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Why IBM is suing Priceline

IBM is turning to its lawyers to help shore up the company's sagging financial results.

Big Blue is suing Priceline (PCLN) for allegedly infringing its patents, claiming the online travel company owes it billions of dollars in royalties. IBM, which filed the complaint Monday in U.S. District Court in Delaware, says Priceline's travel website and two of its subsidiaries -- travel comparison site Kayak and restaurant-reservation service Opentable -- have repeatedly refused to negotiate over alleged use of technology originally patented in the 1990s.

"We have filed this lawsuit against Priceline for a very simple reason -- IBM's patents are being knowingly and unfairly exploited," said William LaFontaine, general manager of Intellectual Property, IBM, in a statement. "Our preference is to negotiate in good faith and agree to a fair patent license, but when another company willingly uses our intellectual property, without permission through a license, we have no option but to protect and vigorously defend it through every means available."

Priceline declined to comment, saying it does not comment on ongoing litigation.

A person familiar with the situation told CBS MoneyWatch that the suit is part of a stepped up initiative within IBM to boost revenue by enforcing its patents. The company has long licensed its vast stockpile of patents. But the suit against Priceline is a direct response to the IBM flagging results, the person said.

IBM stock has dropped more than 21 percent from its 52-week high of $199.21. The company's sales have declined from $106.9 billion in 2011 to $92.8 billion in 2014. Net income has also taken a hit, sliding from $16.9 billion in 2013 to $15.8 billion last year.

IBM took its time in pursuing a case against Priceline. IBM's legal filing says that it sent an October 2011 letter informing Priceline of the alleged patent infringement, claiming that company would not enter negotiations or otherwise address the matter.

But two of the patents that IBM says were violated are old, having been granted in 1998 and 1999. They come from the time IBM helped develop the Prodigy online service. The application for a 2006 patent IBM says Priceline infringed was initially filed in 1993, while a patent granted in 2009 was initially filed in 2005.

The timing of the suit raises the question of why IBM would wait so many years to take action to protect technology that it had developed in the past. One possibility is that the company -- regularly a top recipient of U.S. patent awards -- has so much intellectual property that it might lose track and not recognize when another company's inventions might infringe on its work.

The timing of patent suits can also be aimed at pressuring companies to settle. For example, IBM threatened Twitter (TWTR) with a patent suit shortly before the latter's IPO. Ultimately Twitter paid $36 million for a block of 900 IBM patents.

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