It was up to the driver like any normal car. The driver was looking at his or her dash at that moment as could have happened if this was an entirely normal car.
You aren't seriously suggesting that the "driver" not paying attention is equally-likely in a driver-driven car and in a supposedly self-driving one? This is the whole problem with having a suppsedly 'back up' driver (the same problem that has been suggested applies with aircraft auto pilots, of course).
Your argument sounds like a bit of a cop-out - when the self-driving system messes up, just claim the "driver" should have been driving after all. In reality, of course, human beings don't work that way.
The bicycle did not have the right of way and would have been at-fault if the same thing happened without Uber’s system. Uber’s system does not change this just because it could have saved a life and didn’t. The fact that it could have saved a life is reason to keep developing it so that the engineering will be finished and enabled for all. Attacking it is a good way to make driving less safe for everyone.
OK, so at first it didn’t know what it was, then it identified it as a vehicle (correct), then it identified the vehicle as a bike (also correct) and then it identified the best action (auto brake). Now consider you are driving a normal car and a vehicle suddenly jumps out in front of you like this without the right of way and causes an accident. Why would you be at fault? Why is this machine held to such an impossible standard?
I don't think 'right of way' is the correct terminology here (having 'right of way' means you can use the throughfare, not that you have priority over other traffic). And the bicycle is not really the issue, as the _pedestrian_ wasn't riding it (according to all the reports I read).
If you are in charge of a vehicle (car or bike) and a pedestrian steps out in front without priority, you still have a strong legal obligation to stop or evade them if practically possible. You don't have the right to decide 'well they shouldn't have stepped out there' and just plough into them at speed anyway. That you even seem to slightly think that you do, is a bit worrying. There's nothing 'impossible' about a standard that says one of the duties you have in return for the privilege of driving (an activity that imposes risks on others) is that you should try your best not to kill someone.
If you can't stop, and it is demonstrably the case that the distance to them when they stepped out was just too short for your vehicle to have stopped in (given normal and reasonable reaction times) _then_ you have a defence. But that the pedestrian 'didn't have priority' is not a defence in itself.