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, Like.com (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: like.com, modista, riya


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  1. identicon
    Anonymous Coward, 5 May 2011 @ 5:07am

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

    "Something tells me that you have no idea how the pharmaceutical industry actually works."

    I think part of the problem is that no one really know how it works because the pharmaceutical industry is afraid of allowing independent auditors to audit their costs.

    ""# The industry fought, and won, a nine-year legal battle to keep congressional investigators from the General Accounting Office from seeing the industry’s complete R&D records. (See Section IV) Congress can subpoena the records but has failed to do so. That might owe to the fact that in 1999-2000 the drug industry spent $262 million on federal lobbying, campaign contributions and ads for candidates thinly disguised as "issue" ads. (See accompanying report, "The Other Drug War: Big Pharma’s 625 Washington Lobbyists") ""

    http://www.mindfully.org/Industry/Pharma-R&D-Myths.htm

    and see

    http://www.techdirt.com/articles/20091001/0410036386.shtml#c744

    for some relevant commentary.

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