Your API Could Get You Sued by the FTC

Rich Tehrani : Communications and Technology Blog - Tehrani.com
Rich Tehrani
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Your API Could Get You Sued by the FTC

A Harvard Business School Professor makes the case why Uber and other companies could violate antitrust laws via their APIs

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Uber routinely argues their service shouldn’t be regulated like taxis – the company is increasing competition and should be left alone. This is a compelling case on many fronts as the service is better for consumers as it can provide lower prices than taxis. In addition, because prices are lower, they can make a solid case that employment increases as more people are inclined to let others do the driving.

Basically, the general argument they can make is everything they do benefits consumers.

There is just one problem. The Uber API has restrictions in its terms which prevent developers from developing price comparison services for example that would allow an app to tell you which ride hailing service had the lowest cost at the moment.

Harvard Business School Professor Ben Edelman makes some very solid points in his research  about the topic. He cites a case from April, 2015, in which the FTC brought suit to McWane, a pipe fitting supplier that made distributors carry only its products. If distributors carried those of its competitors, McWane would withhold rebates or even shut off their access to inventory altogether. The FTC found that the company's exclusionary policy made McWane monopolistic. Edelman argues there are distinct parallels between McWane's policies and Uber's API terms of use.

Furthermore, he highlights the Department of Justice's Single-Firm Conduct Under Section 2 of the Sherman Act, which lays out doctrine determining exclusionary conduct cases. It spells out several criteria by which the DOJ can determine whether a company is engaging in suitably aggressive competition or whether it's trying to unlawfully block competition. Edelman writes that Uber's API restrictions try to exclude competitors that are equally or more efficient than its company. Allowing developers to aggregate data for comparisons with other services wouldn't burden Uber if it were required to do so, as the API infrastructure is already in place. Lastly, Uber temporarily gives up profits that could come in from developers funneling referrals its way in order to maintain a permanent blockade of competition. All of these factors, according to Edelman, suggest Uber might be inappropriately excluding competition.

While these seem to be very valid points, the counterargument might be that there is nothing to stop Lyft or any other ride sharing service from pricing themselves lower than Uber. There is also nothing stopping a consumer from downloading the Lyft app instead of Uber. Even if Uber’s market share is the largest in the space – it’s because of its first-mover advantage.

The McWane situation could be deemed as bad for consumers because they no longer had access to competing products in the physical store. In this case however, nothing blocks a user from using a competing service if they so choose.

This issue reminds me of the recent post I wrote about how Google will protect its monopoly after President Obama leaves office.  One if the interesting comments on that post was from Peter Radizeski who mentioned that antitrust is only understood in the physical world. While that seems like an overly broad statement at first – it does seem to be the case when you think about it. Om Malik, I am sure would agree.

This gets us back to APIs – we launched the largest event in the world on the topic – All About the API which takes place this July in Las Vegas because we saw APIs as the next big opportunity in business. We knew that APIs are the blood vessels of an ecosystem, allowing you to grow far more rapidly than you can on your own. As the distinguished professor points out however, how you manage and deploy your APIs is crucial – it can mean the difference between helping or blocking the competition. It can also get you broken up for being a monopoly or at least escalate your legal costs exponentially. These are the issues we hope to iron out at this and future events.

It’s a fascinating time to be in technology and the programmers and engineers have become the rock stars of our future. The decisions companies make today on how to make their APIs available and access those of others, will determine if they become tomorrow’s blockbuster hits or failure.

We want to thank all the supporters of this event including

Oracle, Ytel, agora.io, SmartBear, AxiaTP, Cloud Elements, Dialogic, teli, Vidyo, A Practical Approach to API Design, Open Mobile Alliance, Parks Associates, Real Time Weekly, Today Software Magazine, Work in Progress, IBM, Cisco Systems, Inc., Nexmo, TIBCO Software, Khronos Group, Zenly, Idea2, Server Technology, Akana, API Fortress, DocuSign, Flowroute, etc!

 



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