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 @ 7:34am

    Re: Re: Re: Shocked! Shocked, I say!

    "or the management lacked the business expertise and strategic thinking needed to be successful."

    Patents shouldn't be a game of who can get to the patent office first just to avoid getting sued (or to sue others). That's not encouraging innovation. If someone has to consider going to the patent office and get a patent before doing anything just to avoid getting sued then that's a sign that the patent itself is not necessary for an innovation to occur. The patent shouldn't have been granted.

    Someone has to get to the patent office first but if everyone can come up with similar ideas around the same time regardless and someone can market the idea without patents then clearly patents weren't needed and shouldn't have been granted. I highly doubt that this competitor even saw the patent in question before innovating. If they had, they probably would have avoided using the idea and getting sued. They likely independently came up with the idea or didn't think it was patent worthy.

    If the innovation can occur without patents then the patent system shouldn't be about ensuring that companies have the strategic thinking to get to the patent office first. Not every new idea deserves a patent. Innovation can happen, and has happened, without patents and it will continue to happen without them. Patents should only be granted on innovations that need patents to emerge, not on every new innovation possible.

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