Uber Seeks to Patent Pricing Surges That Critics Call GougingSusan Decker and Serena Saitto
The company, though, makes no apologies for what it calls “surge pricing” -- and in fact is seeking to patent it.
Uber applied for a U.S. patent last year for “dynamically adjusting prices for service” using mobile devices. The system measures supply (Uber drivers) and demand (passengers hailing rides with smartphones), and prices fares accordingly.
It’s one of at least 13 U.S. patent applications filed by Uber or its founders to give it an edge over potential rivals ahead of a potential initial public offering. So far, Uber hasn’t had any luck. Ten applications were initially rejected by the U.S. Patent and Trademark Office for “obviousness” or for covering something not eligible for protection.
“Cabs have been around for centuries,” said John Martin, chief executive officer of Innography Inc., an Austin, Texas-based maker of software to analyze patent portfolios. “What is new, and what they’re trying to capture around some of their filings, is the arrangement between the rider and the car.”
Uber started in San Francisco in 2009 and has expanded to more than 250 cities to become the largest car-booking service that passengers request via a mobile-phone app. The company recently more than doubled its valuation in a round of financing to $40 billion, which makes it the most highly valued U.S. technology startup. That has drawn attention to the company, some of it unwanted: it’s faced questions about drivers being accused of raping passengers and when when senior vice president Emil Michael said the company was willing to pry into journalists’ private lives.
Uber’s other patent applications include ones for determining the most likely travel path of a vehicle, providing on-demand services through portable computing devices, and providing a receipt on a portable device.
In all, Uber has filed for 24 patents worldwide, according to Innography. The four earliest date back to December 2009, when the company was co-founded by Garrett Camp and Chief Executive Officer Travis Kalanick, who were named as inventors on the applications.
Those four patents all have the same title related to arranging transportation through mobile devices and all have been given initial rejections, said Maulin Shah, managing director of New York-based researcher Envision IP. He said they “appear fundamental to Uber’s business model.”
Ten of Uber’s applications were initially rejected by the patent office, most for covering obvious variations of earlier inventions, but the company is continuing to push for approval, according to filings with the agency.
An Uber spokeswoman declined to comment for this article.
Patent office examiners have not taken action on the price-surging patent application and two others. Shah said it was likely the agency would reject those as well, if it finds they simply use a computerized device to perform conventional business methods.
Price-surging helps Uber multiply its revenue because the company keeps 20 percent to 25 percent of its average rides’ price. The feature has long been contentious. Most recently, during the Dec. 15 hostage crisis in Sydney, which ended with the deaths of three people including the gunman, Uber outraged users after it charged as much as four times its normal price.
Uber said it reimbursed those rides and offered the service for free, while noting in a blog that “surge pricing is used to encourage more drivers to come online and pick up passengers from the area.” In July, the company reached an agreement with New York Attorney General Eric Schneiderman to cap fares during emergencies and natural disasters after being criticized for profiting during crisis.
Startups often seek patents before a public offering to block competitors from copying products or features and for use as a form of currency in negotiations for business partnerships.
“If they’re able to overcome all these regulatory hurdles, having ownership of patents that go on this business model means those companies will do well,” Shah said of Uber.
It’s a well-worn path: Twitter Inc. and Alibaba Group Holding Ltd. both beefed up their patent holdings before their IPOs through home-grown research and strategic purchases from other companies, said Shah.
The difficulty Uber is encountering is that some of its patent applications are for basic business concepts that have been around for a long time. Recent U.S. court decisions have made it harder to get patents on business methods using a computer, or a smartphone, Martin and Shah said.
If the patent office decides that Uber’s surge pricing is simply using a computer to do the type of pricing dynamics businesses have done for decades, it may reject that application too.
Shah said rival car-service company Lyft Inc. doesn’t have any published applications with the U.S. patent office -- they become public 18 months after filing. Sidecar Technologies Inc. has one issued patent.
Uber, which has quickly expanded to 53 countries, has local competitors in most markets, such as London-based Hailo and Israel’s GetTaxi. Meanwhile, some taxi companies in the U.S. are working to build a similar mobile platform to fight back against their industry’s disruption.
The company’s market value could make it a target for patent litigation, Shah said. One route to building up patent protection is buying them from another company.
Shah said it’s likely Uber will acquire patents in the near future.
Some of the biggest holders of patents that could relate to Uber’s business have proven to be willing sellers, like International Business Machines Corp. or Microsoft Corp., said Shah. IBM, the largest corporate holder of U.S. patents, owns technology related to mobile payments. Nokia Oyj, which got rid of its handset business to turn to wireless-networking equipment, is looking to make money on its patents and has “a very large portfolio of mapping technology,” he said.
Martin said patent owners in the general ride-sharing area go beyond the usual suspects -- Xerox Corp.’s PARC research unit has patents for security enhanced rideshares and Walt Disney Co. has ones for personalized rides.
When reviewing a patent application, examiners don’t consider the criticisms of Uber’s business, including its surge pricing and global regulatory challenges. The company has been sued, fined and blocked by regulators from Brazil to California as it often flouts local laws to begin its service.
“That raises a question about what’s technically possible in a marketplace and what’s socially acceptable,” Martin said.
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