Microsoft Slams Priceline Suit As ‘Desperate Attempt’

“Name-your-price” sales pioneer priceline.com(Nasdaq: PCLN) filed suit against Microsoft (Nasdaq: MSFT) in a Connecticut federal court today, claiming that the software giant’s Expedia.com subsidiary infringed upon its patented hotel price matching service.

Microsoft reacted sharply to the allegations. In an interview with the E-Commerce Times, Microsoft spokesman Tom Pilla responded that company has not received a copy of the complaint and will not issue a formal response until it does. However, he said the company was confident it would be vindicated.

“We certainly respect the intellectual property of others and feel that this a desperate attempt by Priceline.com to avoid competing with Expedia on the merits. We’re confident that when the facts are on the table, the Microsoft position will be clear,” Pilla said.

Battle for Intellectual Property

The Stamford, Connecticut-based priceline lashed out at Microsoft in a press release, saying that Microsoft chairman Bill Gates told priceline.com founder and vice-chairman Jay Walker this past summer that Microsoft “had no intention of allowing patent rights to stand in its way.”

Priceline’s statement went on to say that Gates then told Walker “that many other companies were suing Microsoft for patent infringement and that priceline could, in effect, get in line.” Shortly after that conversation, priceline said, Expedia launched its Hotel Price Matcher service, infringing on its patent. Expedia officially unveiled the service last month.

Suit Follows Failed Deal

Priceline said that the two companies were meeting to discuss a possible Microsoft investment in the company prior to its March initial public offering. Both signed non-disclosure agreements, it said, and Expedia’s current chairman, Greg Maffei, also took part in those discussions.

The eight months of talks broke off when priceline would not give Microsoft a reduced rate on shares below the initial public offering price, priceline said.

“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 priceline attorney Evan Chester. “Microsoft did not tell priceline that its intention was to copy priceline’s business and infringe its patent rights.”

In filing the federal suit, priceline is seeking a restraining order against Microsoft, as well as actual and punitive damages.

Invested Money and Time

Priceline said it raised over $100 million (US$) of private capital to develop a business model. The company holds three U.S. patents covering its system and it has 17 others pending dating back to 1996.

The company noted that it was the second-most recognizede-commerce brand behind Amazon.com and it had an overall awareness of its travel products that was six times greater than Expedia, despite Expedia being in the market twice as long.

Propelled by an aggressive advertising campaign featuring actor William Shatner, Priceline recorded second quarter revenues of $112 million, while booking losses of $16 million. The company said it has attracted over two million unique customers in its first 15 months of operation and sells approximately 40,000 airline tickets a week.