"An earlier and broader patent is now in hands of competitor of Priceline's," said inventor/patent lawyer Thomas Woolston, who recently licensed his intellectual property to Aden Enterprises, the parent company of Cheapfares.com.
As reported last month, Woolston's MercExchange has petitioned the Patent Office to set aside Priceline's "business process" patent on its "name your own price" model of selling airline tickets, cars, and home mortgages.
He contends his patent on a way to allow bargaining for used or collectible goods by computer "in an electronic market" covers the same ground and was filed 16 months earlier--a key element in patent law.
Priceline spokesman Brian Ek says MercExchange's patent challenge has no merit.
"We fully expect this type of thing will happen from time to time," said Ek, limiting his comments because of his company's IPO filing.
Aden Enterprises, which bought Cheapfares last month, approached him about licensing his patented technology, Woolston said.
"They wanted to move beyond the reverse auction model and try some other models," he said. Cheapfares currently runs a service somewhat similar to Priceline's, in which customers name their price for a ticket and the company tries to fill the request from the secondary market for aggregators. Priceline deals directly with major air carriers.
Aden CEO Mike Luther said part of his motivation for licensing Woolston's patent was defensive: He doesn't want to create a business only to discover someone else hold patent rights to it.
"We wanted right to conduct business in that environment," Luther said. His firm gave Woolston stock in Aden and agreed to invest $250,000 in MercExchange. The companies are pursuing other ways to commercialize the patent in the travel industry.
But Woolston isn't stopping there. He contends he's not interested in extracting royalty payments for his patent, but simply wants to raise funds for his fledgling company to create online markets for trading airline tickets, baseball cards, or other tangible goods. He envisions a market where "day traders" could speculate on airline tickets for specific dates and routes.
"Aden and Cheapfares are going to prove the concept in the travel industry, but the patent is broader than that," Woolston said. "Once the model has proven that it's going to be valuable, we will be able to find other investors."