By John Cronin and Nathan Doudera, ipCapital Group

Presently there are signs of a disruption in the car rental industry due to intellectual property (IP). In the past year alone Hertz, Enterprise and Avis have all been sued for alleged infringement of technology patents.

One such suit has been brought against Avis and Hertz by MacroSolve Inc., for alleged infringement on U.S. patent 7,822,816 — a “System and method for data management.” This is evidence that IP is becoming much more relevant in the car rental industry, and has potentially negative consequences if ignored. This is especially true as many car rental companies now have technologies in place, such as smartphone apps, to make it easier for customers to browse and reserve cars.

Companies are also using new technologies to simplify the process of completing the rental agreement. Hertz, for example, has recently introduced automated kiosks that allow customers to complete rental agreements without the need for a Hertz employee on location.

Looking to the future, it is clear that the prevalence and importance of technology will continue to grow in the car rental industry. As this happens, there is an increasing likelihood of an industry disruption due to patented technologies.

Patent Developments in Car Rental

In the near-term future there are more disruptive technologies that can be expected and patent protected. The general connectivity between the different parties and parts of the car rental process is likely to increase dramatically. As this happens, it is likely that mobile devices will be used in even more aspects of the car rental process such as adding an additional driver.

Eventually, mobile connectivity could get to a point where there would be no need for a staffed office at every rental location — only a parking lot for the vehicles. Other connectivity developments such as in-car Wi-Fi access and cloud-based services are also likely in the near-term future.

Looking ten or more years into the future, possibilities such as robotic cars will open up the car rental industry to even more disruption leading to patentable technologies. In the future, a robotic rental car might be able to drive itself to the airport arrival terminal, so that the vehicle would be there waiting when a customer’s flight arrives.

Growth of IP in the Industry

Filing of rental car-related patents has grown significantly in the past several years. Out of all filed patents directly related to rental cars, there are many that are not held by rental car companies. The amount of rental car-related patents not held by rental car companies is a concerning fact and makes rental car companies susceptible to IP threats from outside their typical competitors.

Of the rental car companies, Enterprise is by far the leader with 66 patent filings. The rest of the major car rental companies are far behind in this regard: Both Avis and Dollar Thrifty Automotive Group have no patent filings, and Hertz has seven filings.[PAGEBREAK]

In addition to Enterprise, another company that is making the push toward building a strong patent portfolio is a relative newcomer. Zipcar has already disrupted the industry with its business model of membership-based service and hourly rental rates, and its patent filings will continue to disrupt the industry.

Among Zipcar’s patent applications is one that seeks to patent the process of connecting with a rental car through a mobile device to perform actions such as locking and unlocking the car. This technology makes it easier and faster for customers to get their rental cars, and would force the other car rental companies to either license the technology, work-around the patent or not offer such a convenient service to their customers.

How IP Can Be Disruptive to an Industry

A cautionary tale for the rental car industry regarding IP can be drawn from the banking industry. In the early 2000s, Congress passed legislation allowing banks to substitute electronic copies of checks for the actual checks. This provided the banks a substantial cost and time savings because they no longer had to transport and handle physical checks. However, with the implementation of this new technology an IP disruption emerged.

DataTreasury, a small Texas company held a patent for “Remote image capture with centralized processing and storage.” Following the legislation, DataTreasury sued many financial institutions for infringing on their patent. Since then, DataTreasury has made approximately $400 million in licensing fees and legal victories.

This type of IP disruption could happen in the car rental industry, and car rental companies could face similar losses if not prepared. The car rental industry operates on such low margins already that the potential for additional costs from licensing fees or legal settlements should be a major concern.

The increasing prevalence of technology in the car rental industry will continue to make IP more important within the industry. Companies that embrace and prepare for this change will stand to benefit, while companies that ignore the importance of IP will suffer. To embrace and prepare for this change, companies must understand the ipLandscape of the rental car industry.

Questions for the Car Rental Industry in the Face of IP Disruption

1. How can rental car companies hedge against non-practicing entities? Are enabled publications a strategy?

2. How can the “smartphone convergence” be leveraged from an IP prospective by rental car companies?

3. What disruptions in technology and business models need to be prophetically invented and locked in?

4. Can “infrastructure IP” (that is IP in the value chain that supports rental car companies) be leverage by rental car companies by way of value chain patents?

5. Can “car manufacturers’ IP” (i.e. inventions built into cars or that make cars adaptable for improved rental car experience) be defined now? e.g., Plug n’ Play, smartphone connectivity, cloud based services

6. Can insurance companies and rental car companies have new business models? e.g., Insurance by the mile, i.e., MileMeter

7. Can rental car companies’ data and IP be used to improve rental car companies business models, and is there IP that can be used to lockup those models?

8. Can the rental car check-out/check-in process be disrupted by automated communication between the car, the company, the rental facility, and new technologies?

9. What is the IP strategy for the gap between today and the next 5-10 years?

10. How can future technologies, such as robotic cars be evaluated for their impacts in the rental car space, and should rental car companies go after that IP now?

ipCapital Group Inc. (ipCG) is an IP consulting firm that has been serving clients that range from early stage to Fortune 500 since 1998. ipCG represents one of the largest IP strategy consulting teams in the world. iPCG’s professional services maximize financial results for clients that seek to develop and execute IP strategies, strengthen and monetize IP portfolios, and establish and implement Intellectual Asset Management (IAM) practices.

About the Authors

• John Cronin is managing director and chairman of ipCG. Cronin spent more than 17 years at IBM and became its top inventor with more than 100 patents and 150 patent publications. He created and ran the IBM Patent factory which was essential to helping IBM become No. 1 in U.S. patents and was part of the team that contributed to the start of and success of IBM's licensing program.

• Nathan Doudera is an analyst at ipCG. He tracks industry-level IP trends and advises organizations on how to best position themselves in changing IP landscapes. Prior to joining ipCG he worked in China with American companies looking to expand their operations. His focus included developing strategies to protect a client’s IP.