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More on Priceline Patents
A little more on the brave new world of e-commerce and patent
litigation. These are a few other discussions of Priceline.com's
litigation with firms over who "owns" certain ecommerce business
models.
Jamie
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
PRICELINE.COM INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
Priceline.com Incorporated ("priceline.com") has pioneered a new
type of e-commerce known as a demand collection system that enables
consumers to use the Internet to save money on a wide range of products and
services while enabling sellers to generate incremental revenue.
Priceline.com collects consumer demand, in the form of individual customer
offers guaranteed by a credit card for a particular product or service at a
price set by the customer. Priceline.com then either communicates that
demand directly to participating sellers or accesses participating sellers'
private databases to determine whether the customer's offer can be
fulfilled on the basis of the pricing information and rules established by
the sellers. Consumers agree to hold their offers open for a specified
period of time and once fulfilled, offers cannot be cancelled. By requiring
consumers to be flexible with respect to brands, sellers and/or product
features, priceline.com enables sellers to generate incremental revenue
without disrupting their existing distribution channels or retail pricing
structures.
[snip]
6. COMMITMENTS AND CONTINGENCIES
On January 6, 1999, priceline.com received notice that a third
party patent applicant and patent attorney, Thomas G. Woolston, purportedly
had filed in December 1998 with the United States Patent and Trademark
Office a request to declare an "interference" between a patent application
filed by Woolston describing an electronic market for used and collectible
goods and priceline.com's core buyer-driven commerce patent. Priceline.com
has received a copy of a Petition for Interference from Woolston, the named
inventor of at least three United States Patent applications titled
"Consignment Nodes," one of which has issued as a patent. Priceline.com
currently is awaiting information from the Patent Office regarding whether
it will initiate an interference proceeding concerning Woolston's patent
application and priceline.com's core buyer-driven commerce patent.
Woolston recently announced an agreement to license his issued
patent and pending patent applications to the owner of a competing Internet
travel service.
While the interference process is still at an early stage,
priceline.com believes that it has meritorious defenses to Woolston's
claim, which it intends to pursue vigorously. Among other things,
priceline.com believes that the Woolston patent application does not
disclose the inventions covered by the priceline.com patent claims.
However, it is impossible to predict the outcome of an interference with
certainty. While Woolston claims to have an earlier invention date by a
period of approximately sixteen months, the final decision as to priority
of invention would be made by the Patent Office after considering facts
provided by each party during the interference proceeding. If an
interference is declared and thereafter resolved in favor of Woolston, such
resolution could result in an award of some or all of the disputed patent
claims to Woolston. If, following such award, Woolston were successful in a
patent infringement action against priceline.com, including prevailing over
all defenses available to priceline.com such as those of non-infringement
and invalidity, this could require priceline.com to obtain licenses from
Woolston at a cost which could significantly adversely affect
priceline.com's business. If Woolston prevailed in both an interference and
an infringement action, then priceline.com could be enjoined from
conducting business through the priceline.com service to the extent covered
by the patent claims awarded to Woolston. In addition, defense of the
interference action may be expensive and may divert management attention
away from priceline.com's business.
On January 19, 1999, Marketel International Inc. ("Marketel"), a
California corporation, filed a lawsuit against priceline.com and Priceline
Travel, among others. On February 22, 1999, Marketel filed an amended and
supplemental complaint, and on March 17, 1999, Marketel filed a second
amended complaint. The second amended complaint filed by Marketel alleges
causes of action for, among other things, misappropriation of trade
secrets, breach of contract, conversion, breach of confidential
relationship, copyright infringement, fraud, unfair competition and false
advertising, and seeks injunctive relief and damages in an unspecified
amount. In its second amended complaint, Marketel alleges, among other
things, that the defendants conspired to misappropriate Marketel's business
model, which it describes as a buyer- driven electronic marketplace for
travel services and its appurtenant techniques, market research, forms,
plans, and processes, which allegedly were provided in confidence to some
of the defendants approximately ten years ago. The second amended complaint
also alleges that three former Marketel employees are the actual sole
inventors or co-inventors of a patent which was issued on August 11, 1998
and which patent has been assigned to priceline.com. Marketel asks that the
patent's inventorship be corrected accordingly.
On February 5, 1999, February 10, 1999 and March 31, 1999, the
defendants filed their answer, amended answer and answer to the second
amended complaint, respectively in which they denied the material
allegations of liability in the complaints. Priceline.com and all other
defendants strongly dispute the material legal and factual allegations
contained in Marketel's second amended complaint and believe that the
second amended complaint is without merit. Since May 28, 1999, there has
been a discovery stay in effect, which was caused by the withdrawal of
Marketel's counsel. Marketel has retained new counsel, and the
priceline.com now anticipates moving forward with discovery.
Defending the Marketel litigation may involve significant expense
and, due to the inherent uncertainties of litigation, there can be no
certainty as to the ultimate outcome. Pursuant to the indemnification
obligations contained in the Purchase and Intercompany Services Agreement
with Walker Digital, Walker Digital has agreed to indemnify, defend and
hold harmless priceline.com for damages, liabilities and legal expenses
incurred in connection with the Marketel litigation.
From time to time priceline.com has been and expects to continue to
be subject to legal proceedings and claims in the ordinary course of
business, including claims of alleged infringement of third party
intellectual property rights. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial
resources.
[snip]
--
James Love / Director, Consumer Project on Technology
http://www.cptech.org / love@cptech.org
P.O. Box 19367, Washington, DC 20036
voice 202.387.8030 / fax 202.234.5176