Uber Patent Dispute: Could a Decade-Old Case Change Everything?

Patent Infringement Lawsuit Faces Uber

A relatively unknown legal challenge concerning patent infringement possesses the potential to significantly impact Uber, and conceivably, numerous other corporations.

Carma Technology, established in 2007 by the entrepreneur Sean O’Sullivan, who is also the founder of SOSV, initiated a lawsuit earlier this year. The suit alleges that Uber has infringed upon five of its patents.

These patents pertain to a system designed for matching riders – or shipments – with available capacity within vehicles. Essentially, this describes the core functionality of ridesharing, a business model Carma itself operated for a decade before shifting its focus to road-pricing technologies like GPS tolling and HOV lane verification.

Seeking Legal Remedies

Carma is requesting a jury trial and is pursuing a permanent injunction against Uber. This would prevent the company from continuing to utilize the allegedly infringing technology.

Furthermore, Carma seeks mandatory future royalties on all Uber products that utilize the patented technology, alongside compensation for damages and associated legal expenses.

A Decade of Allegations

The lawsuit, currently progressing through the U.S. District Court for the Eastern District of Texas, is recent in its formal filing. However, claims of infringement have circulated for nearly ten years.

According to the complaint, Carma’s legal representatives initially contacted Uber in 2016 regarding its patents related to ridesharing and ground transportation.

Uber's Early Growth

This contact occurred during a period of rapid expansion for Uber. Founded only seven years prior, the company had experienced exponential growth in valuation, market presence, and overall influence.

At that time, Uber’s valuation stood at $66 billion. The company had established operations in hundreds of cities across the United States, Europe, Canada, and the Middle East.

Having secured over $12.5 billion in venture capital funding, Uber was actively investing in new product development, including ventures into autonomous vehicle technology.

Patent Awareness

O’Sullivan asserts that Uber lacked the specific ridesharing patents held by Carma – alongside approximately two dozen others. He claims Uber was made aware of this fact as early as 2015.

The U.S. Patent and Trademark Office reportedly rejected one of Uber’s patent applications due to its conflict with existing patents owned by O’Sullivan and Carma, as detailed in the lawsuit.

Patent Application Rejections

Between 2016 and 2019, at least four of Uber’s patent applications – and multiple revisions thereof – were rejected for the same reason. Eventually, Uber abandoned some of these applications.

Despite these rejections, Uber continues to hold hundreds of patents covering a wide range of technologies and concepts applied to its business.

Core Ridesharing Technology

O’Sullivan contends that the fundamental service described by Carma’s patents is precisely how the contemporary ridesharing experience functions. He further argues that Uber’s infringement persists even if its business model resembles a traditional taxi service.

Complex Legal Landscape

Larry Ashery, an intellectual property attorney not involved in the case, described the situation as complex. He emphasized Carma’s strategic approach to patent acquisition over the past 18 years.

The five patents in question are part of a larger family of 30 related patents, all stemming from an original filing date. This interconnectedness is significant, as each asserted patent contains multiple patent claims.

Multiple Claims, Increased Complexity

These individual claims – not merely the patents themselves – are the basis of Carma’s assertions against Uber. This necessitates that Uber address and defend against each claim individually, increasing the litigation’s complexity.

Ashery suggests Uber’s likely strategy will involve attempting to invalidate Carma’s patents, a task he anticipates will be challenging.

A Nine-Year Delay in Legal Action

Despite possessing the relevant patents, Carma waited nine years before initiating a lawsuit against Uber. The firm of Bunsow De Mory, located in Redwood City, is currently providing legal representation to Carma in this matter.

O’Sullivan articulated that a company’s initial priorities lie in market capture and achieving success within the competitive landscape. He stated that patents primarily serve as a safeguard against idea theft, rather than being a primary source of revenue.

According to O’Sullivan, Carma was focused on developing a profitable, multimillion-dollar enterprise. However, other factors contributed to the nine-year delay. A significant consideration was the substantial financial burden involved.

He emphasized the considerable expense associated with litigating intellectual property against a large corporation, particularly for a smaller organization like Carma. The cost of mounting a patent suit of this magnitude, estimated at over $10 million, presents a significant challenge.

O’Sullivan revealed that Carma attempted to engage with Uber in 2016, seeking a voluntary licensing agreement for the patents. They hoped Uber would act responsibly and secure the necessary licenses.

He further explained that it took considerable time for Carma to conclude that legal action was the only way to elicit a response from Uber. The decision to sue was not taken lightly.

Uber has not issued a statement regarding the lawsuit. This week, Uber’s legal team filed two procedural motions, one of which was sealed and requested either dismissal due to improper jurisdiction or a transfer of the case to a more convenient location.

This motion indicates Uber’s preference for the case to be heard in the Northern District of California, where the company is headquartered, instead of in Texas.

The lawsuit is specifically directed at Uber, excluding Lyft and other ridesharing companies. O’Sullivan clarified that Carma is prioritizing the largest market participant. He also indicated that approximately 60 other companies may be infringing upon these patents.

The five-patent claim at the heart of the legal dispute

The central contention within the ongoing lawsuit revolves around five patents awarded to O’Sullivan and Carma, formerly known as Avego. These patents form the foundation of their claims against larger competitors.

The genesis of this legal battle can be traced to O’Sullivan’s personal experience with traffic congestion. This frustration spurred contemplation regarding carpooling solutions and the potential for an automated system, leveraging smartphone technology, to facilitate ride coordination. This initial concept ultimately materialized into the startup Avego and subsequently became the basis for the first patent – No. 7,840,427.

This inaugural patent, initially filed in 2007 and granted in 2010, details a shared transportation system designed to connect available vehicle space with passengers or cargo. The system functioned by establishing designated pick-up and drop-off locations, then efficiently matching users with drivers traveling along comparable routes.

Prior to the patent’s official approval, Avego’s ridesharing application was launched on Apple’s App Store in 2008, coinciding with the debut of the iPhone. At the 2008 DEMO conference, Avego showcased its “Shared Transport” app, demonstrating how an iPhone 3G user could accept or decline ride requests. Upon acceptance, the rider received notification of the driver’s approach and was prompted to input a PIN code for identity verification and electronic payment authorization.

According to O’Sullivan, Avego, later rebranded as Carma, primarily focused on promoting traditional carpooling rather than taxi services. The company actively operated the carpooling service until its removal from the App Store in October 2016. However, alternative ridesharing models, such as a partnership with Toyota, continued until their complete discontinuation in April 2018.

“The legislative definition of ridesharing explicitly refers to carpooling,” O’Sullivan clarified, emphasizing that Carma successfully established a multimillion-dollar carpooling business during its early operational years.

The emergence of Uber and Lyft, and their redefinition of “ridesharing” to encompass taxi-hailing services, introduced ambiguity into the market. This prompted Carma to adapt its business strategy and explore new applications for its technology. “Uber and Lyft steered ridesharing towards taxi services, a direction Carma intentionally avoided,” O’Sullivan stated.

Carma’s current focus remains on alleviating traffic congestion, but its technological expertise is now applied to a different business model.

Currently, Carma’s application assists transit authorities in managing tolls and express lanes – a product line initially introduced in 2013. The app can, for example, be utilized by drivers on toll roads or to monitor vehicle occupancy for High Occupancy Vehicle (HOV) lanes. It incentivizes increased vehicle ridership by reducing tolls or granting access to HOV lanes.

O’Sullivan explained that the objective is to provide toll authorities with a means to potentially reduce capital expenditures by as much as 20 times, eliminating the need for extensive gantry-based infrastructure systems. This approach has proven successful.

While acknowledging that pursuing the lawsuit will impact its financial performance, O’Sullivan asserts that Carma remains profitable and that the legal battle is a worthwhile investment.

“There is a risk to society if patents cannot reliably safeguard the rights of inventors. The patent system is designed to protect the rights of innovators, not to reward those who simply replicate ideas with greater financial resources,” he argued, referencing Uber’s unsuccessful attempts to secure its own patents through the USPTO.

“We believe it’s crucial to acknowledge the potential for a smaller inventor’s rights to be disregarded. However, this extends beyond Carma; it represents a broader systemic issue. It serves as a test of whether the rule of law remains effective when a dominant technology company is involved.”