How One Startup Used Patents To Kill A (Better) Competitor

from the sad dept

Teck points us to an all too typical, but still disappointing, story of a startup, (which previously was Riya), and how it allegedly killed off a better competitor with patents. In a strategically timed move, it sued the competitor, Modista, just days before it was going to close funding:
The lawsuit caused investors including Kumar to drop out, for fear of dealing with an expensive lawsuit that could cost more than they had even planned to invest. Because Modista had no money to defend the suit in court, the company later shut down.
This sort of story is more common than you might imagine. I recently had a conversation with a serial entrepreneur who told a similar story. One of his previous companies had been quite successful, and was on the verge of being acquired for upwards of $70 million. Days before the deal was to be closed, one of their competitors got wind of the deal, and filed a patent infringement lawsuit against them, leading the acquirer to drop the deal. Without the funds to fight the lawsuit, the entrepreneur had no other option but to sell his company to the company who sued him for less than $5 million.

Ask around, and you discover that this happens all the time -- patent holders using patents not to innovate, but to block and kill other companies -- especially when those companies really are more innovative and have a better product.

Filed Under: competition, image recognition, patents
Companies:, modista, riya

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  1. identicon
    Anonymous Coward, 4 May 2011 @ 9:48pm

    Re: Re: Re: Re: Re: Re: Re:

    "Lawsuits that are indeed frivolous can be disposed via a motion ... In sum, truly frivolous lawsuits are handled rather quickly in comparison to legitimate claims."

    and who's to say that the definition of a 'truly frivolous lawsuit' isn't based on the subjective opinion of the judge making that determination? and the patent itself grants standing to sue so that the lawsuit can indeed go forward, but who's to say the USPTO itself didn't grant a frivolous patent.

    and it should also be noted that infringement damages far exceed the damages for falsely claiming infringement.

    "I have been practicing law for about two years, and I've been involved in a number of litigations, both patent and others. My opinion is based on my legal experience and education. What is your opinion based on? What Mike says?"

    Because when you can't defend your position, just appeal to your own authority.

    "Tell me: if a lawsuit is truly frivolous, what do you think are the chances that said suit will end with a favorable judgment for the plaintiff?"

    Doesn't matter, the lawsuit process itself can be an expensive endeavor and plaintiffs have been known to engage in venue shopping in hopes of gaining access to venues that are more likely to act favorably to them (ie: East Texas) and hence increase their chances of success. Is that how the patent system should work?

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