Priceline, Expedia End Patent Flap

Priceline.com (Nasdaq: PCLN) has agreed to settle two patent infringement lawsuits it filed against Internet travel competitor Expedia (Nasdaq: EXPE) and Microsoft (Nasdaq: MSFT) Corp., according to a joint statement released by the companies Tuesday.

The lawsuits, which were filed in October 1999 in a U.S. district court in Connecticut, alleged that Expedia and its then-parent Microsoft had infringed on a U.S. patent held by Priceline covering its reverse auction model. At issue were Expedia's "Price Matcher" services, which allow customers to place bids on unsold airline tickets and hotel rooms.

As part of the settlement, Expedia will be able to continue offering the services, but will pay royalties to Priceline. Both companies said that they do not expect the deal to have a "material impact" on their respective businesses. Additional details about the agreement are being kept confidential.

"We believe this settlement is in the best interests of our companies," said the companies in a brief statement. "This settlement resolves all legal issues between the parties and allows us to move forward."

Accusations Fly

Although many copyright and patent lawsuits are resolved behind closed doors, the suits filed by Priceline started on an aggressive note and were not expected to be settled.

Priceline not only accused Expedia of infringing on its patent, but also of violating state laws barring unfair trade practices. Priceline also alleged that Microsoft had poached the disputed technology during a series of confidential merger meetings before Priceline launched its initial public offering.

However, according to the suits, the talks between the two firms went sour. During one of those meetings, Priceline alleges, Microsoft's Bill Gates told Priceline founder Jay Walker that Gates did not acknowledge the validity of the patent claims and said that Priceline would have to stand in line if it wanted to sue Microsoft and Expedia for infringement.

Within months, Priceline filed its suits, while Expedia introduced its "Price Matcher" services without waiting for the case against it to be resolved.

Strange Twist

The case took a strange twist after San Francisco, California-based firm Marketel International came forward to dispute the validity and ownership of Priceline's patent. In court documents, Marketel claimed that it had developed the buyer-driven auction model before Priceline and had shared the idea with Walker years previously under a nondisclosure agreement.

Based on the information, Expedia sought to have the patent infringement suit brought by Priceline thrown out, arguing that the court must first determine the rightful owner of the patent before allowing the case to proceed.

Market Reacts

Shares of Priceline's battered stock rose on news of the settlement.

On Wednesday morning, it was up 13 cents, or 7.18 percent, to $1.94. Before the opening bell, shares had climbed 29 cents to hit $2.10.