A little-known patent infringement lawsuit could have big implications for Uber — and potentially dozens of other companies.
Carma Technology, a company formed in 2007 by serial entrepreneur and SOSV founder Sean O’Sullivan, filed a lawsuit earlier this year against Uber alleging the company infringed on five of its patents that are related to the system of matching riders (or packages) with capacity in vehicles. In other words, ridesharing — a business Carma operated in some form for a decade until it changed its business model and applied its tech to road-pricing services like GPS tolling and HOV verification.
Carma has requested a jury trial and is seeking a permanent injunction against the company, mandatory future royalties on any Uber products that infringe on those patents as well as damages, and other costs related to the lawsuit.
The lawsuit, which has been quietly winding its way through the U.S. District Court for the Eastern District of Texas, is relatively new. The allegations have been swirling for nearly a decade.
Carma lawyers first contacted Uber about its ridesharing and ground transportation patents in 2016, according to the complaint. That was an auspicious time for Uber. The startup, which was founded just seven years before, had shot into the stratosphere — in terms of valuation, growth, and gravitas.
Uber was valued at $66 billion at the time, and had a reputation for taking big, legally sticky swings into new markets that helped it grow to hundreds of cities in the U.S., Europe, Canada, and the Middle East. It had raised more than $12.5 billion in venture capital, and was using it to launch new products and even push into autonomous vehicles.
Uber might have had the business model and the market share, but it didn’t have the specific ridesharing patents, O’Sullivan told TechCrunch in a recent interview. Carma does — plus a couple dozen others. Uber was allegedly aware of that fact as early as 2015 when the U.S. Patent and Trademark Office rejected one of its applications because it ran up against existing patents held by O’Sullivan and Carma, according to the lawsuit.
At least four of Uber’s patent applications — and in some cases numerous revisions to those patents — were rejected between 2016 and 2019 for the same reason. The rideshare giant would eventually abandon some of those applications.
Uber still holds hundreds of other patents covering a broad swath of technology and ideas that have been applied to its business.
O’Sullivan argues the core service of what Carma’s patents describe is exactly how the modern day ridesharing experience operates. And he contends that Uber is infringing on those patents even if the company’s business model operates more like a taxi business.
The case is a complicated one, intellectual property attorney Larry Ashery told TechCrunch. (Ashery is not involved in the case.)
“What’s important to understand here is Carma isn’t just asserting five patents,” said Ashery, whose practice is based in the Greater Philadelphia area. “They have had a very sophisticated strategy of patent procurement that they’ve been working on for the past 18 years.”
He noted the five patents are part of a 30-patent family that are all related and connected to the original filing date. That matters because each of the five asserted patents contains multiple patent claims, which define the legal boundaries of the invention. These individual claims — not just the patents as a whole — are what Carma is asserting against Uber.
That means Uber will have to address and defend against each asserted claim, making the litigation more complex and difficult to defeat, he noted. Ashery said Uber’s strategy will likely be to try to invalidate these patents, which will be a challenge.
A nine-year gap
While Carma might have been armed with these specific patents, it took nine years for the company to actually sue Uber. Bunsow De Mory, a Redwood City-based law firm, is representing Carma in the case.
“When any business starts, it’s all about just actually capturing the market and winning in the marketplace,” O’Sullivan said. “Patents are meant to protect against aggressors from stealing the idea, but it’s not the main focus of your business to get patent revenue. It’s more as a protective mechanism.”
Carma, he said, has been “very busy building a multimillion-dollar business and getting to profitability.” But there are other reasons for that nine-year time gap, O’Sullivan explained. For one, the cost.
“It’s incredibly expensive to sue a large company over IP and Carma is a relatively small organization,” he said in a recent interview. “To come up with the $10 million-plus to take on a big patent suit, which is what it takes these days, is not a small task.”
O’Sullivan said the company did reach out to Uber as far back as 2016 “in the hopes that they would do the right thing and license our patents.”
“It really took us a while to come to terms with the idea that we actually had to sue Uber in order for them to respond,” he added.
Uber declined to comment on the lawsuit. Uber’s attorneys did make two procedural motions this week, including a sealed motion to dismiss for improper venue or alternatively to transfer venue for convenience. This procedural motion signals Uber’s desire for the case to be litigated in the Northern District of California, where it is based, rather than in Texas.
Notably, the lawsuit is aimed at Uber, not Lyft or other companies using ridesharing. O’Sullivan explained Carma is “going after the biggest player first” and noted that about 60 other companies are likely infringing on its patents.
The five-patent argument
The primary argument in the lawsuit ties back to five patents that have been granted to O’Sullivan and Carma, which was originally named Avego.
It all started with O’Sullivan’s frustration with traffic congestion, which ultimately led to thoughts about carpooling and how an automated system using smartphones could help people coordinate rides. That idea would turn into the startup Avego and become the basis of the first patent — No. 7,840,427.
The first patent, which O’Sullivan applied for in 2007 and was granted in 2010, created a shared transport system that matches empty space in a vehicle with riders or goods. The system established a set of pick-up and drop-off points and then matched users and drivers traveling along a similar route.
Before the patent was granted Avego’s ridesharing app debuted on Apple’s App Store in 2008, the same year the iPhone launched. Avego showed off its so-called Shared Transport app at the DEMO conference in 2008, which showed how a driver with an iPhone 3G could use the app to accept or reject a ride request. Once accepted, the rider was notified as the driver approached and then was prompted to enter a pin code to prove their identity and authorize an electronic payment.
Avego, which would later change its name to Carma, was focused on the promotion of ridesharing (as in carpooling) and not taxis, according to O’Sullivan. The company operated the carpooling business until October 2016, when the app was withdrawn from the App store. However, it still had other forms of ridesharing, like its partnership with Toyota, until phasing it out altogether in April 2018.
“If you look at the definition of ridesharing in federal legislation, it is carpooling,” O’Sullivan said, noting that Carma built up a multimillion-dollar ridesharing business in its early days.
When Uber and Lyft came in and tried to co-opt the term ridesharing to mean taxi-hailing it caused confusion in the market, prompting Carma to change its business model and apply its tech in new ways. “Uber and Lyft really took ridesharing in the direction of taxi services, but our company Carma didn’t want to,” O’Sullivan said.
Carma is still focused on reducing traffic congestion, but its tech is applied to a different business model.
Today, Carma uses its app to help transit authorities manage tolls and express lanes — a product line the company first rolled out in 2013. For instance, the app can be used by a driver on a toll road or even track vehicle occupancy for HOV lanes. The app is designed to get more riders into cars and reward those people by reducing tolls or giving drivers access to the HOV lane.
The idea, O’Sullivan said, is to offer toll authorities a way to reduce capital expenditure by up to 20 times by not using large gantry-based infrastructure systems. And it has paid off.
O’Sullivan says Carma is profitable, although pursuing this lawsuit will cut into its bottom line. Still, he said it’s worth the cost.
“I think there’s a danger in society where we can’t rely on our patents to protect the rights of the inventors, and the patent system exists specifically to protect the rights of investors, not to reward copycats that just happen to have deeper pockets,” he said, pointing to Uber’s attempts at its own patents and the rejection of them by the USPTO.
“We think it’s something that’s important to recognize that the rights of a relatively small inventor are being trampled upon. But it’s not just for Carma, really. We think of this as a problem for the entire system. It’s a test of whether the rule of law still applies when a powerful tech giant is involved.”
