RealTime IT News

Priceline.com: Patent-Protected Investment?

Yesterday, Priceline.com filed a patent infringement suit in US District Court against Expedia, which is a major travel site owned by Microsoft.

In the complaint, Priceline.com wants not only a restraining order, but of course, actual and punitive damages, which Microsoft can definitely pay.

In the Web world, it is difficult to create barriers to entry. But there are some strategies. One is to be the first-mover, in which a company locks-up exclusive agreements and also creates tremendous mindshare. Or, a company can protect its own technology via the patent law.

In fact, there is a trend towards patenting Web technology. In early September, DoubleClick was granted a patent for its so-called DART technology, which delivers ads (patent 5,948,061, entitled ``Method of Delivery, Targeting, and Measuring Advertising Over Networks'').

In essence, a patent is a right that gives the holder the ability to exclude others from making, using or selling an invention, usually between 17 or 18 years. In a way, a patent is a government-sanctioned monopoly. The government does this so as to encourage innovation.

However, because the Web is a recent phenomena, it is not clear if these patents are enforceable.

As for Priceline.com, it holds patent 5,794,207, which is entitled "Method and Apparatus for a Cryptographically Assisted Network System Designed to Facilitate Buyer-Driven Conditional Purchase Offers."

If you want to see the patent, you can visit the Patent and Trademark Office database .

Basically, the patent protects Priceline.com's technology called the "demand collection system." That is, a consumer will name a price for a good or service. Priceline.com then transmits the order to sellers, who will then determine whether to fulfill the order or not.

Consumers agree to keep their offer open for a certain period of time, and also must be flexible on such matters as brand and product features. As for the sellers, they have a way to sell excess inventory without alienating their existing sales channels. It's a win-win.

Interestingly enough, Priceline.com claims that it gave access to its technology to Microsoft when there were talks about a possible investment or partnership. By Expedia then using the Priceline.com technology, this may show bad faith on the part of Microsoft.

Despite this, the response to the Priceline.com suit has been fairly negative. The argument is that it is a high-risk strategy, especially when challenging Microsoft.

But what is the purpose of a patent if a company does not enforce it? It sounds really dumb to spend lots of money on a patent and not enforce it.

Let's take a look at the possibilities facing Priceline.com:

  1. Priceline.com loses the case: True, Priceline.com will have a black eye. But then again, the company showed strength by defending its intellectual property assets aggressively. Also, by the time the case is decided, years will have likely gone by and Priceline.com will have penetrated many more lines of business. What's more, it is likely that Priceline.com will nonetheless have licensed its technology to many other companies. For example, Priceline.com has already signed several licensing deals, such as with Alliance Mortgage and Budget Rent-A-Car.

  2. Settlement, or Priceline.com wins in court: The result is really the same, but settlement will be much more cost-effective, as there will not be a need to engage in costly litigation.

But the lawsuit serves another purpose. Microsoft announced that it will be taking Expedia public. Lobbing a lawsuit against a competitor before an IPO is always a good strategy. It creates uncertainty for investors. This could impel Microsoft to settle.


What has made Priceline.com such a great company is its "take-no-prisoners" attitude. It was aggressive in its marketing, such as by using William Shatner; it was aggressive in having a fast IPO; it was aggressive in hiring top-notch talent; it was aggressive in rapidly adding new product lines. In other words, this company is more than just about a patent.

By pursing a full-scale attack against Microsoft, Priceline.com is once again showing that it is serious about being a leader. If anything, the lawsuit should instill confidence in investors. Ironically enough, it is the same type of attitude that made Microsoft a great company.

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