COVINGTON ‘Covington & Burling LLP One Cityc BCLING snuEseLs LONDON Los anaeLes eo Teeth Steet, NW NEWvon« AN faneizco FEOUL Washington, DC 200014956 SANGHA SILICON VALLEY. WASHINGTON ynlzosee2 e000 CONFIDENTIAL By Electronic Mail November 7, 2016 Jessica L. Rich Director, Bureau of Consumer Protection Federal Trade Couunission 600 Pennsylvania Ave NW Mail Stop: CC-10.232 Washington, DC 20580 Emai @fte.gov Re: Complaint Recommendation—Uber Technologies, Inc. Dear Jessica: We write on behalf of Uber Technologies, Ine. (“Uber”) in advance of our November 9 meeting regarding the Complaint Recommendation recently forwarded by FTC staff to the Bureau. As you are aware, that Complaint focuses on two categories of claims allegedly made by Uber to potential driver-partners: claims regarding the potential earnings of driver-partners on the Uber platform (Count 1) and claims regarding Uber’s Vehicle Solutions Program (“VSP”) (Counts II-IV). The Complaint alleges that these claims violated Section 5(a) of the FTC Act. As we discussed with staff in Seattle on September 15, we were very surprised to see staff's allegations and proposed consent order, after over twelve months had passed without any communications from the agency. We have been diligently attempting to understand the basi for these allegations in the short time since reeciving the proposed consent order, but it is evident that there is a very significant distance between us on both the facts and the applicable Jaw. In particular, we see no basis for the central allegation that potential drivers were misled by earnings claims into taking on auto leases or purchases that were more expensive than originally advertised by Uber. First, all the representations made by Uber were accurate to the best of its knowledge at the time, and have been confirmed in our subsequent investigation. Furthermore, the earnings claims and VSP claims were distinet; neither set of claims linked potential earnings on the Uber platform to the ability to afford lease payments. To the extent staff is relying on information obtained from third parties to which we have not had access, we are hampered in our response to these allegations and request access to those files. Confidential Treatment Requested by Uber Technologies, Inc.COVINGTON Jessica L. Rich November 7, 2016 Page 2 (b)(3):21(f) (b)(3)-21(F) 'b)(3):21 (F It would make no sense to give additional compensation to those drivers who eamMETTESS, as there are myriad reasons all within the control of the driver why that may be the case, Many drivers intentionally limit their hours and aeceptance of trips for personal reasons, and a further payment would be entirely a windfall ‘The terms of individual lease agreements are also subject to significant individual variation, but Uber justifiably offered drivers access to financing (after considerable effort by Uber to find lenders and dealers willing to do business with individuals who likely did not have access to more traditional lending sources, as well as to negotiate manufacturer discounts) and accurately previewed for drivers what the terms of that financing could look like. Staff has identified no specific cireumstance in which any individual has incurred specific, demonstrable monetary injury. In faet, in previous cases involving auto financing issues the Commission has typically not imposed monetary relief. A monetary award in this case would be unwarranted and inappropriate. Nor is there any publie interest in injunctive relief, as discussed further below. We look forward to with you on November 9. As this submissi indicate, however, in our view the agency is far from articulating a theory of lability im this matter. On reflection we trust you will agree that no enforcement action is warranted, 1. Earnings Claims (Count 1) ‘The Complaint alleges that, in early 2015, Uber posted ads on Craigslist in 17 cities, claiming that drivers could make specific hourly earnings, but that “[m]ost drivers made much less than the advertised amounts.” See FTC's [Proposed] Complaint for Permanent Injunction and Other Equitable Relief (Oct. 5, 2016) ("Compl.”) 122. The FTCis mistaken; the Craigslist ‘earnings claims were premised on actual fares earned by a significant number of drivers and additional factors, and represented earnings that other drivers could reasonably expect to—and did—achieve. In fact, most drivers in the six-month period during and immediately after the short period staff is focusing on, in the cities they picked, earned significantly more than the Craiglist ads mention. Unlike a traditional employer-employee relationship, calculating the expected earnings of drivers on two-sided platforms such as Uber is extremely complicated. Drivers do not earn a set income for a set number of hours ina set location; rather, as independent contractor drivers’ earnings can vary significantly depending on such factors as rider demand, driver ‘supply, the driver's proximity to areas of high rider demand (such as city centers), and driver- ()(3):21(F) Confidential Treatment Requested by Uber Technologies, Inc.COVINGTON Jessica L, Rich November 7, 2016 Page 3 (OVS. OVA) ()(3)-6(F),(b)(3):21(f),(6)(4) + For drivers in New York City, uberBLACK fare data was used, as, required to hold a commercial license. ss in that eity are ® As used herein, the term “fare” (as opposed to “carnings”) is used to refer to the money earned by drivers before any payments for driver-facing promotions or incentives. (b)(3)-21(F) Confidential Treatment Requested by Uber Technologies, Ine.COVINGTON Jessica L. Rich November 7, 2016 Page 7 Commission, FTC v. Herbalife Int! of Am., Inc., No. 2:16-ev-05217, 2016 WL 3901342, at *1 (C.D. Cal. July 15, 2016) (ads showing expensive homes and luxury ears when “a large majority of distributors made little or no money and a substantial percentage lost money”); United States v. The Zaken Corp., No. 12-9631 DDP (MANx) (C.D. Cal. Oct. 21, 2014) (more than 99.8 percent of the 110,000 consumers affected by the scheme earned no money); Complaint for Civil Penalties, Permanent Injunction and Other Equitable Relief, United States v. Sterling, No. 12CV2736JAH DHB, 2012 WL 5836366 (S.D. Cal. Nov. 9, 2012) (“Few, if any, purchasers of Defendant's work-at/h noviunities ane liksls ta maka the insame Dafandantalaimae” (b)(3):6(f),(B)(4) Tn short, prosecuting this case would require the FTC to wade into new and unfamiliar territory involving a two-sided platform, where myriad supply and demand variables intersect to create dynamic prices paid by riders, translating into dynamic fares earned by drivers. Here, it bears emphasis that keeping prices low for riders requires a steady supply of drivers to meet their demand. Yet prohibiting Uber from advertising earnings that drivers can realistically expect to achieve—simply beeause those earnings exceed the earnings of drivers whose choices cause them to earn less—handieaps Uber in maintaining that supply. That, in turn, reduces consumer welfare. For all ofthese reasons, the FTC should not pursue these claims. Il, _ The Vehicle Solutions Program Claims The VSP claims, like the Craigslist claims, were also accurate and not deceptive. The VSP was a highly customized financing program for borrowers with little to no credit to finance ‘Transportation Network Company (“INC”) vehicles—vehicles Sha asa . \se-to-own financing option offered b{(b)(7)(D. for example, drivers could lease a vehicle for four years with no credit check by u Wn a $1,000 security deposit and $1,000 down payment; at the end of the lease term, they had the option to own the ear for $1. Lessees authorized the automatic deduction of the lease payments from their driver earnings through Uber.” The Complaint focuses on three claims made by Uber in connection with the VSP. First, Uber sent an email to drivers advertising “Financing options": Poor credit or no credit? Uber connects drivers with any type of credit to the best financing options available to help you get a car. (b)(7)(D) Confidential Treatment Requested by Uber Technologies, Ine.