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Tech - Game

Uber Faces FBI Probe Over Program Targeting Rival Lyft

Federal law-enforcement authorities in New York are investigating whether Uber used software to interfere illegally with its competitors, adding to pressures facing the embattled ride-hailing company.

By

Rebecca Davis O’Brien and

Greg Bensinger

Federal law-enforcement authorities in New York are investigating whether Uber Technologies Inc. used software to interfere illegally with a competitor, according to people familiar with the investigation, adding to legal pressures facing the ride-hailing company and its new chief executive.

The investigation, led by the Federal Bureau of Investigation’s New York office and the U.S. attorney’s office in Manhattan, is focused on a defunct Uber program, known internally as “Hell,” that could track drivers working for rival service Lyft Inc., the people said.

“We are cooperating with the SDNY investigation,” said an Uber spokesman, referring to prosecutors in the Southern District of New York. He declined to offer additional details.

Uber hasn’t publicly discussed the details of the program.

People familiar with the matter said “Hell” worked like this: Uber created fake Lyft customer accounts, tricking Lyft’s system into believing prospective customers were seeking rides in various locations around a city. That allowed Uber to see which Lyft drivers were nearby and what prices they were offering for various routes, similar to how such information appears when an authentic Lyft app is opened on a user’s smartphone, these people said.

The program was also used to glean data on drivers who worked for both companies, and whom Uber could target with cash incentives to get them to leave Lyft, said these people, who added that the program was discontinued last year.

The program was the subject of a federal class-action lawsuit filed in April by a Lyft driver in California, which was dismissed by a federal judge last month after Uber said the suit didn’t allege a crime or material loss.

One critical question for investigators is whether “Hell” constituted unauthorized access of a computer, a person briefed on the investigation said.

The battle to attract and retain drivers has been critical for Uber’s and Lyft’s growth, particularly as the two venture-backed firms now compete in every major U.S. metropolitan area and users can easily switch between the two apps to find a quicker pickup or cheaper ride.

Uber has taken pains of late to appease drivers’ concerns, adding a tipping option that it had long resisted and making other tweaks to its app.

The investigation of the “Hell” program is one of at least three federal investigations under way into Uber’s practices, adding to a laundry list of challenges facing Dara Khosrowshahi, who formally took over as CEO on Tuesday after a 12-year tenure at the helm of Expedia Inc.

Mr. Khosrowshahi inherited a depleted executive suite, directors and investors divided over the future of the company and the fallout from a monthslong probe into Uber’s workplace culture that led to the ouster of longtime CEO Travis Kalanick.

The U.S. attorney’s office in the Northern District of California, working with FBI agents there, is investigating another Uber software tool, known as “Greyball,” which helped its drivers evade local transportation regulators, according to people familiar with the matter.

The FBI has issued subpoenas to public officials in Portland, Ore., Philadelphia and Austin, Texas, in connection with that investigation, according to officials in Portland and people familiar with the matter.

Uber has since said it stopped using Greyball to evade officials. Uber has said it has used the technology for other purposes. An Uber spokesman declined to comment on that investigation.

Uber and Lyft compete in every major U.S. metropolitan area. Photo: Spencer Platt/Getty Images

Additionally, the Justice Department has taken preliminary steps to investigate whether managers at Uber violated the Foreign Corrupt Practices Act, which bans the use of bribes to foreign officials to get or keep business, people familiar with the matter said.

The Wall Street Journal reported the investigation, which is in early stages, last month. Uber has said it is cooperating with the Justice Department on the investigation.

Uber is also contending with a lawsuit from rival Alphabet Inc., Google’s parent company, over allegedly stolen self-driving-car trade secrets, which a federal judge in May referred to the Justice Department for a possible criminal probe. Uber has denied wrongdoing and is contesting the lawsuit in court.

The existence of the “Hell” program was reported in April by tech website The Information, which said the program had been active from 2014 to early 2016, when it was discontinued.

Many airports now allow Uber and Lyft pickups, but lots of airports still ban pickups from drivers who aren’t regulated. WSJ’s Scott McCartney joins Tanya Rivero to discuss what to know before using a car-hailing service after your next flight. Photo: Getty (Originally Published July 6, 2016)

It isn’t clear when the program came to the attention of law enforcement. Federal prosecutors in Manhattan had been pursuing an investigation into Uber’s anticompetitive strategies since at least early 2016, several people familiar with the matter said. It isn’t clear whether the investigation into “Hell” grew out of that effort, or if it began with a separate inquiry.

After The Information’s article was published in April, a Lyft driver filed a class-action lawsuit against Uber in federal court in California, alleging that Uber’s use of the program invaded his privacy and violated state wiretapping statutes and unfair-competition laws.

Lawyers for Uber said in a court filing that the complaint was based “on allegations made in a single online article that in turn was based on two anonymous sources,” and asked for the suit to be dismissed.

“Even if those allegations were true, they would not describe anything other than the collection and use of location information that Plaintiff knew was being broadcast by Lyft,” Uber’s lawyers wrote.

A judge dismissed the lawsuit late last month, but attorneys for the driver say they plan to refile a suit with an amended complaint later this month.

—Nicole Hong
contributed to this article.

Write to Greg Bensinger at greg.bensinger@wsj.com

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