By Rachel Chalmers
Priceline.com, the reverse auction company, has filed suit against Microsoft Corp and its subsidiary, Expedia Inc, in the US District Court in Stamford, Connecticut. Lawyers for Priceline claim that the newly launched hotel booking service on Expedia.com violates Priceline’s patented business model. The suit also charges Microsoft with violating the Connecticut Unfair Trade Practices Act. Priceline demands declaratory relief, permanent injunctive relief and actual and punitive damages. The company raised eyebrows in August 1998 when it was awarded a patent on bilateral buyer-driven commerce – a model whereby buyers suggest a price and sellers accept or reject their offer. The company has since been awarded two further patents on its business model. Seventeen more are pending.
While its critics have sniped that Priceline has tried to patent the age-old structure of a swap meet, Microsoft’s alleged behavior goes beyond mere imitation. The complaint claims that over a period of eight months, Microsoft sought and was provided with detailed confidential information and technical data concerning the company’s business and processes. Priceline’s lawyers insist that non-disclosure agreements were signed as the two companies tried to work out a mutually beneficial relationship. Apparently, the meetings included a face to face discussion between Priceline.com founder and vice chairman Jay Walker and Microsoft CFO Greg Maffei, now chairman of Expedia. That particular conversation is said to have raised the possibility of Microsoft investing in Priceline before its IPO. Priceline’s lawyers say Microsoft backed down when it became clear that shares would not be offered below the opening price.
By the middle of 1999, the complaint claims Walker was meeting with Microsoft chairman Bill Gates. Apparently Gates surprised Walker by remarking that his company had no intention of letting Priceline’s patent rights stand in its way. Priceline officials say Gates went on to remark that many other companies were suing Microsoft for patent infringement and that Priceline could get in line. Expedia’s Hotel Price Matcher service was launched a few weeks later. Microsoft’s conduct is especially egregious in light of the fact that it led Priceline.com to believe that it wanted to develop a cooperative relationship between the two companies, said Evan Chesler, head of the litigation department of Cravath, Swaine & Moore and lead attorney for the Priceline suit. Even after Mr Gates told Mr Walker that Microsoft would not let Priceline.com’s intellectual property rights stand in its way, it was hard to believe that Microsoft would really act in that manner. Then, of course, its copycat hotel service was launched.
Priceline boasts that its legal team includes some of the country’s foremost patent experts and litigators. Its critics might observe that the company retains these expensive lawyers because it must – because, in fact, its business model is not so much bilateral buyer-driven commerce as patent piracy. The US Patents and Trademarks Office has come under fire more than once in the last few years for awarding frivolous and inappropriate patents, particularly where there is ample evidence of prior art. Companies with large R&D budgets – Xerox and Canon come to mind – stand accused of patenting everything they can think of, then looking for rivals to sue. But the Priceline case breaks new ground, in that its patents describe business processes, not just pieces of technology. By putting that patent to the test of the courts, Priceline may silence its critics as well as its competitors – if it escapes being silenced itself.
