Philadelphia Taxi Association, Inc. v. UBER Technologies, Inc.

          Argued November 14, 2017

          On Appeal from the United States District Court for the Eastern District of Pennsylvania (District Court No.: 2-16-cv-1207) District Judge: Honorable Juan R. Sánchez

          John F. Innelli [ARGUED]

          Stephen R. Bolden Fell & Spalding Counsel for Appellants

          Steven A. Reed [ARGUED] R. Brendan Fee Morgan Lewis & Bockius

          Brian C. Rocca Sujal J. Shah Morgan Lewis & Bockius Counsel for Appellee

          Before: AMBRO, KRAUSE, and RENDELL, Circuit Judges

          OPINION

          RENDELL, Circuit Judge:

         Philadelphia taxicab drivers, aggrieved by the influx of taxis hailed at the touch of an app on one's phone, brought this antitrust action to protest the entry of Appellee Uber Technologies, Inc. ("Uber") into the Philadelphia taxicab market. The Philadelphia Taxi Association ("PTA"), along with 80 individual taxicab companies (collectively, "Appellants"), appeal the District Court's dismissal of their Second Amended Complaint ("SAC") alleging one count of attempted monopolization under Section 2 of the Sherman Act, 15 U.S.C. § 2, and seeking injunctive relief and treble damages under Section 4 of the Clayton Act, 15 U.S.C. § 15.

         Appellants urge us to reverse the District Court's Order, contending that Uber violated the antitrust laws because its entry into the Philadelphia taxicab market was illegal, predatory, and led to a sharp drop in the value of taxicab medallions as well as a loss of profits. They contend that this is evidence that Uber's operation in Philadelphia was anticompetitive and caused them to suffer an antitrust injury. However, the conduct they allege falls short of the conduct that would constitute an attempted monopoly in contravention of the antitrust laws. Thus, we will affirm the District Court's dismissal of the SAC for failure to state a claim for attempted monopolization and failure to state an antitrust injury.

         I. Background & Procedural History^[1]

         From March of 2005 to October of 2014, taxicabs operating in Philadelphia were required to have a medallion and a certificate of public convenience, issued by the Philadelphia Parking Authority ("PPA"). Medallions are property, and are often pledged as collateral to borrow funds to finance the purchase of the cab or to "upgrade and improve the operations of taxicabs." 53 Pa. C.S.A. § 5712(a). Once medallion-holders comply with the obligatory standards for taxicabs, they may obtain a certificate of public convenience. Those standards, which provide for safety and uniformity among taxicabs, require vehicles to be insured and in proper condition, and mandate that drivers are paid the prevailing minimum wage, are proficient in English, and have the appropriate drivers' licenses.

         As alleged in the SAC, when the medallion system was mandated in Philadelphia in 2005, a medallion was worth only $65, 000. In October of 2014, there were approximately 500 taxicab companies in Philadelphia. Together, 7, 000 drivers held 1610 medallions, each valued at an average of $545, 000.

         Appellants are 80 of those 500 companies, which collectively hold 240 of the 1610 medallions, as well as PTA, which was incorporated to advance the legal interests of its members-the 80 individual medallion taxicab companies.

         Uber began operating in Philadelphia in October of 2014 without securing medallions or certificates of public convenience for its vehicles. While a potential rider can avail himself of a medallion taxicab by calling a dispatcher or hailing an available cab, to use Uber, he can download the Uber application onto his mobile phone and request that the vehicle come to his location, wherever he is. Passengers enter payment information, which is retained by Uber and automatically processed at the end of each ride. Uber does not own or assume legal responsibility for the vehicles or their operation, nor does it hire the drivers as its employees.^[2] Uber did not pay fines to the PPA or comply with its regulations when it first entered the Philadelphia taxi market, as is otherwise required for medallion taxicabs. Appellants maintain that this rendered Uber's operation illegal, and enabled the company to cut operating costs considerably.

         In October of 2016, the Pennsylvania state legislature passed a law approving Uber's operation in Philadelphia, under the authority of the PPA. The law, which went into effect in November of 2016, allows the PPA to regulate both medallion taxicab companies and Transportation Network Companies ("TNCs")-a classification that includes Uber and other vehicle-for-hire companies that operate through digital apps-in Philadelphia. TNCs must now obtain licenses to operate and comply with certain requirements, including insurance obligations and safety standards for drivers and vehicles. The law also exempts TNCs from disclosing the number of drivers or vehicles operating in the city, and allows TNCs to set their own fares, unlike medallion taxicab companies, which comply with established rates, minimum wages, and have a limited number of vehicles and medallions operating at once in Philadelphia.

         Before this law passed, in Uber's first two years in Philadelphia, nearly 1200 medallion taxicab drivers left their respective companies and began to drive for Uber. In those two years, there were 1700 Uber drivers and vehicles operating in Philadelphia, serving over 700, 000 riders, for more than one million trips. Simultaneously, medallion taxi rides reduced by about 30 percent, and thus Appellants experienced a 30 percent decrease in earnings. The value of each medallion dropped significantly, to approximately $80, 000 in November of 2016. Fifteen percent of medallions have been confiscated by the lenders due to default by drivers.

         The PTA and 75 individual taxicab companies filed a Complaint, alleging three counts: attempted monopolization under Section 2 of the Sherman Act, tortious interference with contract under Pennsylvania law, and unfair competition under Pennsylvania law. Uber moved to dismiss the Complaint.

         Appellants, the PTA and now 80 individual taxicab companies, then filed an Amended Complaint, alleging the same three counts. Uber moved to dismiss the Amended Complaint. The District Court granted the dismissal, without prejudice. The District Court noted that Plaintiffs alleged merely harm to their business after Uber entered the Philadelphia taxicab market, and that Plaintiffs pointed to Uber's supposed illegal participation in the taxicab market as evidence of attempted monopolization. However, the District Court concluded that these harms are "not the type of injuries that antitrust laws were intended to prevent, and thus do not establish antitrust standing." Phila. Taxi Ass'n, Inc. v. Uber Techs., Inc., 218 F.Supp.3d 389, 392 (E.D. Pa. 2016). The Court also dismissed the state law claims, for failure to plead the proper elements of an unfair competition or a tortious interference claim.

          Appellants then filed the SAC, alleging one count of attempted monopolization under Section 2 of the Sherman Act and seeking treble damages under Section 4 of the Clayton Act. Uber responded with a Motion to Dismiss, which the District Court granted, with prejudice. Phila. Taxi Ass'n, Inc. v. Uber Techs., Inc., 2017 WL 5515953 (E.D. Pa. Mar. 20, 2017). The District Court held that Appellants, in spite of multiple opportunities for amendment, had pled no antitrust injury sufficient for antitrust standing, and were unlikely to cure the lack of standing with any amendments to the SAC. The Court also held that the PTA could not satisfy the requirements for associational standing because the association's members lacked standing to sue on their own.

         II. Standard of Review

         The District Court had jurisdiction over the Sherman Act claim pursuant to 28 U.S.C. §§ 1331, 1337(a), and 15 U.S.C. § 4. We have jurisdiction under 28 U.S.C. § 1291. We exercise plenary review of the District Court's dismissal of the SAC, In re Lipitor Antitrust Litig., 868 F.3d 231, 249 (3d Cir. 2017), and may affirm the judgment below on any basis that is supported by the record. Murray v. Bledsoe, 650 F.3d 246, 247 (3d Cir. 2011). We accept as true the factual allegations in the complaint, and draw all reasonable inferences in the plaintiff's favor. W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 91 (3d Cir. 2010).

         III. Discussion

         Competition is at the heart of the antitrust laws; it is only anticompetitive conduct, or "a competition- reducing aspect or effect of the defendant's behavior, " that antitrust laws seek to curtail. Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344 (1990). "[I]t is inimical to the antitrust laws to award damages for losses stemming from continued competition." Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 109-10 (1986) (alternations and internal quotation marks omitted). This comports with the principle underlying antitrust laws: to protect competition, not competitors. See Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962).

         If the challenged conduct has an effect on "prices, quantity or quality of goods or services, " Mathews v. Lancaster Gen. Hosp., 87 F.3d 624, 641 (3d Cir. 1996), we will find a violation of antitrust laws only when that effect harms the market, and thereby harms the consumer.

         Anticompetitive conduct is the hallmark of an antitrust claim. An allegation of anticompetitive conduct is necessary both to: (1) state a claim for attempted monopolization; and (2) aver that a private plaintiff has suffered an antitrust injury. Appellants' SAC, however, is deficient in averring conduct that is, in fact, anticompetitive.

         While our caselaw is unresolved regarding which to address first-an antitrust violation or an antitrust injury^[3]- we need not resolve that here, because Appellants' claim fails on both counts. We begin by discussing how Appellants' allegations in the SAC fall short of demonstrating anticompetitive conduct, and thus fail to state a claim for attempted monopolization, ^[4] and then discuss how in the alternative, Appellants fail to allege antitrust injury to ...