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. icon
    Mike Masnick (profile), 4 May 2011 @ 11:25am

    Re: Re: Re:

    The patent system "rewards" limited, exclusivity to a patent owner in exchange for a public disclosure of the invention

    The "disclosure" myth again? Come on... That's old. There's very little actual disclosure in patents, and if disclosure was the true point, there would be much different requirements.

    Because the patent system's "reward" is exclusivity, compulsory licensing of competitors or something similar doesn't make much sense either.

    If you look at the history of patent law, there's actually a very strong case that the framers meant "exclusivity" to mean "exclusivity of the profits," rather than the product. Thus, a compulsory license may, in fact, be much more in line with what the founders intended. I'm not a fan of the compulsory license solution, but it's certainly better than killing off competition and innovation.

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