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. icon
    penstock (profile), 4 May 2011 @ 10:01am

    Another Way To Help Solve This Problem

    When applying for a patent, the applicant has a built-in time limit to "perfect the invention" before the final decision is made by the examiner as to whether or not the invention is patentable at all. If the invention is "incomplete" or doesn't quite work yet when the application time limit runs out, the application is rejected.
    So, do the same thing at the other end: treat the invention as "probational" even after the patent is issued - say, for two years. The examiner watches the newly issued patent as though carrying out the implementation of the invention is part of the original "proof of concept" portion during the application process. If the new patent holder fails to do anything with the new invention after two years, the patent is automatically "challenged" by the examiner, and the patent holder has to demonstrate why they failed to implement the invention. If they cannot defend their patent, it reverts into the public domain -- which allows anyone else access to it use -- but they cannot re-patent it -- they must "improve" upon it in order to apply for their own version.

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