Ruling on Philly Taxis’ Suit vs. Uber, Third Circuit Reaffirms Antitrust Focus on Competition, not Competitors

swisherFeatured Expert Column: Antitrust & Competition Policy — U.S. Department of Justice

By Anthony W. Swisher, a Partner in the Washington, DC office of Squire Patton Boggs (US) LLP.

A recent decision from the U.S. Court of Appeals for the Third Circuit (Philadelphia Taxi Association v. Uber Technologies) reinforces the longstanding principle that antitrust laws protect competition, not competitors. The case involved a claim of attempted monopolization levied against Uber, brought by the Philadelphia Taxi Association and a number of individual taxi drivers. The essence of the plaintiffs’ claim was that Uber entered the Philadelphia taxi market without complying with existing municipal regulations, and that as a result, Uber obtained “a stronghold in the Philadelphia taxicab market.”

The Third Circuit upheld the trial court’s ruling that plaintiffs failed to state a monopolization claim because they failed to allege a harm to the competitive process, as opposed to individual competitors.

Philadelphia requires its taxi drivers to hold a “medallion,” which is in essence a license to drive a taxi. The number of medallions is limited, and as a result they can be quite valuable. According to plaintiffs’ complaint, Uber began operating in Philadelphia on October of 2014 without obtaining any medallions or complying with other regulatory requirements applicable to taxis. Subsequently, in October of 2016, the Pennsylvania legislature passed legislation “approving Uber’s operation in Philadelphia” and imposing certain insurance and safety requirements on Uber’s operations.

According to plaintiffs, during the first two years of Uber’s operation in the city (before the state legislation passed), the value of a taxi medallion plummeted, the number of medallion taxi rides dropped by 30%, and Uber recruited away hundreds of taxi drivers to drive for Uber. According to plaintiffs, Uber’s entry and its resulting effect on the Philadelphia taxi market constituted attempted monopolization in violation of Section 2 of the Sherman Act.

Affirming the district court, the Third Circuit disagreed with the Taxi Association. The appeals court found that plaintiffs had failed to allege any of the three required elements of an attempted monopolization claim:  predatory or exclusionary conduct, specific intent to monopolize, and a dangerous probability of success.  As to the last two elements, the court found that Uber’s “competitive strategy of creating a vehicle-for-hire business model” constituted an intent to compete, not to monopolize. Further, plaintiffs could not credibly allege that Uber was dangerously close to monopolizing the market, not least because they failed to allege any “current barriers to entry or weak competition from other market participants.”

The more interesting part of the opinion, however, was the court’s discussion of two interrelated issues: Uber’s allegedly exclusionary conduct, and the plaintiffs’ lack of antitrust standing. As to Uber’s conduct, the court found that none of plaintiffs’ allegations plausibly rose to the level of exclusionary conduct required to support a § 2 claim. In fact, the court found that Uber’s presence in the market constituted an additional competitive force, representing an increase, not a decrease, in competition. As the court noted, “[I]nundating the Philadelphia taxicab market with Uber vehicles, even if it served to eliminate competitors, was not anticompetitive.” (emphasis in original).

Relatedly, the court found that plaintiffs lacked antitrust standing to sue, because the essence of their complaint was not a harm to competition, but an increase in competition. Citing Justice Marshall’s landmark decision in Brunswick v. Pueblo Bowl-O-Mat, 429 U.S. 477 (1977) both for the proposition that Uber’s conduct was not exclusionary and that plaintiffs lacked antitrust standing, the court reiterated the critical point that the antitrust laws protect competition, not competitors.

Plaintiffs whose supposed injury flows from an increase in competition may not use the antitrust laws as a tool to tamp down unwelcome competition. As the Third Circuit aptly concluded, “Appellants urge the application of antitrust laws for the express opposite purpose of antitrust laws: to compensate for their loss of profits due to increased competition from Uber. However, harm to Appellants’ business does not equal harm to competition.”

Interestingly, the court did not directly address a related point that might have lent additional weight to its conclusion that plaintiffs failed to state a claim. The court noted that even if it were to find unlawful conduct by Uber during the first two years of its operations in Philadelphia, “we would do so under [Philadelphia taxi] regulations, and not under antitrust laws.”

The court did not cite the Supreme Court’s opinion in Verizon v. Trinko, 540 U.S. 398 (2004), where the Court drew a sharp distinction between conduct that violates the antitrust laws, versus conduct that may violate another regulatory regime. In Trinko, Justice Scalia, writing for a unanimous Court, held that even if conduct may be found to violate a distinct statute (in that case, the Telecommunications Act of 1996), that fact does not necessarily mean that the same conduct can form the basis of an antitrust claim. The same principle appears to undergird the Third Circuit’s refusal to allow allegations of regulatory shortcomings to be converted into an antitrust claim.

At the end of the day, the Third Circuit was unconvinced that plaintiffs could state an attempted monopolization claim. The court kept the focus of antitrust analysis where it long has been: on consumer welfare rather than potential harm to competitors.

One thought on “Ruling on Philly Taxis’ Suit vs. Uber, Third Circuit Reaffirms Antitrust Focus on Competition, not Competitors

  1. Pingback: Updates: Supreme Court Refuses to Review Philly Cab Drivers’ Suit Against Uber – The WLF Legal Pulse

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