Priceline's Patents - An Analysis...

Almost every press release from priceline.com (PCLN) touts their "patented business model". Just how important are priceline's patents ? Do they actually cover priceline's business ? Can they lock out competitors ? How do other companies compare in patenting their e-commerce technologies? Priceline Patents Priceline uses a reverse-auction where many sellers compete for one bidder's business. Priceline's 5,794,207 ('207) patent is a business-method patent about a reverse auction with many sellers. This is not how Priceline sells airline tickets, but does seem to cover Priceline's selling of hotel rooms and cars. The newest patent, No. 5,897,620, covers Priceline's airline ticket sales. Priceline has 2 basic reverse-auction business methods: 1. A buyer's offer is sent to many sellers. One of the sellers says 'yes'. PCLN gets a commission. (the 'commission model', used for car sales) 2. Sellers input their lowest acceptable price to PCLN's database. When a buyer's offer comes in, it is compared to the database. PCLN pockets the difference (spread) when the buyer's offer is above the minimum. (the 'spread model', used for air tickets) '207 Patent Covers Bid to Many Sellers The '207 patent, which covers the 'commission model' claims several key points: 1. Having a buyer's offer sent to *many* sellers. 2. Getting the buyer's credit card info first 3. Getting the buyer's offer price first The '207 patent is not specific to any particular product. It can apply to any kind of product such as tickets, cars, or hotel rooms. Normal auctions have one seller, not many. Thus typical auctions cannot knock out priceline's patent. A service or net agent ('bot) that shops around for the lowest price also does not fall under priceline's patent, since the buyer, not the seller, sets the price. One person commented that a trucking agency does the same thing. However, I doubt that the trucking company first gets a credit card number from the buyer. Thus the PCLN patent can't be knocked out by the trucking company's method. This shows how carefully you must look at the claims. Others have commented that if PCLN can get their patent, then what's to stop someone from getting a patent on a restaurant chain, cents-off coupons, or paying interest on credit balances? However, these are already well-known methods, and prior-art exists that would block such a patent. PCLN really did come up with something new. That is why they got their patents. Newest Patent Covers Air Tickets The '620 patent is quite different. It covers the 'spread model' and is specific to airline tickets. Some key points include using a database of ticket/flight info to match a bid, but the ticket is bought without a departure time. This is similar to a service called Airhitch, but Airhitch was cited and the patent office still allowed the patent. This means that the patent office believes there are enough differences between Priceline and Airhitch to issue the patent. A judge is not likely to over-rule the patent office if a competitor brings up Airhitch again in Court. These claims also specify using a 'computer". Since Marketel apparently used a fax machine to receive the buyer's bid and send them to sellers, the PCLN patent will likely hold up. More Patents in the PCLN Pipeline A dozen other applications are listed in the prospectus. The more interesting ones cover a "Conditional Purchase Offer Management System" with separate applications for selling: event tickets telephone calls packages collectibles vehicle leases cruises. You can expect that a wide variety of business models and different aspects of these models will be claimed in these applications. The fact that so many applications are pending makes it very risky for a competitor. If the competitor defends itself based on one patent, then Boom, another PCLN patent issues and the competitor violates the new one. Strength of PCLN Patents I think it would be very hard for some competitor to knock out PCLN's patents. The patent office has already looked at quite a bit of previous auctions, including electronic auctions, and yet it still issued the patent. This means that the patent is presumed to be valid, and a competitor needs to clear a high hurdle of proof to say that the patent office was wrong and the patent should be invalidated. Getting around the patents would also be difficult. If you don't get the buyer's credit card info first, you might get around the '207 patent, but then the buyer could back out of the bid. If you only have one seller, you get around the patents, but then the buyer doesn't have the advantage of many sellers competing for the buyer's business. If the buyer does not 'name his price', the patents are not infringed. But again, it's a completely different business model. Summary In summary, priceline has good patent coverage of their business models. It would be quite difficult for a competitor to legally set up web site for a 'name your price' service, get the credit card info first, and send the offer to many sellers. It does not matter what product is being sold. The difficulty in getting around these patents is great for several other reasons: 1. The patents have a huge number of claims. One has 45 claims, the other 105. A typical patent has only 20 claims. Even if a competitor violates just one of the 105 claims, he loses and can be shut down. 2. The patents cite a large amount of prior art. Many newspaper, travel, and electronic contract articles were reviewed by the patent office before the patent was granted. These articles mention several other computer-based auctions and services. A competitor cannot simply re-use these articles - he needs to find something really different to use against the patent in court, something the patent office did not know about. Similar business methods such as by AirHitch and Marketel were cited and yet the '620 patent was still approved. 3. These are pioneering patents, among the first in the new field of business method patents. Pioneering patents are strong and hard to overturn. There have been other similar methods by companies such as AirHitch and Marketel, that used a fax rather than a computer, or that did not specify the departure time of an airline ticket. There is an interference going on within the patent office about a collectibles auction system patent. Priceline could lose some of their patents if they lose the interference. However, if they win, their patent becomes even stronger, since a court has already blessed the patent. In many ways PCLN is a stronger business than Yahoo, eBay, and Amazon, who have few or no patents. If Amazon were suddenly to go into a name-your-price business, they could be sued and would likely lose. On the other hand, nothing stops Amazon from moving into eBay's auction space. Who Am I? I have worked full-time in the patent field for the last 5+ years as a Patent Agent. I have looked at thousands of patents, and have written over 70 issued patents. See the link below to view these on IBM's patent server. I also own a small number of shares in PCLN. Disclaimer This article does not contain legal or investing advice. I am not an attorney. This article is merely meant to invoke a thoughtful discussion of e-commerce patents and you should not invest or conduct business methods based on this article. Use this information at your own risk and consult with your own attorneys.

Stuart T. Auvinen Patent Agent Reg. No. 36,435

gpatent@gmail.com

gPatent LLC 429 26th Ave. Santa Cruz, CA 95062 (831) 476-5506

Home...  What is a Patent Agent?...   The Engineer Advantage...   Recommendations...   News Articles...    Patents I've written...   Technologies Patented...   Costs...   Success Rate...    Appeals  Disclaimer