DoorDash accuses software partner Olo of fraud

The US food delivery app DoorDash has accused its partner Olo of defrauding it for years and using the revenues to strengthen its position ahead of its recent initial public offering.

Olo’s software is used by restaurants to manage their orders from multiple apps, such as DoorDash, Uber Eats and others, on a single platform. It charges a fee to the delivery companies for each order it processes.

The software company made its debut on the New York Stock Exchange on March 17, rising 39 per cent on its first day to a market capitalisation of $4.4bn. It has since fallen by just under 15 per cent. 

In documents filed in the New York State Supreme Court on Tuesday, DoorDash, Olo’s largest customer, alleged that the software company had been charging it fees higher than those of its rivals, in breach of a 2017 contract. DoorDash said it was “seeking punitive damages for fraudulent concealment and fraudulent inducement.”

“To maximise revenues for its IPO, Olo cheated its largest business partner,” said DoorDash, adding that Olo had secured its business with a pledge that the fees it charged it “would never be higher than the fees charged to any other delivery platform provider”.

The filing was a response to an earlier attempt by Olo to dismiss DoorDash’s claim.

The delivery app said it discovered the discrepancy last year when it reviewed the terms Olo had agreed with Caviar, a rival delivery app that DoorDash acquired in 2019.

DoorDash said Caviar’s fees for Olo were “significantly lower” in comparison, and that had DoorDash been offered the same rate, it would have paid at least $7m less since the start of the contract.

DoorDash argued further that since Olo has not disclosed the fees it charged other delivery apps, the actual damages suffered could be significantly higher. It is seeking unspecified punitive damages.

“For more than three years,” DoorDash said in its filing, “Olo has overcharged DoorDash — inflating its own revenues by collecting from DoorDash tens of millions of dollars more than what DoorDash should have paid.”

While a minnow compared with the food delivery giants, Olo holds a unique position in the sector in that it is profitable, posting net income of $3.1m in 2020 on revenues of $98.4m.

The company disclosed the legal fight in its S-1 filing ahead of its IPO, stating that DoorDash was seeking “damages in excess of $7.0 million”, but offering no further details. Olo said in the filing it felt the lawsuit was “without merit”.

Olo said: “DoorDash’s allegations are baseless. Despite all of DoorDash’s litigation rhetoric, the evidence speaks for itself. Olo will not comment further on ongoing litigation.”

In its motion to dismiss the case, filed in February, Olo argued that a November 2017 addendum to the DoorDash contract had nullified the clause promising it would always receive the lowest fees, and that Caviar — a delivery service focused on high-end restaurants — could not be considered a competitor to DoorDash.

According to company filings, DoorDash was Olo’s biggest delivery partner, responsible for 19.3 per cent of the company’s total revenue in 2020. The current contract between the companies runs until at least March 2022.