During Sunday’s hostage crisis in Sydney, Australia, the transportation service company Uber Technologies, Inc. raised its rates and has faced harsh criticism as a result. Critics accused Uber of “price-gouging” in the face of an emergency. Uber has since apologized and offered full refunds to affected users as well as offering free rides to those who were trying to evacuate the area.
Uber’s practice is more than a random act taking advantage of a spike in passengers. Rather, Uber has developed a systematic approach to its pricing policy. In fact, Uber refers to this system as “surge pricing.” Within Uber, surge pricing involves an algorithm that raises prices automatically when demand for car service increases, e.g., on a rainy day. As explained on Uber’s website:
With surge pricing, Uber rates increase to get more cars on the road and ensure reliability during the busiest times. When enough cars are on the road, prices go back down to normal levels. It’s important to know that you’ll always be notified in big, bold print if surge pricing is in effect. When rates are more than double, the surge confirmation screen also requires you to type in the specific surge multiplier to ensure you understand what rates to expect.
Moreover, Uber has filed a U.S. patent application for “a method for adjusting prices for service.” The system weighs the supply, i.e., available Uber drivers on the roads, versus demand, i.e., passengers hailing drivers with their smartphones, and adjusts fares accordingly.
There have been no actions on the merits of the patent application yet, so the opinion of the United States Patent and Trademark Office (USPTO) remains to be seen. One difficulty that Uber may face during patent prosecution, however, relates to the scrutiny of patent applications claiming basic business concepts using a computer, e.g., a smartphone, given the many recent U.S. court decisions issued on business method patents. If the USPTO determines that Uber’s surge pricing is merely using a computer to compute pricing algorithms that businesses have done for years, the application may be rejected. If, however, Uber is able to secure a patent on this surge pricing technology, they will have protected a fundamental portion of their business model, and provided the company with an advantage over competitors ahead of any initial public offering.