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Delivery apps spar with San Francisco over restaurant commission cap

A federal judge will decide whether to hear evidence in a legal battle over San Francisco's attempt to even the playing field between food delivery apps and independent restaurants by limiting the fees apps can charge.

SAN FRANCISCO (CN) — Forecasting an existential threat to their businesses, food delivery companies implored a federal judge to keep alive their legal challenge to a Covid-era San Francisco ordinance that limits the amount of commissions they can make off of restaurants.

At the beginning of the Covid-19 pandemic last spring, San Francisco joined other major cities nationwide in passing a law that capped the commission fees food delivery platforms can charge restaurants at no more than 15% per order.

Billed as an effort to helped local restaurants shuttered by emergency health orders stay afloat, the city became the first in the country to make the cap permanent in June 2020, even as restrictions on in-person dining began to ease.

Accustomed to charging fees as high as 30%, third-party delivery platforms DoorDash and Grubhub banded together in suing to strike down the law as an unconstitutional disruption of their existing contracts with restaurants.

Gibson Dunn attorney Joshua Lipschutz, who represents the platforms, said it will impair their ability to do business since they cannot operate profitably at a 15% cap.

"Companies cannot survive when they cannot operate profitably,” Lipschutz told U.S. District Judge Edward Chen at a hearing Thursday. "We should be able to get to a jury and a jury can decide how substantial an impairment it is.”

In deciding whether to allow the case to proceed, Chen will have to weigh the burden on delivery apps against the city’s legitimate public objective of protecting local restaurants from excessive fees.

But the overriding question is whether Chen has the authority to make that decision.

Arguing for the city, Deputy City Attorney Jeremy Goldman said Ninth Circuit case law requires him to defer to the board of supervisors’ judgment on the matter and not “second guess" their reasoning in passing the ordinance.

Goldman said the law’s effect on delivery apps remains to be seen, as the delivery companies have threatened to make up the difference by raising fees for consumers.

“Even if you credit their allegation that consumers won't be willing to pay increased fees for these services, that's not the law's fault. It's just the consumers have decided that the services are not worth that much money," he said.

“Well to be fair, if you raise fees on one end and say consumers are making a choice — at the end of the day, who's left holding the bag?” Chen interjected. "I don't think that's fair.”

Chen said he expects there to be a fair amount of evidence of this issue, “If it gets to that point.”

He took the case under submission. Meanwhile, city supervisor Aaron Peskin has proposed raising the cap to 20%, but the board will not consider the amendment until its next meeting in January.

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