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[08/23/99]

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Until a Fortune story last week, major publications did not give the suit much play. Walker's personal charm is considerable; he tends to shrug off jabs like Gurley's by patiently explaining that what his detractors come up with is no more than a vague idea -- the equivalent of writing an article about how biotechnology could lead to a cure for cancer and then taking credit for actually curing cancer. The air of invincibility that he has acquired in the business world as the reigning pacesetter in a whole new field of intellectual property is almost unpierceable.

Then, too, the litigants involved do not necessarily inspire much confidence. The company that is suing Walker, Marketel, does not operate a full-blown consumer business but is involved in the development of intellectual property. The principals will provide no details, claiming that to do so would jeopardize projects in development. The central figure in the lawsuit, Marketel president William Perell, already projects the almost too helpful air of a professional litigant as he politely declines to speak about the case on the advice of his lawyers. As evidenced in a letter that is included in court filings, Marketel's CEO, Byron-Eric Martinez, actually faxed Walker in 1998 looking for a job.

And yet the facts of the lawsuit are serious indeed. Marketel's lawsuit against Priceline has its origins in BookIt!, an airline ticket reservation business that Marketel launched in 1991. BookIt let customers send in requests for airline tickets by fax, guaranteeing their bid with a credit card. If an airline was willing to sell a ticket for the price a BookIt customer bid, the deal went through. The fax system is similar in concept to the airline reservation system that Priceline launched in 1997 (there are also significant differences; BookIt, for instance, charged users to submit a bid). It is sufficiently similar that articles about Marketel are cited as "prior art" -- the legal term for similar inventions -- in the patent that Walker acquired for the core of Priceline's business model (for a "Method and Apparatus For a Cryptographically Assisted Commercial Network System Designed to Facilitate Buyer-Driven Conditional Purchase Offers").

Court documents filed by Marketel say that in 1987 Perell hired a friend, Andre Jaeckle, to find investors for the BookIt business. Jaeckle, says Marketel, introduced Walker to Perell in the fall of 1988. Over the next 18 to 24 months, according to Marketel, Walker, Perell and Jaeckle talked about the BookIt business plan, and Perell revealed details of how it works. Marketel says Walker actually signed a non-disclosure agreement, though Priceline's filings say that Marketel has not produced it. Jaeckle, both sides agree, got stock in Priceline. Documents that Priceline filed with the Securities and Exchange Commission say that warrants to buy Priceline stock were part of a deal for a million-dollar loan that Jaeckle made to Walker Digital.

BookIt flamed out. Its launch was accompanied by a flurry of publicity in publications ranging from the Wall Street Journal to Consumer Reports, but within a year it was out of business. The death of a business, however, is not the same as the death of an idea.

To prevail in the lawsuit, Perell and Marketel might need to prove a whole host of facts that fall into the turgid realm of legal briefs. Was Walker privy to Marketel's trade secrets? Did he indeed sign a non-disclosure agreement? Did he use Marketel's trade secrets in developing Priceline? Did Walker have any substantial knowledge that wasn't revealed in press articles that described BookIt's business and are already cited in Priceline's patent application? All that and more will be for the courts to decide. But whatever the legal issues, the central question is simple: Did Walker talk to Perell, and then later resurrect the main ideas of BookIt, and pass them off as his own?

Priceline has provided a partial answer to this in court documents. Before revealing what it is, you could have some fun by looking at three possible answers and deciding which one Priceline gave:

(a) "Defendants ... admit that at some point Jaeckle introduced Perell and Walker."

(b) "Defendants ... admit that at some point Jaeckle took steps to try to put Perell and Walker together."

(c) "The Defendants have no recollection of any contact with individuals related to Marketel whatsoever ..."

Made your guess? Good. You probably figured out this was a trick question, and answered (d) all of the above. Because, of course, that's the answer.

Answer (a) comes from Priceline's initial answer to Marketel's complaint, filed on Feb. 5; (b) comes from an amended answer, filed on Feb. 16; (c) comes from a statement filed by Priceline's lawyers on March 11. Walker was traveling and could not be reached to comment.

Brian Ek, a spokesman for Priceline, says these responses are "consistent." In an e-mail responding to a request for clarification, he writes: "'Introduce' wasn't meant in the physical sense: rather, it was a suggestion that they might talk." And Priceline officials say that, in this case, "Defendants" doesn't include Jaeckle, who has known Perell for years.

Well, OK. But it is telling when people with prodigiously gifted memories start failing to recall things in the course of a lawsuit. When in the 1980s Ronald Reagan was called to testify about the U.S. government's role in funding the Nicaraguan Contras, the former president said, "I don't recall," "I don't remember" and all its variations so many times that satirists made something of a sport of tallying up the lapses of memory. So, too, with Bill Gates, whose startlingly poor memory for the details of Microsoft's business practices when faced with government antitrust lawyers has provided more than its share of grist for the press.

Judging from the early evidence, Priceline may have been hit in the head by the same amnesia-inducing brick.

Whether Walker had privileged information about Marketel is for the courts to decide. In the end, however, the issue comes down to this:

Does Walker start with business problems, come up with ideas to solve them, and in the process uncover the "prior art"? Or does Walker go looking for ideas already in the public domain and modify them to turn them into patentable processes? It's conceivable that he got his inspiration (legal) but not trade secrets (illegal) from a well-publicized and unsuccessful business idea.

Ek insists that is not the case. "Walker Digital always begins the invention process with a clearly identified business problem that can be solved for profit," he says. "Next, they work to come up with the best solution they can think of for the problem. After the solution is fleshed out, the prior art research begins."

That's the official line. But Priceline isn't the only case where Walker seems to have picked up a lot of know-how from a promising business idea.

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