Microsoft coughs up in Priceline patent claim

The case was the first of its kind, and because it didn't reach court the industry is still left unclear about the legal niceties of business process patents in the online world.

Priceline had contested that Expedia's Hotel Price Matcher service infringed one of its controversial business process patents.

Under the terms of the deal, Expedia will pay Priceline a royalty to continue with its services.

Both companies refused to comment on the size of the settlement, saying only that the deal would have no material impact upon the finances of either company.

This has led to speculation by sources close to the situation that the royalties to be paid by Microsoft are not huge, as even a small percentage of Micrsoft's war chest would significantly impact on Priceline's bank balance.

This is the first trial to test the validity of business process patents, which have been registered in the US since 1997. The fact the case has been settled out of court means no legal precedent has been set, so the legal issues regarding business process patents have still to be resolved in court.

Priceline's patent covers a process for customers naming their price and waiting for vendors - in Priceline's case airlines - to match it. The process of reverse auctioning is not new, but Priceline was the first to patent its application on the internet.

Daniel Hermele, technical assistant at patent attorneys Jones Day, said it is hard to determine reasons for the settlement. However, he added it is possible Priceline did not want to expose its patent to being deemed invalid.

The resolution of Priceline's case against Expedia comes at a difficult time for the company. Following a series of high profile executive departures, job cuts and the curtailing of a number Priceline's businesses, founder and vice chairman Jay Walker left the company late last year.

Walker quit to concentrate on his other venture, struggling ideas company Walker Digital. Walker Digital's business model is based around the patenting of business processes such as Priceline.com's.

Indeed, Walker Digital originally owned the patent for reverse auctioning until Walker gave it to Priceline when he created the company.

Campaigners lobbying for an end to the patenting of online business processes, such as the principle of reverse auctions and Amazon's attempt to patent 'one-click buying', will take little comfort from Expedia's settlement.

Jeffery Mann, VP at research house Meta Group, said: "The fact that Microsoft have settled is a bad thing, because it would have been great for someone to knock this whole issue on the head. However, it is understandable for all kinds of business reasons."

He added: "The patenting of business processes by companies that don't intend to use them is a slimey business model for opportunists, akin to people who snap up domain names just to extract money from legitimate businesses."

Despite Priceline.com's ongoing troubles, the UK sister site is due to start a nationwide television advertising campaign from next week.