How a decade-old patent dispute could upend Uber’s business

A bit of-known patent infringement lawsuit might have large implications for Uber — and probably dozens of different corporations.

Carma Technology, an organization fashioned in 2007 by serial entrepreneur and SOSV founder Sean O’Sullivan, filed a lawsuit earlier this 12 months towards Uber alleging the corporate infringed on 5 of its patents which can be associated to the system of matching riders (or packages) with capability in automobiles. In different phrases, ridesharing — a enterprise Carma operated in some kind for a decade till it modified its enterprise mannequin and utilized its tech to road-pricing providers like GPS tolling and HOV verification.

Carma has requested a jury trial and is searching for a everlasting injunction towards the corporate, obligatory future royalties on any Uber merchandise that infringe on these patents in addition to damages, and different prices associated to the lawsuit. 

The lawsuit, which has been quietly winding its means by the U.S. District Courtroom for the Jap District of Texas, is comparatively new. The allegations have been swirling for almost a decade. 

Carma legal professionals first contacted Uber about its ridesharing and floor transportation patents in 2016, in line with the criticism. That was an auspicious time for Uber. The startup, which was based simply seven years earlier than, had shot into the stratosphere — when it comes to valuation, progress, and gravitas.

Uber was valued at $66 billion on the time, and had a status for taking big, legally sticky swings into new markets that helped it develop to a whole lot of cities within the U.S., Europe, Canada, and the Center East. It had raised greater than $12.5 billion in enterprise capital, and was utilizing it to launch new merchandise and even push into autonomous vehicles.

Uber may need had the enterprise mannequin and the market share, but it surely didn’t have the particular ridesharing patents, O’Sullivan advised TechCrunch in a latest interview. Carma does — plus a couple dozen others. Uber was allegedly conscious of that reality as early as 2015 when the U.S. Patent and Trademark Workplace rejected certainly one of its functions as a result of it ran up towards present patents held by O’Sullivan and Carma, in line with the lawsuit.  

At the least 4 of Uber’s patent functions — and in some instances quite a few revisions to these patents — have been rejected between 2016 and 2019 for a similar cause. The rideshare big would ultimately abandon a few of these functions.

Uber nonetheless holds a whole lot of different patents overlaying a broad swath of know-how and concepts which have been utilized to its enterprise.

O’Sullivan argues the core service of what Carma’s patents describe is precisely how the trendy day ridesharing expertise operates. And he contends that Uber is infringing on these patents even when the corporate’s enterprise mannequin operates extra like a taxi enterprise.

The case is a sophisticated one, mental property lawyer Larry Ashery advised TechCrunch. (Ashery is just not concerned within the case.)

“What’s essential to grasp right here is Carma isn’t simply asserting 5 patents,” stated Ashery, whose observe is predicated within the Higher Philadelphia space. “They’ve had a really subtle technique of patent procurement that they’ve been engaged on for the previous 18 years.”

He famous the 5 patents are a part of a 30-patent household which can be all associated and related to the unique submitting date. That issues as a result of every of the 5 asserted patents incorporates a number of patent claims, which outline the authorized boundaries of the invention. These particular person claims — not simply the patents as an entire — are what Carma is asserting towards Uber.

Meaning Uber must handle and defend towards every asserted declare, making the litigation extra complicated and troublesome to defeat, he famous. Ashery stated Uber’s technique will possible be to attempt to invalidate these patents, which will likely be a problem.

A nine-year hole

Whereas Carma may need been armed with these particular patents, it took 9 years for the corporate to really sue Uber. Bunsow De Mory, a Redwood Metropolis-based legislation agency, is representing Carma within the case. 

“When any enterprise begins, it’s all about simply really capturing the market and profitable within the market,” O’Sullivan stated. “Patents are supposed to defend towards aggressors from stealing the concept, but it surely’s not the principle focus of your enterprise to get patent income. It’s extra as a protecting mechanism.”

Carma, he stated, has been “very busy constructing a multimillion-dollar enterprise and attending to profitability.” However there are different causes for that nine-year time hole, O’Sullivan defined. For one, the fee. 

“It’s extremely costly to sue a big firm over IP and Carma is a comparatively small group,” he stated in a latest interview. “To provide you with the $10 million-plus to tackle a giant patent swimsuit, which is what it takes today, is just not a small process.” 

O’Sullivan stated the corporate did attain out to Uber way back to 2016 “within the hopes that they might do the best factor and license our patents.”

“It actually took us some time to return to phrases with the concept we really needed to sue Uber to ensure that them to reply,” he added. 

Uber declined to touch upon the lawsuit. Uber’s attorneys did make two procedural motions this week, together with a sealed movement to dismiss for improper venue or alternatively to switch venue for comfort. This procedural movement indicators Uber’s want for the case to be litigated within the Northern District of California, the place it’s based mostly, slightly than in Texas.

Notably, the lawsuit is aimed toward Uber, not Lyft or different corporations utilizing ridesharing. O’Sullivan defined Carma is “going after the largest participant first” and famous that about 60 different corporations are possible infringing on its patents.

The five-patent argument

The first argument within the lawsuit ties again to 5 patents which have been granted to O’Sullivan and Carma, which was initially named Avego. 

It began with O’Sullivan’s frustration with visitors congestion, which finally led to ideas about carpooling and the way an automatic system utilizing smartphones might assist individuals coordinate rides. That concept would flip into the startup Avego and develop into the premise of the primary patent — No. 7,840,427.

The primary patent, which O’Sullivan utilized for in 2007 and was granted in 2010, created a shared transport system that matches empty area in a automobile with riders or items. The system established a set of pick-up and drop-off factors after which matched customers and drivers touring alongside an analogous route. 

Earlier than the patent was granted Avego’s ridesharing app debuted on Apple’s App Retailer in 2008, the identical 12 months the iPhone launched. Avego confirmed off its so-called Shared Transport app on the DEMO convention in 2008, which confirmed how a driver with an iPhone 3G might use the app to simply accept or reject a experience request. As soon as accepted, the rider was notified as the driving force approached after which was prompted to enter a pin code to show their identification and authorize an digital fee. 

Avego, which might later change its title to Carma, was centered on the promotion of ridesharing (as in carpooling) and never taxis, in line with O’Sullivan. The corporate operated the carpooling enterprise till October 2016, when the app was withdrawn from the App retailer. Nevertheless, it nonetheless had different types of ridesharing, like its partnership with Toyota, till phasing it out altogether in April 2018.

“In the event you have a look at the definition of ridesharing in federal laws, it’s carpooling,” O’Sullivan stated, noting that Carma constructed up a multimillion-dollar ridesharing enterprise in its early days.

When Uber and Lyft got here in and tried to co-opt the time period ridesharing to imply taxi-hailing it triggered confusion available in the market, prompting Carma to alter its enterprise mannequin and apply its tech in new methods. “Uber and Lyft actually took ridesharing within the path of taxi providers, however our firm Carma didn’t wish to,” O’Sullivan stated.

Carma continues to be centered on lowering visitors congestion, however its tech is utilized to a unique enterprise mannequin.

Right this moment, Carma makes use of its app to assist transit authorities handle tolls and specific lanes — a product line the corporate first rolled out in 2013. As an illustration, the app can be utilized by a driver on a toll street and even monitor automobile occupancy for HOV lanes. The app is designed to get extra riders into vehicles and reward these individuals by lowering tolls or giving drivers entry to the HOV lane. 

The concept, O’Sullivan stated, is to supply toll authorities a approach to cut back capital expenditure by as much as 20 instances by not utilizing giant gantry-based infrastructure programs. And it has paid off.

O’Sullivan says Carma is worthwhile, though pursuing this lawsuit will minimize into its backside line. Nonetheless, he stated it’s value the fee.

“I feel there’s a hazard in society the place we will’t depend on our patents to guard the rights of the inventors, and the patent system exists particularly to guard the rights of buyers, to not reward copycats that simply occur to have deeper pockets,” he stated, pointing to Uber’s makes an attempt at its personal patents and the rejection of them by the USPTO.

“We predict it’s one thing that’s essential to acknowledge that the rights of a comparatively small inventor are being trampled upon. But it surely’s not only for Carma, actually. We consider this as an issue for the whole system. It’s a take a look at of whether or not the rule of legislation nonetheless applies when a strong tech big is concerned.”