The dispute takes on added significance because Priceline.com filed for an initial public offering on December 23, stating its intention to sell up to $115 million in common stock. But the Stamford, Connecticut, company disclosed the patent challenge in its filing with the Security and Exchange Commission.
Priceline filed its patent application in September 1996 and received a so-called "business process" patent in August 1998, protecting its "name your own price" for purchasing of goods and services through the Internet. The patent is number 5,794,207.
Priceline says the patent covers its basic procedures of doing business: Consumers can name how much they'll pay for a plane ticket on a specific day between two cities, and Priceline.com lets major airlines say whether they'll sell the seat at that price--within an hour.
But Thomas G. Woolston's MercExchange applied for its patent in November 1995. His patent, 5,845,265, states it is a way to allow bargaining after purchase of used or collectible goods by computer "in an electronic market."
"We're trying to prevent a competitor from ripping out off our intellectual property," said Woolston, of Arlington, Virginia, a patent attorney whose fledgling company won a similar patent on December 1. Because Woolston filed 16 months earlier than Priceline.com did, he contends his patent should take precedence.
Woolston contends part of his patent covers the same way of doing business that Priceline patented, a claim Priceline denies.
"We have reviewed the application and see no reasonable basis for his charge," Priceline.com spokesman Brian Ek said.
Woolston says he's not trying to derail Priceline's IPO. "I didn't want interfere with these guys in any way," he said.
Priceline's Ek declined to comment on how the patent dispute might affect the public offering, citing SEC rules in force after an IPO. Priceline's SEC filing addresses the dispute: "[We] believe that there is no reasonable basis for the United States Patent and Trademark Office to declare an interference action," the filing states, using the legal term for the patent challenge.
Should the patent office ruled against Priceline, the IPO filing states, it "could prevent us from exploiting our business model through the Priceline.com service or require us to obtain licenses from one or more other patent holders at a cost which may adversely affect our business."
Woolston said he has negotiated with Priceline for several months, proposing both joint development and a cross-licensing of patents, to no avail. On the same day his patent was issued, he filed a formal challenge to Priceline.com's patent with the U.S. Patent and Trademark Office, claiming priority because his application was filed first.
The patent office can take years to rule in such cases, so the validity of Priceline.com's patent may remain up in the air for some time.
Such challenges to patent claims are not uncommon, but Woolston's takes on special significance in light of flurry of recent patents for Internet commerce inventions.
In March 1998, for example, Open Market announced it had won patents on secure online payments and shopping carts, commonly used in e-commerce software.
However, none of those patent-holders have announced deals to license their patented technology to other companies. And none have announced enforcement actions against infringers.
Monday, the U.S. Supreme Court declined to review an appeals court ruling that granted mathematical formulas used in computer software equal patent status with other products and processes.
Priceline.com, which has spent heavily in both online and offline advertising to build its brand name, has indicated it will expand its service to mortgages this year, and it is testing its system for buying new cars in the New York area.
Woolston said his firm exists largely as a business plan that he has circulated to investors for several years to get the venture off the ground.
"I'm looking to partner with an existing Internet company, but it's hard to tell," he said, noting that other options include licensing his patent to other companies or launching his own startup.
"Our focus has been to open a successful business, not to litigate, but we'll play the game whatever way it's played," Woolston said.
Bloomberg contributed to this report.