Most urbanite readers will have heard of ‘ride-sharing’ service Uber, even if they have not (as yet) used it. Befitting a disruptive market entrant with a strong technology focus, Uber has invested in a strong patent position. There has been a flurry of patent activity in the United States and elsewhere, with Uber reportedly having filed over 24 patent applications. What are they patenting? And more importantly, why?

The story so far

Uber, Inc of California launched in 2010 in San Francisco, and is now active in over 200 cities throughout more than 50 countries. Initially, luxury cars were offered for hire, but since 2012 Uber has expanded its offering to include any qualified driver with an acceptable vehicle. Uber relies on drivers and commuters using smartphones to access its platform to co-ordinate transport.

In many markets, Uber operates in a regulatory grey zone, as it is viewed as a de facto unlicensed taxicab service. Uber’s position, by contrast, is that it simply provides a platform to match willing commuters with willing drivers. As ‘ride sharing’ is new in a large-scale or commercial sense, it falls into a regulatory blind spot not directly addressed by existing regulations.

Whatever the case, Uber is certainly a disruptive entrant to the transportation sector – one that has been welcomed by many commuters, but less so by incumbent taxi operators. Commuters – armed with the Uber geo-aware smartphone app – find the service cheap, slick, and convenient. Taxi companies call the service dangerous, unsupervised and illegal.

Broad patents, narrow patents, start-up patents

The mere mention of patents tends to suggest that inventors have made a ground-breaking, once-in-a-lifetime discovery. This is, of course, not always the case as patents need only meet a ‘non-obviousness requirement which, in some countries at least, is not regarded as a high threshold. Some patents may be sweeping in scope, or minute in detail. Others, not so. Of course, some companies will be more aggressive than others in how doggedly they seek patent protection for their innovative activities.

Startup companies will seek patents for many reasons, and these may include:

  • blocking competitors from copying products or features
  • inflating valuations prior to public offering
  • gaining leverage in negotiations with business partners
  • avoiding costly litigation from competitors
  • recognition of market or sector leadership

Ideally, a company will be able to seek patent protection for its basic business model, which provides it with unique advantages over any prospective competitors, albeit that this can be tricky.

Uber has invested in a patent portfolio

Uber, undeniably a savvy and innovative operation, has been ambitious in seeking protection for both its fundamental business model, as well as select features it has introduced to its service offering.

Title:

  1. System and method for splitting a fee for an on-demand service
  2. Generating promotions for a service using a map interface
  3. Determining an amount for a toll based on location data points provided by a computing device
  4. Providing on-demand services through use of portable computing devices
  5. Providing a confirmation interface for on-demand services through use of portable computing devices
  6. Dynamically providing position information of a transit object to a computing device
  7. System and method for providing dynamic supply positioning for on-demand services
  8. Transitioning user interface features for on-demand services through use of portable computing devices
  9. Providing a summary or receipt for on-demand services through use of portable computing devices

Uber’s published United States patent applications

The first (and so far only) Uber patent application to be filed in Australia is for a ‘system and method for arranging transport amongst parties through use of mobile devices’. This essentially covers the operational model as a whole. While yet to be examined in Australia, Uber has found the United States Patent Office unreceptive to a counterpart application thus far.

Essentially, the difficulty Uber is encountering is that some of its patent applications are – according to the United States Patent Office – for basic business concepts that have been around for a long time, notwithstanding that they may be innovative in their chosen sector.

One specific feature of the service which Uber has sought to patent is its ‘surge pricing’ feature. The price of the service goes up when demand is high, or supply is low. This was controversially witnessed during the Sydney siege earlier this year, when many in the Sydney were looking to flee the CBD.

Should the United States Patent Office decide that Uber’s surge pricing model is simply using a computer to do the type of pricing dynamics businesses have done for decades, it may well reject the Uber claim, or at least require very specific restrictions.

Coupled with the question of whether or not Uber’s patents are obvious, United States court decisions have more recently stipulated more rigorous requirements for patents relating to business models which are implemented in a computer, or smartphone. Essentially, patents must be for more than an ‘abstract idea’. Patentable technologies are for realised solutions, in which computer hardware plays more than a more than a merely incidental role.

Simply experimenting? Or creating value for the business?

Uber is without doubt well funded (at a recent valuation of USD40B), and can certainly afford to experiment with the patent system. But Uber’s strategy is unlikely to be one solely base on a whim.

Like Uber, any online business using an innovative model, regardless of funding or capitalisation status, would do well to at least consider whether they can gain a valuable competitive advantage using the patent system.

While there are expenses involved, the difference in success or failure for the business can be between attracting the next funding round, or not. Having a patent portfolio – even a nascent one – can help push a company towards that next funding round. There are many other prizes to be won in the patent process as mentioned in the list above.

Each business and market is of course different though, and at startup level, especially in a fast-moving technology sector, the game of business can be sufficiently complicated and dynamic that anticipating potential problems is exceedingly difficult.

A patent position in these circumstances is one of risk management, if nothing else. When things go wrong, as they often do, a company with a patent portfolio will have options not otherwise available if it had never sought patent protection. Akin to playing snakes and ladders with a loaded dice, if you will.

As an example, if you receive a patent infringement notice from a competitor, you are far more likely to be negotiate a favourable outcome if you are in a position to counterattack with your own patent infringement action. Also, the prospect of securing patent protection is likely to drive up your valuation, and assure investors that you can deter competitors while establishing market leadership.

Takeaway lessons

What can an online startup company learn from Uber’s example?

  • consider seeking broad patent protection early, prior to launch
  • assess whether innovation can be protected before introducing new features
  • select extent of patent coverage taking into account cost and likelihood of success