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, 4 May 2011 @ 7:11am

    Re: Re: Shocked! Shocked, I say!

    right, and the incentive to produce more scientific discovery falls on the competitor. Faced with the exclusive patent rights, the competitor is expected to conduct research and development to build a better mousetrap, which itself could be patented. The patent system is designed to create a technology arms race with each competitor trying to one-up each other. The public gets the benefit of the R&D via the public disclosure required to obtain a patent.

    The original post mentioned "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."

    So the real question here is, if this competitor really was more innovative, why did it not have patents of its own to use as leverage against the first company? It either was not innovative, or the management lacked the business expertise and strategic thinking needed to be successful.

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