`
`
`THEODORE J. BOUTROUS JR., SBN 132099
`tboutrous@gibsondunn.com
`DANIEL G. SWANSON, SBN 116556
`dswanson@gibsondunn.com
`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
`crichman@gibsondunn.com
`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:
`Time:
`Place:
`Judge:
`
`April 3, 2020
`9:30 a.m.
`Courtroom G, 450 Golden Gate
`Avenue, San Francisco, CA
`Honorable Joseph C. Spero
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`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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`THEODORE J. BOUTROUS JR.
`DANIEL G. SWANSON
`CYNTHIA E. RICHMAN
`GIBSON, DUNN & CRUTCHER LLP
`
`/s/ Daniel G. Swanson
`By:
`
`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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`TABLE OF CONTENTS
`
`Page
`INTRODUCTION .................................................................................................................... 1
`SCI’s REVISED ALLEGATIONS ........................................................................................... 1
`LEGAL STANDARD ............................................................................................................... 2
`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
`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
`SCI Again Relies On An Impermissible Oligopoly Theory ............................. 8
`3.
`SCI Fails to Plead a Cognizable Probability of Recoupment ..................................... 10
`B.
`SCI Fails to Plead an Antitrust Claim for Alleged Tortious Interference ................... 12
`C.
`SCI’s Unfair Practices Act Claim Should Be Stricken ............................................... 15
`D.
`CONCLUSION ....................................................................................................................... 15
`
`2.
`
`
`
`I.
`II.
`III.
`IV.
`
`V.
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`TABLE OF AUTHORITIES
`
`Cases
`
`Page(s)
`
`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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`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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`I.
`
`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
`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.
`SCI’s REVISED ALLEGATIONS
`II.
`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).
`SCI FAILS TO PLEAD A CLAIM UNDER SHERMAN ACT § 2
`IV.
`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.
`SCI Fails To Plead Market Power
`A.
`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.
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`2.
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`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
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`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.,
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` 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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`DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS
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`Case 3:18-cv-07440-JCS Document 76 Filed 02/18/20 Page 12 of 23
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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
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` 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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`DEFENDANTS’ MOTION TO DISMISS – CASE NO. 3:18-CV-07440-JCS
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`Case 3:18-cv-07440-JCS Document 76 Filed 02/18/20 Page 13 of 23
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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, “