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For several months in 1999 the Connecticut-based company, which lets customers name their own prices for airline tickets, hotel rooms and other products and services, discussed a marketing alliance with Expedia, an online travel service then owned by Microsoft. (Earlier this month USA Networks acquired Expedia.) Expedia was keenly interested in Priceline's "name-your-own-price" business model, and Priceline shared detailed technical information about this model with its potential partner during their negotiations.
Later Expedia backed away from the deal, however, and launched its own Flight Price Matcher and Hotel Price Matcher services, which were almost exactly like Priceline's offerings. Stung by what it regarded as theft of its intellectual property, Priceline sued Expedia and Microsoft for patent violation. After more than a year of high-profile acrimony, the lawsuit was settled in January. While Expedia continues to offer its customers the price matcher services, it has agreed to pay Priceline a royalty for their continued use.
The fight between Priceline and Microsoft is hardly an isolated case. As more companies enter into strategic alliances to extend their competitive reach, the risk that someone - possibly a potential partner or a vendor - could poach their intellectual property is increasing. Eric K. Clemons and Lorin M. Hitt, professors of Operations and Information Management at Wharton, tackle this issue in a paper titled, "Poaching and the Loss of Intellectual Property: An Increasingly Important Form of Opportunism." Clemons presented the main elements of this research at a conference organized recently by the Jones Center at Wharton.
Clemons and Hitt define poaching as "the risk that in any contractual relationship, information that is transferred between parties for purposes specified in the contract will deliberately be used by the receiving party for purposes outside the contract, to its own economic benefit and to the detriment of the party that provided the information." The researchers add that while the risk of poaching is hardly new, it is becoming "increasingly important in our service-centered, information-driven, post industrial society."
Two major reasons account for this. First, many organizations now use contractors for IT-related business services such as consulting, technology infrastructure management or providing application services and systems development. This has "vastly increased the opportunities for poaching in recent years," the researchers point out. Second, as more companies outsource service activities to third-party providers such as call centers, they are forced to share immense amounts of sensitive, private information with these service providers. "In both these cases, these data, processes and procedures may have significant resale value, possibly exceeding the value of the contract," Clemons and Hitt warn.
More risks follow from the nature of intellectual assets. Unlike physical assets, they can neither be returned nor do they get consumed during use. As such, poaching of intellectual property is often virtually impossible to detect. That is why the risk of intellectual property being poached has not been examined too thoroughly in the past. These days, however, companies that ignore this risk could imperil their future if not their survival.
How, then, can companies protect themselves against poaching? The first step is to identify the forms in which it can occur.
Anne-Birte Stensgaard, Senior News Editor
