Filed in U.S. District Court in Connecticut, the suit alleges that Expedia's new "Hotel Price Matcher" service violates Priceline's patents on its business model. Priceline said in a statement that it was seeking a restraining order against Microsoft, along with actual and punitive damages.
"Priceline.com invested years of time and money to develop a successful business model and build a patent portfolio around it," said Priceline chairman and chief executive Richard S. Braddock in a statement. "Millions of consumers have benefited from Priceline.com's innovation and investment."
Microsoft spokesman Tom Pilla said the company had not yet received a copy of the complaint, but said that Microsoft respects other companies' intellectual property. Microsoft was confident that it would prevail in the dispute, he said.
"This is a transparent attempt by Priceline to slow us down and avoid competing with Expedia on the merits," Pilla said.
In a controversial practice, numerous e-commerce companies have patented elements of their business plans--not just their technologies. Priceline, for example, holds patents that relate to the core of its business: letting buyers name the prices they are willing to pay for goods or services.
But obtaining a patent is only half the battle because they can be challenged and overturned.
A federal appeals court has upheld the legitimacy of "concept" patents. But companies such as Priceline still must defend individual patents. For instance, in January a competitor to Priceline challenged a key Priceline patent with the U.S. Patent and Trademark Office. In Microsoft's case, Priceline is taking an offensive stance to protect its patent.
Introduced last month, the Expedia service allows customers to pick the city they want to stay in and the type of hotel they want to stay at. Customers then enter how much they are willing to pay for the room; and Expedia automatically chargers customers' credit cards if the hotels accept their bids.
Priceline provides similar services for airline tickets, home mortgages, and new cars, as well as hotels rooms. The company holds several patents on its business procedures, and has been involved in at least one prior dispute involving its patents.
Priceline representatives were unavailable for comment, but charged in a press release that Priceline gave Microsoft access to its technical processes during discussions of a possible investment by Microsoft or a partnership between the two companies. When those talks broke down, Microsoft used Priceline's patentened information to set up its own "name your price" service, Priceline charged.
"Unfair competitive practices and disregard for intellectual property have no place in corporate America," said Braddock in a statement. "When Microsoft first announced its Hotel Price Matcher copycat service, we were, quite frankly, stunned by its blatant disregard for our prior relationship and our property rights."
Last month, Microsoft announced that it would be spinning off Expedia. Expedia subsequently filed to raise up to $75 million in a public offering.