• Connecticut man claims app algorithm violates competition law
  • Uber says user agreement bars litigation of legal disputes

Uber Technologies Inc. is trying to force an antitrust suit over the company’s surge-pricing algorithm into arbitration, arguing the class-action case is attempting to dodge a ban on customers taking disputes to court.

Uber wasn’t named as a defendant in the suit against Chief Executive Officer Travis Kalanick to avoid a user-agreement clause that requires arbitration, the company said in a filing Tuesday in federal court in Manhattan. The technology in Uber’s popular ride-hailing app is used by drivers to illegally coordinate high surge-pricing fares, according to the lawsuit.

The plaintiff, Connecticut customer Spencer Meyer, is “contractually forbidden from utilizing the courts to resolve such disputes with Uber,” the company said in the filing. Meyer named only Kalanick in the suit “in a strategic effort to avoid the dispute mechanism the parties agreed upon.”

Arbitration clauses have been under attack by lawyers and politicians who argue they infringe citizens’ rights. Last year, a judge ruled in a separate case that Uber drivers can’t be forced to take their legal complaints against the company to arbitration. The judge in that case called such requirements “unconscionable.” User agreements used by financial institutions are also being questioned after the Consumer Financial Protection Bureau said people should be allowed to pursue class-action suits regardless of what their agreements with banks say.

Surge Pricing

Uber’s pricing algorithm ensures standard fares under normal conditions. But in certain situations, such as heavy traffic, bad weather or on holidays, the fares rise -- sometimes to many times the normal rate -- in a practice known as surge pricing. The company pledged to limit the increases in emergencies under an agreement with New York Attorney General Eric Schneiderman in 2014.

In March, U.S. District Judge Jed Rakoff in Manhattan denied Kalanick’s bid to dismiss the suit. Rakoff rejected the CEO’s argument that a conspiracy involving hundreds of thousands of drivers was “wildly implausible” and “physically impossible.”

That ruling allowed Meyer to move forward with his claim that Uber’s pricing algorithm violates antitrust laws that are intended to protect consumers from price manipulation. The suit, filed in December, hasn’t yet received Rakoff’s approval for class-action status.

Meyer is seeking damages on behalf of millions of U.S. riders who rely on the world’s largest ride-hailing company and opens a new line of legal attacks on sharing-economy businesses. Uber faces other lawsuits and regulatory challenges over its business model, including demands by its drivers to be classified as employees instead of contractors.

‘Price Fixer’

Andrew Schmidt, Meyer’s lawyer, didn’t immediately respond to voice-mail and e-mail messages seeking comment on the ruling.

Meyer alleges that Kalanick designed the company “to be a price fixer” because its drivers “do not compete” but rather charge fares set by the algorithm. Uber takes a cut of the fares. The business plan amounts to an antitrust scheme because the drivers, despite charging the same prices, are supposedly independent service providers, according to Meyer.

Uber has said that the conspiracy that Meyer alleges would be impossible to execute and that if the company lost at trial, thousands of drivers would be forced to pay damages.

The ride-hailing service, started in 2010, has grown rapidly and now has a presence in 65 countries. Uber and its competitors are able to keep down their costs by using contractors rather than employees. Typically, contractors pay their own expenses and aren’t protected by minimum wage and overtime laws. Companies don’t pay for their unemployment insurance, workers compensation or Social Security.

The case is Meyer v. Kalanick, 1:15-cv-09796, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE