Uber’s War on Lyft Could Prompt Federal Investigation

The ride-share service’s apparent attempts to sabotage its competitors might become red meat for the Federal Trade Commission or state attorneys general.

National Journal
Aug. 27, 2014, 10:08 a.m.

Uber is the darling of Demo­crats and Re­pub­lic­ans alike, but the com­pany’s cut­throat cam­paign against its ride-share rivals could land it in hot wa­ter with state and fed­er­al reg­u­lat­ors.

The com­pany has re­portedly equipped an army of in­de­pend­ent con­tract­ors with burn­er phones and cred­it cards as part of a “soph­ist­ic­ated ef­fort to un­der­mine Ly­ft and oth­er com­pet­it­ors” and poach drivers, ac­cord­ing to an art­icle pub­lished by The Verge this week.

The San Fran­cisco start-up’s ag­gress­ive re­cruit­ment meth­ods are already well doc­u­mented, but the size and soph­ist­ic­a­tion of its ex­ploits re­vealed by The Verge could war­rant an an­ti­trust in­vest­ig­a­tion by the Fed­er­al Trade Com­mis­sion or state at­tor­neys gen­er­al, ac­cord­ing to sev­er­al an­ti­trust ex­perts and former gov­ern­ment of­fi­cials in­ter­viewed by Na­tion­al Journ­al.

A former FTC of­fi­cial, who spoke on the con­di­tion of an­onym­ity, said that re­ports of Uber’s mis­rep­res­ent­a­tion aligns strongly with sim­il­ar an­ti­trust in­vest­ig­a­tions the agency has con­duc­ted in the past.

“The heart of what’s of­fens­ive here, the in­dis­pens­able in­gredi­ent, is the can­celed or­ders,” the of­fi­cial said. “That kind of be­ha­vi­or would be seen as hav­ing no re­deem­ing be­ne­fits at all, poses com­pet­it­ive bur­dens, and falls with­in the con­cep­tion of un­fair com­pet­i­tion.”

Uber stands ac­cused of em­ploy­ing street teams of con­tract­ors to dis­rupt Ly­ft’s launch plans in New York City who were handed “two Uber-branded iPhones and a series of val­id cred­it-card num­bers to be used for cre­at­ing dummy Ly­ft ac­counts.” Uber has also al­legedly made a habit of or­der­ing Ly­ft rides and can­celing them to avoid de­tec­tion, a meth­od that would prompt rival drivers to waste time driv­ing to the pickup spot. Ly­ft con­tends Uber has caused thou­sands of can­celed rides, something Uber denies was done in­ten­tion­ally.

Solely or­der­ing a Ly­ft ride and try­ing to con­vince the driver to switch sides is likely not enough to mer­it an in­quiry by the FTC, which po­lices against “un­fair” and “de­cept­ive” busi­ness prac­tices, said Dav­id Balto, a former policy dir­ect­or at FTC and an an­ti­trust law­yer.

But the ap­par­ent soph­ist­ic­a­tion and du­pli­city of Uber’s so-called “Op­er­a­tion SLOG” in New York City raises an­ti­trust con­cerns. “The call­ing and can­celing would make it very dif­fi­cult for [Ly­ft] to ef­fect­ively op­er­ate,” Balto ad­ded. “That’s the kind of thing that could very well be in­vest­ig­ated by the FTC.”

“Uber may be a 21st-cen­tury in­nov­at­or, but it looks like it’s pulling out the tac­tics of a 19th-cen­tury rob­ber bar­on,” Balto said. “Some of these tac­tics are things that John D. Rock­e­feller would be proud of.”

In a blog post pub­lished shortly be­fore The Verge‘s story, Uber denied it ever in­ten­tion­ally can­cels rides, but ac­know­ledged that “we can’t suc­cess­fully re­cruit drivers without talk­ing to them—and that means tak­ing a ride.”

“We’re all about more and bet­ter eco­nom­ic op­por­tun­ity for drivers,” the com­pany wrote. “We nev­er use mar­ket­ing tac­tics that pre­vent a driver from mak­ing their liv­ing—and that in­cludes nev­er in­ten­tion­ally can­celing rides.”

Uber, which now boasts a pres­ence in more than 160 cit­ies around the world, is con­front­ing a new wave of scru­tiny just a week after hir­ing former Obama cam­paign wiz­ard Dav­id Plouffe to lead its policy team. In an­noun­cing his new gig, Plouffe wrote that he was eager take on Uber’s main op­pon­ent, the “Big Taxi car­tel,” which he main­tains “has used dec­ades of polit­ic­al con­tri­bu­tions and in­flu­ence to re­strict com­pet­i­tion, re­duce choice for con­sumers, and put a strangle­hold on eco­nom­ic op­por­tun­ity for its drivers.”

The tech com­pany has also re­cently earned the ad­or­a­tion of a num­ber of Re­pub­lic­ans look­ing to curry fa­vor with its young, largely urb­an base.

Earli­er this month, the Re­pub­lic­an Na­tion­al Com­mit­tee launched a pe­ti­tion so­li­cit­ing sup­port for “in­nov­at­ive com­pan­ies like Uber,” in re­sponse to back­lash from the tra­di­tion­al taxi lobby and ride-shar­ing reg­u­la­tions pro­posed in some cit­ies and states. And Sen. Marco Ru­bio has touted the com­pany as an ex­ample of free-mar­ket in­genu­ity that should not be sub­ject to strict reg­u­lat­ory red tape.

The com­pany’s suc­cess, size, and in­flu­ence is likely to in­crease the chances of trig­ger­ing either a reg­u­lat­ory in­vest­ig­a­tion or private lit­ig­a­tion, said Richard Fein­stein, former dir­ect­or of the FTC’s an­ti­trust en­force­ment.

The FTC has his­tor­ic­ally been an ally to the boom­ing app-driv­en ride-shar­ing in­dustry. In April, the agency wrote a let­ter ar­tic­u­lat­ing its be­lief that reg­u­la­tions should be lim­ited to safety and con­sumer pro­tec­tion and not for the pur­poses of levy­ing high­er li­cense fees than those placed on tra­di­tion­al taxi fleets.

An Uber spokes­man ac­cused The Verge story of be­ing thinly sourced and re­veal­ing noth­ing new, telling Na­tion­al Journ­al that it lacks “any veri­fic­a­tion” of the claims or doc­u­ments pub­lished.

Uber has nev­er pub­licly taken re­spons­ib­il­ity for re­ports of em­ploy­ees or­der­ing phony rides from Ly­ft. In Janu­ary, the com­pany is­sued an apo­logy on its web­site ac­know­ledging that some em­ploy­ees in New York were “too ag­gress­ive” in its tac­tics of or­der­ing rides from com­pet­it­ors and can­celing them mo­ments later. But the apo­logy in­dic­ated the tac­tics were or­ches­trated by loc­al staffers and not ap­proved or ini­ti­ated by cor­por­ate high­er ups.

“We have mes­saged city teams to cur­tail activ­it­ies that seek lead gen­er­a­tion in this man­ner,” the com­pany wrote.

Ly­ft did not re­spond to a re­quest for com­ment for this story.

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