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Priceline's MS lawsuit: shark versus shark?

All the MS trademarks are there, but this time the 'victim' is a little different

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The lawsuit Priceline launched against Microsoft this week has all of the components needed to make it a Redmond classic for nostalgia buffs. There's a lengthy negotiation period while Microsoft considers investing, the break-off followed by the launch of a rival service, and then the Bill Gates outburst.

The outburst might turn out to be the worst bit. Priceline is suing over alleged violation of its patents, which cover buyer-driven e-commerce, by Microsoft's Expedia service, and its Complaint, filed in the US District Court in Hartford, Connecticut states: "On being informed that Priceline.com considered its patent rights to be a competitive asset, Mr Gates became very agitated and told Mr Walker that he would not allow patents to stand in the way of his business objectives. He announced that many companies were currently in the process of suing Microsoft for patent infringement and effectively suggested that Priceline could get in line with all the others."

Priceline claims Gates said (shouted?) this in a meeting with its founder, Jay Walker. A few weeks after the Walker-Gates meeting, Microsoft launched Expedia's Hotel Price Matcher service, which Priceline alleges directly infringes Priceline' s patent.

It's not only Gates who is involved in this latest scandal: Greg Maffei, Microsoft's CFO and chairman of Expedia, was involved in face-to-face meetings with Walker concerning a potential investment in Priceline by Microsoft. The Complaint details how, over an eight month period, Microsoft sought and obtained detailed confidential information and technical data from Priceline, after signing a non-disclosure agreement. The possible licensing of Priceline's patents was discussed, as well as possible joint marketing of its buyer-driven e-commerce system.

That's another one for collectors of Redmond's greatest hits, of course. Microsoft has a long record of starting investment, co-operation and/or licensing talks with companies, trying to screw them down on a deal at rates highly favourable to itself, then walking away and launching against them. Nor is it entirely unknown for the other company's IP to turn up in the rival MS product - this happened to Stac when MS introduced compression in Dos, for example.

There's a financial aspect to the Priceline spat too. The company claims that Microsoft broke off the deal when Priceline refuses to sell it shares below the IPO price.

Priceline holds three patents, and has 17 patent applications pending. A tough legal team has been assembled by Priceline, with declaratory relief, permanent injunctive relief, as well as actual and punitive damages being sought. Evan Chessler of Cravath, Swaine & Moore said that "Microsoft's conduct is especially egregious in light of the fact that it led priceline.com to believe that it wanted to develop a co-operative relationship between the two companies. Microsoft did not tell priceline.com that its intention was to copy priceline.com's business and infringe its patent rights. Rather, Microsoft indicated that it was seriously exploring a co-marketing agreement or assisting priceline.com in technical aspects of its computer system... [even after Gates' threat] it was hard to believe that Microsoft would really act in that manner. Then of course its copycat hotel service was launched."

This is a tricky time for Microsoft because it has filed for an IPO for Expedia in the expectation of raising around $75 million. The Priceline case could hold up the IPO for as long as it takes to resolve the case, which Microsoft would normally expect to take years.

Microsoft's approach to business being what it is, the company will no doubt come out of the other end of the case trailing the usual whiff of ordure. But in this case it's unfortunate that the defendant is known to be of doubtful character, because Priceline's patents are in themselves disturbing.

The company is a pioneer of electronic buyer-driven commerce, undoubtedly, but its successful applications for US patents covering the process place grave - and arguably, unreasonable - limitations on rivals' ability to do business, or even to exist. For example, patent 5,794,207 is described as follows: "In the patented conditional purchase offer system, individual consumers go to the Web and name their price for the product, or range of products they want to buy, guaranteeing that purchase with a credit card. The system takes the offer and electronically presents it on a one-to-one basis to qualified sellers in a way that can't be seen by other retail customers. Sellers then selectively (and privately) choose which offers to accept."

If one translates that into real life non-ecommerce systems it sounds fairly trivial. The storekeeper has a price on the goods, you go into the store, sidle up to him, suggest a lower price, and so on. Common sense suggests it shouldn't really be patentable in the first place. Priceline's buyer-driven IP was incidentally developed by Walker Digital, which styles itself as an IP lab, and sold to Priceline, with Walker Digital retaining a Priceline stake. The Walker Digital team was led by "entrepreneur" Jay Walker, the very same Priceline founder his Billness seems to have blown a gasket at. But you can almost sympathise with Bill. Almost. ®

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