In this week’s article we examine the decision of US District Court Judge Jed Rakoff in Meyer v. Kalanick, 15 Civ. 9796 (SDNY March 31, 2016), a nationwide antitrust class action alleging an “illegal price-fixing conspiracy in violation of federal Sherman Antitrust Act, 15 USC 1, and the New York State Donnelly Act, New York General Business Law 340″ by Uber Technologies, Inc. CEO (and occasional Uber driver) Travis Kalanick.
Travel Law Update
Terror Targets Update
In Militant attack: 15 wounded in Jerusalem bus explosion, eturbonews.com (4/18/2016), it was noted that “The massive explosion occurred in Hebron Way, west Jerusalem, with police citing ‘a militant attack’ as the probably cause of the blast”.
Zika, Zika, Zika
In Belluck & McNeil, Zika Virus Causes Birth Defects, Health Officials Confirm, nytimes.com (4/13/2016) it was noted that “Officials at the Centers for Disease Control and Prevention said on Wednesday that there was now enough evidence to definitively say that the Zika virus could cause unusually small heads and brain damage in infants born to infected mothers…’There is no longer any doubt that Zika causes microephaly’, said Dr. Thomas R. Frieden, the C.D.C. director. He said the conclusion, reached after evaluating ‘mounting evidence from many studies’ signifies ‘an unprecedented association’ in medicine”.
In Stack, Zika Virus Campaign Planned by New York City, nytimes.com (4/18/2016) it was noted that Mayor de Blasio said that “We will spare no effort to protect pregnant New Yorkers from the devastating consequences of Zika, and we ask New Yorkers to help us by taking simple steps to get rid of standing water where mosquitoes can breed’”.
Inky The Octopus Escapes
In Bilefsky, Inky the Octopus Escapes From a New Zealand Aquarium, nytimes.com (4/13/2016) it was noted that “After busting through an enclosure, the nimble contortionist appears to have quietly crossed the floor, slithered through a narrow drain hole about six inches in diameter and jumped into the sea. Then he disappeared. This was no Houdini, but rather a common New Zealand octopus called Inky, about the size of a soccer ball. The breakout at the National Aquarium of New Zealand in Napier… apparently began when Inky slipped through a small gap at the top of the tank”.
Airbnb & Uber: Revolution To Institution
In Dickerson & Hinds-Radix, Airbnb and Uber in New York City: From Revolution to Institution, New York Law Journal (4/22/2016) it was noted that “During the last year, ride-hailing and apartment sharing companies Uber, Lyft and Airbnb have had a significant impact upon New York City’s car service industry, inspiring both opposition from the yellow cab industry and competition form new ride sharing companies such as ‘Chariot for Women’ and the hotel industry which recently issued a report discussing a wide range of New York City lodging industry impacts that exist due to the existence of Airbnb and estimated a $2 billion negative impact…As Airbnb, Lyft and Uber have evolved from revolutionaries of the sharing economy to nearly accepted transportation and short-term rental institutions, so too have the number and scope of lawsuits brought against them”.
Uber Settles Major Class Actions
In Isaac & Scheiber, Uber Settles Cases With Concessions, but Drivers Stay Freelancers, nytimes.com (4/21/2006) it was noted that “Uber has long been embroiled in a debate over the status of its drivers: Should they be independent contractors or full-time employees? Uber says that as independent contractors, its drivers get flexibility. Their freelancer status also lets the company sidestep the costs of full-time employees, including paying minimum wage and the employers’ share of Social Security. But labor groups and lawyers have argued that Uber drivers should be classified as employees to receive worker protections. On Thursday, Uber moved a step closer to getting its way. The company reached a settlement in a pair of class-action lawsuits in California and Massachusetts that will let it continue to categorize drivers in those states as independent contractors-a landmark agreement that could have lasting implications for the long-term viability of the ride-hailing service. Under the settlement, filed in the United States District Court in the Northern District of California [O’Connor v. Uber Technologies, Inc., Case No. CV 13-03826-EMC (N.D. Cal.) (Notice of Motion For Preliminary Approval)(April 21, 2016)], Uber will pay as much as $100 million to the roughly 385,000 drivers in the cases. The company also agreed to several concessions to appease driver concerns, including giving more information on how and why drivers are barred from using the app. As well as aiding in creating new ‘drivers associations’ in both states”.
Fireworks Disaster In Mumbai
In Anand & Raj, Fireworks Disaster at Kerala Temple Kills 106 in South India, nytimes.com (4/10/2016) it was noted that “A series of explosions early Sunday caused by a fireworks display during a religious festival at a temple left 106 people dead and hundreds more injured in the southern Indian state of Kerala”.
In Fined: Air France, Lufthansa and British Airways, eturbonews.com (4/14/2016) it was noted that “When air travelers file complaints with airlines, they deserve prompt and complete responses that appropriately answer their specific concerns’ said US Transportation Secretary Anthony Foxx…The (DOT) today fined Air France, Lufthansa and British Airways for not adequately responding to complaints filed by passengers with disabilities. Air France and Lufthansa were each fined $200,000 and British Airways was fined $150,000. The airlines were also ordered to cease and desist from future similar violations”.
Newly Updated Airbnb Mobile App
In Airbnb inspires people to ‘Live There’, etorbonews.com (4/19/2016) it was noted that “Airbnb has unveiled the next chapter in its mission to change the way people travel, offering an alternative to mass produced tourism. Beginning today, Airbnb is rolling out an updated app, with a range of new features, and launching a global brand campaign that will encourage people to change the way they experience the world around them. With over two million homes, Airbnb is already one of the world’s largest accommodation providers; more than 80 million people worldwide have already had a unique experience by staying in someone’s home when they travel”.
Trapped In Japanese Hotel
In Steinmetz, Tourists trapped in Japanese hotel after second deadly earthquake, eturbonews.com (4/16/2016) it was noted that “A second strong earthquake in Kumamoto, Japan, trapped a group of 20 Chinese tourists in a hotel near Mount Aso…The initial quake killed at least 29 people and injured 1,500 with the death toll rising”.
Morocco Tour Guides
In Steinmetz, Need a tour guise in Morocco? The Ministry of Tourism guarantees quality-it’s the law, eturbonews.com (4/9/2016) it was noted that “A law in Morocco was implemented in February to improve the quality of the services provided by tour guides…That law aims to raise skill, training and access to this profession…special diplomas will be required for guides showing national parks and heritage areas”.
Bus Accidents Abroad
In Steinmetz, Pakistan Passenger bus collision kills 18, injured 14, eturbonews.com (4/13/2016) it was noted that ‘eighteen people are dead and 14 others injured when a passenger bus collided with a truck in Pakistan’s east Faisalabad city on Wednesday morning”
In Steinmetz, Passenger bus plunged into a river; 23 dead, eturbonews.com (4/9/2016) it was noted that “Passengers traveling on a scheduled bus in Peru from the southern region of the country from Madre de Dios towards of the city of Cuzco, a major Andean mountain travel and tourism destination and the gateway to Machu Picchu were involved in a tragic accident on Friday”.
The Incredible Shrinking Airline Seat
In Passenger group appeals FAA refusal to stop airline seat shrinkage, eturbonews.com (4/13/2016) it was noted that “FlyersRights.org has appealed the U.S. Federal Aviation Administration’s (FAA) denial of its rulemaking petition to halt further shrinkage of airline seats and legroom until minimum passenger space standards can be set. The appeal was filed in the US Court of Appeals for the District of Columbia which has the power to review federal agency decisions”.
Ergonomic Airline Seats
In Steinmetz, Ergonomic seats for new Airbus fleet, eturbonews.com (4/12/2016) it was noted that “The Philippines carrier, Cebu Pacific, becomes the first airline in the Asia-Pacific region to over the S:L3510 seat model from Recaro Aircraft Seating for its brand-new fleet of 30 Airbus A321neo aircraft”.
No Suicide Tourism In Canada
In Bacon, Canada To Block Suicide Tourism, The Journal News (4/15/2016) it was noted that “Canada unveiled an assisted death bill Thursday designed to ease the end of life for terminally ill patients while slamming the door on ‘suicide tourism’ to ensure Americans and others won’t flock there to die. People with psychiatric problems also would be excluded, and no advance consent would be allowed”.
World Medical Tourism
In Steinmetz, World Medical Tourism Market is Expected to Reach $143.8 Billion by 2022, eturbonews.com (4/13/2016) it was noted that “A new report published by Big Market Research titled, ‘World Medical Tourism Market-Opportunities and Forecasts, 2014-2011′, projects that the world medical tourism market would reach $143.8 billion by 2022″.
E.U. Access To Airline Passenger Records
In Pop, Drozdiak & Norman, European Parliament Approves Law to Access Airline Passenger Records, Wall Street Journal (4/14/2016) it was noted that “European Union lawmakers approved long-delayed legislation requiring airlines to share air-passenger data, as the bloc struggles to close legal loopholes used by terrorists coming to Europe. The law…would make the personal and credit-card data of all air travelers coming into and leaving the EU accessible to national police and intelligence services for up to five years. Countries also could opt to collect and share data on flights within the EU”.
Cruising To Cuba, Si
In Alvarez, Carnival’s Maiden Voyage to Cuba Draws Ire and Bias Charges, nytimes.com (4/18/2016) it was noted that “When two Cuban-Americans here recently tried to book a trip on Carnival Cruise Line’s maiden voyage to Cuba-the first American cruise ship to visit in at least 50 years-the result was not what they had in mind. It turns out Cuban law prohibits people born on the island from traveling there by ship, and Carnival rejected their reservation…As legal and political pressure has continued to mount, Carnival softened its stance on Monday. The company announced that it would begin accepting bookings from Cuban-born people in the hopes that the Castro government will overturn its Cold War-era directive by May 1. The directive prohibits Cubans from traveling to and from Cuba by sea…In Miami, which is particularly sensitive to changes in the United States-Cuba relationship, Carnival’s initial decision to move forward with the cruise, despite prohibitions on Cuban-born people, sparked a furor among Cuban-Americans”.
Travel Law Article: The Meyer Case
In the Meyer case, the Court, in refusing to dismiss the Meyer complaint, noted that plaintiff alleged that “Mr. Kalanick had orchestrated and facilitated an illegal price-fixing conspiracy…while disclaiming that he was running a transportation company, had conspired with Uber drivers to use Uber’s pricing algorithm to set the prices charged to Uber riders, thereby restricting price competition among drivers to the detriment of Uber riders”.
“Uber, founded in 2009, is a technology company that produces an application for smartphone devices (the ’Uber App’) that matches riders with drivers (called ‘driver partners’) Uber states that it is not a transportation company and does not employ drivers…Through the Uber App, users can request private drivers to pick them up and drive them their desired location. Uber facilitates payment of the fare by charging the user’s credit card or other payment information on file. Uber collects a percentage of the fare asa software licensing fee and remits the remainder to the driver”.
The Uber Pricing System
“Drivers using the Uber App do not compete on price…and cannot negotiate fares with (riders) for rides. Instead, drivers charge the fares set by the Uber algorithm. Though Uber claims to allow drivers to depart downward from the fee set by the algorithm, there is no practical mechanism by which drivers can do so. Under’s ‘surge pricing’ model, designed by Mr. Kalanick, permits fares to rise up to ten times the standard fare during times of high demand”.
“Common Motive To Conspire”
“Plaintiff alleges that the drivers have a ‘common motive to conspire’ because adhering to Uber’s pricing algorithm can yield supra-competitive prices and that if the drivers were acting independently instead of in concert, ‘some significant portion’ would not agree to follow the Uber pricing algorithm. Plaintiff further claims that the drivers ‘have had many opportunities to meet and enforce their commitment to the unlawful agreement… Uber provides drivers with information regarding upcoming events likely to create high demand for transportation and informs the drivers what their increased earnings might have been if they had logged on to the Uber App during busy periods”.
Collusion To Raise Prices
“[P]laintiff alleges, in September 2014 drivers using the Uber App in New York Cty colluded with one another to negotiate the reinstitution of higher fares for riders using UberBLACK and UberSUV services…Mr. Kalanick, as Uber’s CEO, directed or ratified negotiations between Uber and these drivers, and Uber ultimately agreed to raise fares”.
The Relevant Market
“As to market definition, plaintiff alleges that Uber competes in the ‘relatively new mobile app-generated ride-share service market’, of which Uber has an approximately 80 percent market share. Uber’s chief competitor in this market, Lyft, has only a 20 percent market share, and a third competitor, Sidecar, left the market at the end of 2015. Although, plaintiff contends, neither taxis nor traditional cars for hire are reasonable substitutes for mobile app-generated ride-share service, Uber’s own experts have suggested that in certain cities in the U.S., Uber captures 50 percent to 70 percent of business customers in the combined market of taxis, cars for hire and mobile-app generated rise-share services”.
The class plaintiff seeks to represent is “‘all persons in the United States who, on one or more occasions, have used the Uber App to obtain rides from Uber driver-partners and paid fares for their rides set by the Uber pricing algorithm…Plaintiff also identifies a ‘subclass’ of riders who have paid fares based on surge pricing”.
“Plaintiff alleges that he and the putative class have suffered antitrust injury because, were it not for Mr. Kalanick’s conspiracy to fix the fares charged by Uber drivers, drivers would have competed on price and Uber’s fares would have been ‘substantially lower’. Plaintiff also contends that Mr. Kalanick’s design has reduced output and that, as ‘independent studies have shown’, the effect of surge pricing is to lower demand so that prices remain artificially high”.
The Court noted that “The Sherman Act prohibits ‘[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce’…Antitrust law also distinguishes between vertical and horizontal price restraints. ‘Restraints imposed by agreement between competitors have traditionally been denominated as horizontal restraints and those imposed by agreement between firms at different levels of distribution as vertical restraints’…’Restraints that are per se unlawful include horizontal agreements among competitors to fix prices, ‘while, at least in the context of resale price maintenance, ‘[v]ertical price restraints are to be judged according to the rule of reason’…In the instant case, the Court finds that plaintiff has adequately pled both a horizontal and a vertical conspiracy”.
The Horizontal Conspiracy
“As to the horizontal conspiracy, plaintiff alleges that Uber drivers agree to participate in a conspiracy among themselves when they assent to the terms of Uber’s written agreement (the ‘Driver Terms’) and accept riders using the Uber App. In doing so, plaintiff indicates, drivers agree to collect fares through the Uber App which sets fares for all Uber drivers according to the Uber pricing algorithm. In plaintiff’s view, Uber drivers forgo competition in which they would otherwise have engaged because they ‘are guaranteed that other Uber drivers will not undercut them on price’. Without the assurance that all drivers will charge the price set by Uber, plaintiff contends, adopting Uber’s pricing algorithm would often not be in an individual driver’s best interest, since not competing with other Uber drivers on price may result in lost business opportunities”.
“Defendant Kalanick argues, however, that the drivers’ agreement to Uber’s Driver Terms evinces no horizontal agreement among drivers themselves, as distinct from vertical agreements between each driver and Uber…According to Mr. Kalanick, drivers’ individual decisions to enter into contractual arrangements with Uber constitute mere independent action that is insufficient to support plaintiff’s claim of a conspiracy. Defendant asserts that the most ‘natural’ explanation for drivers’ conduct in that each driver ‘independently decided it was in his or her best interest to enter a vertical agreement with Uber’, and doing so could be in a driver’s best interest because, for example, Uber matches riders with drivers and processes payment. In defendant’s view, the fact that ‘a condition of [the agreement with Uber] was that the driver-partner agree to use Uber’s pricing algorithm’ does not diminish the independence of drivers’ decisions. It follows, defendant contends, that such vertical arrangements do not support a horizontal conspiracy claim”.
Court Not Persuaded
“The Court, however, is not persuaded to dismiss plaintiff’s horizontal conspiracy claim (citing Interstate Circuit v. United States, 306 U.S. 208 (1939); United States v. Apple, Inc., 791 F. 3d 290, 314 (2d Cir. 2015); Laumann v. National Hockey League, 907 F. Supp. 2d 465, 486-87 (S.D.N.Y. 2012)(‘where parties to vertical agreements have knowledge that other market participants are bound by identical agreements, and their participation is contingent upon that knowledge, they maybe considered participants in a horizontal agreement in restraint of trade’).
Conspiracy Plausibly Alleged
“In this case, plaintiff has alleged that drivers agree with Uber to charge certain fares with the clear understanding that all other Uber drivers are agreeing to charge the same fares…These agreements are organized and facilitated by defendant Kalanick, who as at least an occasional Uber driver, is also a member of the horizontal conspiracy…the Court finds that plaintiffs have plausibly alleged a conspiracy in which drivers sign up for Uber precisely ‘on the understanding that the other [drivers] were agreeing to the same’ pricing algorithm, and in which drivers’ agreement with Uber would ‘be against their own interests were they acting independently’ (citing Apple, supra, at 791 F. 3d at314, 320). Further, drivers’ ability to benefit from reduced price competition with other drivers by agreeing to Uber’s Driver Terms plausibly constitutes ‘a common motive to conspire (citing Apex Oil Co. v. DiMauro, 822 F. 2d 246, 254 (2d Cir.1987)…Of course, whether plaintiff’s allegations are in fact accurate is a different matter, to be left to the fact-finding process”. Stay tuned.
Justice Dickerson has been writing about travel law for 39 years including his annually updated law books, Travel Law, Law Journal Press (2016) and Litigating International Torts in U.S. Courts, Thomson Reuters WestLaw (2016), and over 400 legal articles many of which are available at nycourts.gov/courts/9jd/taxcertatd.shtml. Justice Dickerson is also the author of Class Actions: The Law of 50 States, Law Journal Press (2016). For additional travel law news and developments, especially in the member states of the EU, see IFTTA.org.
This article may not be reproduced without the permission of Thomas A. Dickerson.