Less well-known patent infringement lawsuits can have a major impact on Uber.
Carma Technology, a company founded in 2007 by serial entrepreneur and SOSV founder Sean O’Sullivan, filed a lawsuit against Uber earlier this year, alleging that the company was infringed on five patents related to a system of riders (or packages) with the capacity of the vehicle. In other words, Ridesharing – Business Karma operated in some form for ten years, before changing its business model and applying the technology to road pricing services such as GPS tolls and HOV verification.
Carma is requesting a ju trial and forces future royalties for Uber products that infringe permanent injunctions against the company, those patents and damages, and other costs associated with the lawsuit.
The lawsuit quietly involves US District Courts in the Eastern District of Texas is relatively new. The allegations have been swirling for nearly a decade.
Carma’s lawyers first contacted Uber in 2016 about its ride-sharing and ground transportation patents. It was an auspicious time for Uber. Founded just seven years ago, the startup was shot into the stratosphere in terms of evaluation, growth and gravity.
Uber was valued at $66 billion at the time and had a reputation for bringing a huge legally sticky shaking into new markets that would help it grow into hundreds of cities in the US, Europe, Canada and the Middle East. They raised more than $12.5 billion in venture capital, which they used to launch new products and even pushed autonomous vehicles.
Uber may have had a business model and market share, but there were no patents for any particular ride-sharing, O’Sullivan told TechCrunch in a recent interview. Karma is like dozens more others. The lawsuit allegedly revealed that Uber was aware of the fact in 2015 when the US Patent and Trademark Office ran against an existing patent held by O’Sullivan and Carma, and thus rejected one of its applications.
For the same reason, between 2016 and 2019, at least four Uber patent applications, and in some cases many revisions to these patents, were rejected. The ridesharing giant will ultimately abandon some of these applications.
Uber still holds hundreds of other patents covering a wide range of technologies and ideas applied to its business.
O’Sullivan asserts exactly how the core services Carma’s patent explains are how modern ride-sharing experiences operate. And he argues that Uber infringes these patents, even if the company’s business model operates like a taxi business.
The case is complicated, intellectual property lawyer Larry Asherry told TechCrunch. (Asherry is not involved in the incident.)
“The key to understanding here is that Karma is not just claiming five patents,” said Asherry, whose practice is based in the Philadelphia area. “They had a very sophisticated strategy of patent procurement that they’ve been working on for the past 18 years.”
He noted that all five patents are related and are part of the 30 patent families associated with the original filing date. That is important because each of the five alleged patents contains multiple claims that define the legal boundaries of the invention. These individual claims are what Karma claims against Uber, not just the patent as a whole.
This means that Uber must deal with and defend each claim that was alleged, making the case more complicated and difficult to defeat. Ashery said Uber’s strategy is probably to try to override these patents, but this would be a challenge.
The gap of nine years
Carma may have obtained these specific patents, but it took the company nine years for the company to actually sues Uber. Bunsow De Mori, a Redwood-based law firm, represents Carma in the case.
“When the business starts, you just get the market and win the market,” O’Sullivan said. “Patents are intended to protect you from stealing ideas from invaders, but earning patent revenue is not the main focus of your business. It’s as a protective mechanism.”
He said Karma is “very busy building a multi-million dollar business and gaining profitability.” But there are other reasons for the nine-year time gap, O’Sullivan explained. One is cost.
“It’s very expensive to suing large companies over IP, and Carma is a relatively small organization,” he said in a recent interview. “Setting a big recent patent lawsuit to come up with over $10 million is not a small task.”
O’Sullivan said the company reached out to Uber until 2016.
“It really took them time to agree with the idea that we had to actually sue Uber for them to respond,” he added.
Uber declined to comment on the lawsuit. Uber’s lawyers made two procedural moves this week, including a sealed move to dismiss an inappropriate venue, or forwarding venues for convenience. This procedural move shows Uber’s desire for a case of filing a lawsuit in the Northern California district, where it is based.
In particular, the lawsuit covers Uber, not other companies using Lyft or Ridesharing. O’Sullivan explained that Karma “will be the first to chase the biggest players,” and said it is likely that around 60 other companies have infringed their patents.
Five pay discussions
The main arguments in the litigation are tied to five patents granted to O’Sullivan, originally named Abego, and Karma.
It all began with O’Sullivan’s complaints about the traffic jam. This ultimately led to ideas about car pooling and how automated systems using smartphones could help people coordinate their vehicles. The idea transformed into startup Abego and became the basis for the first patent – No. 7,840,427.
The first patent filed by O’Sullivan in 2007 and granted in 2010 created a shared transport system that matches the vehicle’s vacant space with riders and merchandise. The system established a set of pickups and drop-off points, matching users and drivers traveling along similar routes.
Before the patent was granted, Avego’s ride-sharing app debuted in 2008 on Apple’s App Store. The iPhone was released in the same year. Avego showed off its so-called shared transport app at the 2008 Demo Conference. This showed whether drivers using iPhone 3G can use the app to accept or reject ride requests. Once accepted, riders were notified when the driver approached, and were then asked to enter a pin code to prove their identity and allow electronic payments.
According to O’Sullivan, Avego, which later renamed Carma, focused on promoting ride sharing rather than taxis. The company ran the Carpooling business until October 2016, when the app was withdrawn from the App Store. However, there were still other forms of ride-sharing, such as in partnership with Toyota, until it was phased out completely in April 2018.
“If you look at the definition of ride-sharing in federal law, it’s a carpool,” O’Sullivan said.
When Uber and Lyft came in and tried to adopt the term ride-sharing, it caused disruption in the market, prompting Carma to change their business model and apply the technology in new ways. “Uber and Lyft really took ride-sharing in the direction of taxi services, but our company Carma didn’t want it,” says O’Sullivan.
Carma still focuses on reducing traffic congestion, but the technology applies to a different business model.
Now, Carma uses the app to help transit authorities manage tolls and compensate for lanes. This is the company’s first product line in 2013. For example, the app can be used by drivers on toll roads and track vehicle occupancy in HOV lanes. The app is designed to reward those people by bringing more riders into the car, reducing tolls or allowing drivers to access HOV lanes.
According to O’Sullivan, the idea is to provide paid authorities with a way to reduce capital expenditures up to 20 times by not using large gantry-based infrastructure systems. And it paid off.
O’Sullivan says pursuing the lawsuit will cut revenues, but karma is profitable. Still, he said it was worth the cost.
“I think there’s a patent system specifically exists in a society where we can’t rely on patents to protect the rights of our inventors, rather than relying on special presence to protect the rights of investors, or rewarding imitators who happen to have deeper pockets,” he said.
“I think it’s important to recognize that the rights of relatively small inventors are being trampled on, but it’s not just karma. In fact, I think this is a system-wide issue. It’s a test of whether the rule of law still applies when a powerful technological giant is involved.”
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