. ¶ 93.


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is whether Lyft could expand its volume of transactions while charging competitive prices in response

to even higher monopoly prices charged by Uber. Rebel Oil, 51 F.3d at 1433-34 (recoupment stage

involves “prices above competitive levels”). SCI makes no such claim and, as already discussed above,

no such claim could be made consistent with SCI’s new market definition. See Section IV.A.2.

***

In sum, SCI’s latest complaint compounds rather than cures the problems that afflict its

allegations of market power. These multiple problems arise as a matter of law and are not curable.

They compel dismissal of SCI’s Section 2 claims with prejudice.

B. SCI Fails to Plead a Cognizable Probability of Recoupment

SCI not only must plead market power to support its predatory pricing claim, but must also

allege a legally valid basis for concluding that there is a dangerous probability that Uber will recoup

all of the alleged billions in predatory losses that SCI alleges. Order at 10. For a predatory pricing

scheme to succeed, “it is not enough simply to achieve monopoly power.” Matsushita Elec. Indus. Co.

v. Zenith Radio Corp., 475 U.S. 574, 589 (1986). Recoupment “depends on maintaining monopoly

power for long enough both to recoup the predator’s losses and to harvest some additional gain.” Id.

(original emphasis). While SCI’s last complaint alleged that Uber had raised some prices,9 it failed to

plead a cognizable theory of recoupment since it relied not on recoupment via the maintenance of

monopoly power but through the creation of a “disciplined oligopoly.” Order at 15-16. SCI’s new

complaint does not remedy this failure to plead a viable recoupment theory.10

9 The SAC repeats these allegations and asserts that Uber “has begun the process of recouping its losses from predatory pricing,” SAC ¶ 80, but the SAC’s allegations of continuing losses and below-cost pricing refute any suggestion that Uber is now reaping profits (much less supracompetitive profits). See footnote 6 supra. “It cannot be that Defendant is both forcing competitors from the market by driving its prices below cost and extracting monopoly profits by raising its prices above the market rate.” TI Inv. Servs., LLC v. Microsoft Corp., 23 F. Supp. 3d 451, 466 (D.N.J. 2014). “The fact that [defendant] raised its prices … is not sufficient to show recoupment or a dangerous probability of recoupment in the absence of any allegations that the increased price was supracompetitive.” GMA Cover Corp. v. Saab Barracuda LLC, 2012 WL 642739 at *8 n.5 (E.D. Mich. Feb. 8, 2012).

10 SCI also fails to plead a theory of recoupment that is consistent with its two-sided transaction market definition. While SCI pleads that “[g]iven the two-sided nature of the market, Uber can achieve recoupment from either side of the market,” SAC ¶ 12, this does not mean that one side of the market can be analyzed in isolation from the other. Amex, 138 S. Ct. at 2287 (market must be


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As noted above, although SCI has made calculated deletions from its complaint, it continues to

embrace the fundamental premises that previously underpinned the flawed “disciplined oligopoly”

theory. Even when dressed up with allegations of “price discrimination” or “dynamic pricing,” SCI’s

theory of recoupment is still one that involves “coordinated action by an oligopoly of two dominant

firms.” Order at 15. Thus, for example, SCI alleges that “in response to Uber’s conduct, Lyft is itself

implementing a similar dynamic pricing model.” SAC ¶ 85 (emphasis added); see also id. ¶ 92 (“Lyft’s

own adoption of dynamic pricing” removes it as “a check on the ability of Uber to charge supra-

competitive prices”). “It is obvious from all this that [plaintiff’s] section 2 … theory is not that

[defendant] aimed to drive [Lyft] and all other competitors from the … market and later experience the

joys of a sole survivor taking in monopoly profits.” Indiana Grocery, 864 F.2d at 1415. Rather, SCI’s

theory is that “Lyft has not been willing … to respond to Uber’s price discrimination strategy by

expanding its output or seizing significant additional market share through price competition.” SAC ¶

12 (emphasis added). But alleging that “the existing competition, while it may be able to challenge

[the defendant], lacks the will to do so” simply “cannot support a claim of monopolization under the

Sherman Act.” Rebel Oil, 51 F.3d at 1448 (original emphasis).

SCI’s latest complaint is consistent with its confident representation to the Court that it could

amend its recoupment theory “to allege that Lyft cannot increase output without facing devastating

retaliation from Uber, which would presumably take the form of renewed predatory pricing.” Order at

15-16. As the Seventh Circuit has held, such an “‘intimidation’ or ‘disciplining’ theory is necessarily

speculative” since it rests on the “risky assumption” that “any other remaining competitors would be

so influenced by [defendant’s] ‘disciplining’ tactics that they would permit [defendant] to charge

supracompetitive prices.” Indiana Grocery, 864 F.2d at 1416. As a matter of law, such a “theory does

not implicate section 2 of the Sherman Act.” Id. The Ninth Circuit in Rebel Oil followed Indiana

Grocery and relied on the same reasoning to reject rival-bashing theories of recoupment that rely on

the premise that “the defendant’s predatory pricing ‘disciplined’ rivals” and led them to “engage[] in

analyzed as a whole). Indeed, SCI’s theory of recoupment via discriminatory price hikes for riders necessarily ignores the fact that drivers receive the bulk of any (higher) price. SAC ¶ 39 (“the balance of the passenger’s payment is remitted to the Driver” after the TNC subtracts “a percentage of the Passenger’s fare” as a commission).


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oligopoly pricing.” 51 F.3d at 1443 (citing Indiana Grocery, 864 F.2d at 1416). That a “predator is

able to establish and maintain supracompetitive prices in an oligopoly by making it too painful for its

existing competitors to challenge its prices” cannot support a Section 2 claim. Id. at 1448. Whether

those higher prices flow from past “painful” experience or the threat of future repetition of the “pain”

does not matter since both alternatives impermissibly rely on oligopoly pricing to plead recoupment.

Id. (the “distinction between oligopolistic and monopolistic practices is crucial”).

The only other amendments to the complaint that appear to be directed to the recoupment

element are embellishments upon SCI’s previous contention that Uber has the “intention of recouping

its losses resulting from its predatory pricing.” SAC ¶ 97. For example the SAC now asserts that Uber

was motivated by a “‘winner takes all’ strategy,” id. ¶ 2, and “confidently believed” in recoupment, id.

¶ 97. SCI even argues that “[u]nless Uber knew that it was capable of recouping its losses, Uber’s

stated strategy of pricing below marginal cost to later achieve increased margins could not have been

profitable and would not have been undertaken.” Id. ¶ 103; see also id. ¶ 4 (same). But as the Ninth

Circuit has held in no uncertain terms, “intent cannot substitute for the required element of

recoupment.” Rebel Oil Co., Inc. v. Atl. Richfield Co., 146 F.3d 1088, 1097 (9th Cir. 1998) (“In Brooke

Group, the Supreme Court made it clear that predatory intent alone, no matter how clear and convincing

the evidence, cannot substitute for a plaintiff’s failure to demonstrate a reasonable prospect of

recoupment.”); see also Indiana Grocery, 864 F.2d at 1415-16 (rejecting argument that “[defendant]

thought it could succeed, which in turn indicates that there was a dangerous probability that [defendant]

could have succeeded”). Thus, “unless recoupment lies in store even the most vicious intent is

harmless.” A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F. 2d 1396, 1401 (7th Cir. 1989).

In sum, SCI has failed again to plead a legally cognizable theory of recoupment.

C. SCI Fails to Plead an Antitrust Claim for Alleged Tortious Interference

SCI’s claim of monopolization through “tortious interference” via “fraudulent ride requests”

fares no better than its predatory pricing claim. SAC ¶¶ 114-15, 119. Such allegations do not state a

claim under the federal antitrust laws and cannot survive 12(b)(6) scrutiny. See, e.g., Phila. Taxi Ass’n,

Inc. v. Uber Techs., Inc., 886 F.3d 332, 340 (3d Cir. 2018) (affirming dismissal of Section 2 claim


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based in part on the allegation that “Uber ‘flooded’ the Philadelphia taxicab market by improperly

luring drivers away from medallion companies”).

First, SCI has failed to allege market power. This is a necessary element under Section 2,

regardless of the theory of anticompetitive conduct, and SCI’s failure to allege market power is fatal to

its monopolization claims. See, e.g., Order at 16. Second, even if SCI’s SAC had corrected this

deficiency (and it did not), SCI’s tortious interference allegations must be dismissed because they fail

to rebut the legal presumption that such alleged conduct has a de minimis effect on competition.

Alleged tortious activity is at best a feeble basis for antitrust liability since the “[antitrust] laws

do not create a federal law of unfair competition,” Brooke Grp., Ltd. v. Brown & Williamson Tobacco

Corp., 509 U.S. 209, 225 (1993), and plaintiffs should not obtain “treble damages” for “tort suits

masquerading as antitrust actions.” Copperweld Corp. v. Ind. Tube Corp., 467 U.S. 752, 777 (1984).

“Even an act of pure malice by one business competitor against another does not, without more, state

a claim under the federal antitrust laws.” Brooke Grp., 509 U.S. at 225.

When, as here, a plaintiff challenges tortious conduct as an antitrust violation—particularly

when it alleges fraud or deceit11—it must show that the defendant’s actions “are so widespread and

longstanding and practically incapable of refutation that they are capable of injuring both consumers

and competitors.” Novell, Inc. v. Microsoft Corp., 731 F.3d 1064, 1079-80 (10th Cir. 2013) (Gorsuch,

J.); see also Philip E. Areeda & Herbert Hovenkamp, Fundamentals of Antitrust Law §7.08[A] at 7-

146 (“The antitrust court must . . . insist on a preliminary showing of significant and more-than-

temporary harmful effects on competition (and not merely upon a competitor or customer) before

considering a tort as an exclusionary practice.”). Indeed, the Ninth Circuit holds that such a plaintiff

must overcome a presumption that such alleged conduct has a de minimis effect on competition. See

Am. Prof’l Testing Serv., Inc. v. Harcourt Brace Jovanovich Legal & Prof’l Publ’ns, Inc., 108 F.3d

1147, 1152 (9th Cir. 1997) (requiring proof, inter alia, that the alleged conduct “continued for

11 When allegations sound in fraud and deceit, as SCI’s do, see SAC ¶¶ 13-14, 114-22, 152-54, pleading with particularity is required under F.R.C.P. 9(b). As discussed below, SCI has failed to meet this requirement. “[I]f particular averments of fraud are insufficiently pled under Rule 9(b), a district court should ‘disregard’ those averments, or ‘strip’ them from the claim.” Vess v. Ciba-Geigy Corp. USA, 317 F. 3d 1097, 1105 (9th Cir. 2003).


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prolonged periods” and was “not readily susceptible of neutralization or other offset by rivals”). SCI’s

SAC pleads nothing that meets these requirements or rebuts this presumption.

SCI’s allegations are wholly speculative, offered on “information and belief.” SAC ¶ 114. The

complaint does not identify the cities (i.e., alleged relevant markets) involved or even if more than one

alleged market was affected. There is no allegation as to the percentage or number of total ride requests

involved. There is no non-conclusory allegation regarding the timing or frequency of the alleged

requests—whether they were occasional, episodic or continuous. More fundamentally, the undefined

concept of “fraudulent” requests makes no sense. Indeed, there is no indication as to how many alleged

“fraudulent” requests resulted in an actual paid transaction as distinct from requests that were

cancelled (and, if so, whether a cancellation fee nevertheless was collected). These failings were not

remedied in SCI’s second amended complaint despite the fact that Uber addressed the issues in its

motion to dismiss SCI’s original complaint (“Original Compl.,” dkt. 1) and again in its motion to

dismiss the FAC. Defs.’ Mot. to Dismiss, dkt. 57 at 15; Defs.’ Mot. to Dismiss FAC, dkt. 64 at 17.

Antitrust claims like this one that “fail[] to plead the necessary evidentiary facts” are ripe for dismissal.

Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047-48 (9th Cir. 2008) (emphasis added).

The few facts that are alleged confirm that SCI has pleaded no threat to competition. The

alleged “scheme” was not longstanding or prolonged but rather limited in time, lasting from mid-2014

to late 2015.12 SAC ¶¶ 113-14. While SCI did amend its Original Complaint to add the allegation that

Uber “targeted” Lyft as well as Sidecar, compare Original Compl. at ¶ 105 to SAC at ¶ 119, this

actually supports the de minimis presumption since Lyft was not excluded from the market by the

alleged conduct. Indeed, SCI does not even plead that the alleged conduct excluded Sidecar itself from

the market. To the contrary, SCI alleges that “Sidecar was forced out of business by Uber’s . . . pricing

strategy,” id. ¶ 148, which was lawful as already established.

Without regard to these failings, SCI’s SAC fails to state a claim given its concession that the

alleged requests “were submitted” with the “goal[] in mind” of “recruit[ing] Drivers to work

exclusively with Uber (instead of its competitors).” Id. ¶ 115. Such requests entailed payment to the

12 Because of the four-year statute of limitations, SCI’s claim cannot even reach back to mid-2014.


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Drivers for transporting the “Uber contractors” who sought to recruit them. Id. ¶¶ 115-16. Recruiting

drivers to improve Uber’s network, a process that SCI admits lowered prices for consumers and

improved service quality, id. ¶¶ 71-74, is a legitimate business justification that precludes liability

whether or not the “contractors” making the “fraudulent” requests were “real passengers.” See, e.g.,

Am. Prof’l Testing Serv., 108 F.3d at 1153. In Phila. Taxi Ass’n, for example, the Third Circuit rejected

a Section 2 claim based in part on the allegation that “Uber ‘flooded’ the Philadelphia taxicab market

by improperly luring drivers away from medallion companies.” 886 F.3d at 340. The court held that

such allegations do “not give rise to an inference of anticompetitive or exclusionary conduct” where

the “drivers that Uber recruited did not remain idle, but rather they drove for Uber.” Id. at 340-41;

accord Malden Transp. v. Uber Techs., 321 F. Supp. 3d 174, 180 (D. Mass. 2018) (dismissing Section

2 claim based on reasoning of Phila. Taxi Ass’n). SCI similarly alleges that the Sidecar drivers were

recruited not to remain idle but “to work exclusively with Uber.” SAC ¶ 115 (emphasis added). Such

conduct does not violate Section 2.13

SCI’s “tortious interference” allegations thus fail to state a claim under the Sherman Act and

should be dismissed with prejudice.

D. SCI’s Unfair Practices Act Claim Should Be Stricken

Although the Court dismissed SCI’s UPA claims with prejudice, Order at 18-21, SCI attempts

to replead its UPA claim, albeit without change. Because these claims have already been dismissed

with prejudice, they do not require a response and should be stricken.

V. CONCLUSION

For the reasons set forth above, SCI’s second amended complaint should be dismissed without

leave to amend and with prejudice.

13 The allegation that the conduct breached Sidecar’s contractual terms of service, see SAC ¶¶ 119-20, changes nothing. As the Ninth Circuit has emphasized: “‘Buying an employee away from a rival, for example, does not impair competition any more when that employee was under a long term contract than when he was not. The competitive effect, if any, results from the transfer of resources or patronage away from the rival and to the monopolist. . . . If there is a tort, so be it. But antitrust law should not make liability depend upon the existence or nonexistence of contracts which do not affect the competitive results.’” Oahu Gas Serv., Inc. v. Pac. Res., Inc., 838 F.2d 360, 370-71 (9th Cir. 1988) (quoting 3 P. Areeda & D. Turner, Antitrust Law ¶ 7381 (1978)) (emphasis added).


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Dated: February 18, 2020

THEODORE J. BOUTROUS JR. DANIEL G. SWANSON CYNTHIA E. RICHMAN GIBSON, DUNN & CRUTCHER LLP

By: /s/ Daniel G. Swanson Theodore J. Boutrous Jr. Daniel G. Swanson Cynthia E. Richman

Attorneys for Uber Technologies, Inc, Rasier LLC, Rasier-CA LLC, Rasier-PA LLC, Rasier-DC LLC, Rasier-NY LLC, Uber-USA LLC


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CERTIFICATE OF SERVICE

I hereby certify that on February 18, 2020, I electronically filed with the Clerk of Court via

the CM/ECF system the following document:

DEFENDANTS’ MOTION TO DISMISS SECOND AMENDED COMPLAINT AND

[PROPOSED] ORDER.

Notice of this filing will be sent by email to all parties with an email address of record by

operation of the Court’s electronic filing system. Parties may access the filing through the Court’s

CM/ECF system. Dated: February 18, 2020 /s/ Daniel G. Swanson

Daniel G. Swanson


Documents

THEODORE J. BOUTROUS JR., SBN 132099 DANIEL G. SWANSON