Priceline.com Sues Microsoft
For Patent Infringement
STAMFORD, Conn., October 13, 1999 . . . Priceline.com (Nasdaq: PCLN)
today filed suit in U.S. District Court against Microsoft Corporation and
its Expedia Inc. subsidiary, claiming that Expedia.com's recently
introduced hotel service infringes on priceline.com's U.S. Patent
#5,794,207. The suit also charges that Microsoft's conduct
is in violation of the Connecticut Unfair Trade Practices Act.
The priceline.com suit is seeking declaratory relief, permanent injunctive
relief and actual and punitive damages.
Priceline.com currently holds three U.S. patents covering its buyer-driven
commerce system and related elements - U.S. Patents #5,794,207, #5,797,127
and #5,897,620. The company's patent portfolio includes 17 pending U.S.
patent applications covering a broad range of priceline.com's proprietary
processes and systems dating back to 1996.
In addition to charging willful infringement of U.S. Patent #5,794,207,
priceline.com's complaint explains how, over an eight month period,
Microsoft sought - and was provided with - detailed confidential
information and technical data regarding priceline.com. Over that period,
during which nondisclosure agreements were entered into, the two companies
sought to structure a mutually beneficial business relationship, including
possible joint marketing programs and licensing of priceline.com's
intellectual property. In a series of meetings, all apparently for
legitimate business purposes, Microsoft executives asked for, and
priceline.com's senior management and technical staff provided them with, a
variety of confidential information.
The meetings between priceline.com and Microsoft included a face-to-face
discussion between priceline.com founder and Vice Chairman Jay Walker and
Microsoft Chief Financial Officer Greg Maffei, who is currently chairman of
Expedia Inc. That discussion, which covered a potential Microsoft
investment in priceline.com immediately prior to priceline.com's March 1999
IPO, ultimately broke off when priceline.com would not provide Microsoft
with prices on its shares below the initial public offering price.
(more)
Meetings continued, in what priceline.com thought was good-faith, as the
two parties explored a number of mutually beneficial ways to work together.
In the summer of 1999, the question of business partnerships was also part
of a face-to-face discussion between Mr. Walker and Microsoft Chairman Bill
Gates. During that conversation, Mr.Gates surprised Mr. Walker by
informing him that Microsoft had no intention of allowing patent rights to
stand in its way. Mr. Gates went on to say that many other companies were
suing Microsoft for patent infringement and that priceline.com could, in
effect, get in line. A few weeks following the discussion between Mr.
Gates and Mr. Walker, Microsoft launched Expedia's Hotel Price Matcher
service, which directly infringes priceline.com's '207 patent.
"Patents are the legal safeguard that companies utilize when they create
new processes, systems and services," said Evan R. Chesler, Esq., head of
the litigation department of Cravath, Swaine & Moore and lead attorney for
priceline.com in its suit. "Patents encourage innovation and investment by
preventing companies from simply copying the intellectual property of
others, thereby unfairly benefiting from their investment and innovation.
The patent system, which has benefited American consumers for over 200
years, was created to prevent what happened here. The law provides a clear
and powerful means to correct this type of unfair competition.
"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. 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 arrangement or assisting priceline.com
in technical aspects of its computer system. 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," Chesler continued.
"Priceline.com invested years of time and money to develop a successful
business model and build a patent portfolio around it," said Richard S.
Braddock, priceline.com's chairman and CEO. "The company raised over
$100,000,000 of private capital to introduce its novel system to the
marketplace and expand its business. Millions of consumers have benefited
from priceline.com's innovation and investment."
(more)
"Unfair competitive practices and disregard for intellectual property have
no place in corporate America," added Braddock. "When Microsoft first
announced its Hotel Price Matcher copycat service we were, quite frankly,
stunned by its blatant disregard for our prior relationship and our
property rights. We believe that Microsoft was well aware or our success
as priceline.com's innovation and investment generated tremendous consumer
response. In our first year of operation, priceline.com built the second
most-recognized e-commerce brand on the Internet, with an overall awareness
for our travel products six times greater than Expedia (108.6 million
adults for priceline.com vs. 17.8 million adults for Expedia.com) despite
the fact that Expedia.com had been in the market twice as long as us.
Priceline.com's success in saving money for millions of consumers using a
unique business approach has validated our innovative method of pricing."
"During the second quarter of 1999, following our IPO, priceline.com's
business began to scale rapidly. We experienced our first $100 million-
plus revenue quarter, passed the 2,000,000 customer mark, and had leisure
airline ticket sales that grew more than 1,000% over the same quarter in
1998," Braddock continued, "Notably, in the face of this success, it was
during the summer of 1999 when Mr. Walker and Mr. Gates had their
conversation regarding priceline.com's intellectual property rights.
Shortly thereafter, Microsoft's copycat hotel service was launched."
Chesler concluded, "It is ironic that Microsoft has taken these actions in
light of the fact that much of Microsoft's business is premised on its
ability to protect its own intellectual property rights, through
copyrights, patents and other means. Microsoft is a large and successful
company, but no one -- not even Microsoft -- is above the law. Microsoft
has no right simply to take and use the intellectual property of others.
Priceline.com will assert its rights forcefully in court."
Priceline.com's legal team includes some of the country's foremost patent
experts and litigators. They are:
Evan R. Chesler Cravath, Swaine & Moore
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Mr. Chesler is a partner in Cravath, Swaine & Moore and heads the firm's
litigation department. A noted trial lawyer, Mr. Chesler is currently
handling patent suits for, in addition to priceline.com, Alcoa, Cummins
Engine and IBM. He has also represented, or is currently representing,
Bristol-Myers Squibb, Donaldson Lufkin & Jenrette, DuPont, Ross Perot, Time
Warner and United Technologies, among others.
(more)
Roger S. Smith Morgan & Finnegan
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Mr. Smith is counsel to the firm of Morgan & Finnegan. Before joining the
firm, he was assistant general counsel, intellectual property law, for IBM.
Mr. Smith practiced patent law for IBM and its business units for 30 years
before retiring in 1994. In 1991, he served as technical advisor to the
U.S. delegation to WIPO World Patent Harmonization Treaty negotiations.
During that same period, he served as a member of the Commerce Secretary's
Advisory Commission on Patent Law Reform.
Mari M. Shaw Morgan, Lewis & Bockius
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Ms. Shaw is a partner in the Litigation Section of Morgan, Lewis and
Bockius. She has acted as lead counsel in litigating a variety of patent,
trade secret, trademark, licensing and unfair competition disputes. She is
a founder and trustee of the National Patent Board, an industry driven
alternative dispute resolution forum. She also serves as a mediator for
the U.S. District Court for the Eastern District of Pennsylvania.
###
For press information, contact:
Brian Ek at priceline.com 203-705-3026 (brian.ek@priceline.com)
Mike Darcy at priceline.com 203-705-3331 (mike.darcy@priceline.com)
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