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


Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. icon
    Not an Electronic Rodent (profile), 4 May 2011 @ 8:57am

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

    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 public gets the benefit of the R&D via the public disclosure required to obtain a patent.

    Which is only 1 way to look at it. Invention is incremental ALWAYS. The fact of it being "different enough" to warrant a separate patent rather than being infringing is merely a matter of degree and ultimately subjective.

    It is just as true to say that the public would derive more benefit from that same R&D money going to an incremental improvement of, say, the manufacturing of a patented item that significantly reduces the cost to the public of producing a desired thing.

    It's not so good for the company now with stiff competition, but it can be argued that it's better for the public, which is who patents are supposed to benefit in the first place.

Add Your Comment

Have a Techdirt Account? Sign in now. Want one? Register here



Subscribe to the Techdirt Daily newsletter




Comment Options:

  • Use markdown. Use plain text.
  • Remember name/email/url (set a cookie)

Follow Techdirt
Techdirt Gear
Show Now: Takedown
Advertisement
Report this ad  |  Hide Techdirt ads
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Chat
Advertisement
Report this ad  |  Hide Techdirt ads
Recent Stories
Advertisement
Report this ad  |  Hide Techdirt ads

Close

Email This

This feature is only available to registered users. Register or sign in to use it.