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 @ 5:10pm

    Re: Re: Re: Re: Re: Re: Re: Re: Re:

    As far as software is concerned, the reason why patents on specific source code does not exist is because

    "There are very, very few patents that disclose anything that couldn't be figured out otherwise." (quoted from Mike).

    Not because they're not patentable, if the corporations wanted to patent source code then they'll make them patentable (corporations clearly have that leverage). The USPTO is completely careless about what patents it grants and if the corporations wanted patents on source codes they'll find a way to get them. The source code isn't patented because the source code can't easily be figured out otherwise. Sure, you can use disassemblers to disassemble code but the code you get is not the original and it's not as easily adaptable and modifiable as the original source code. It discloses much less and gives much stronger monopoly power to simply patent broad and obvious software related ideas without even the need to link them to any specific piece of software that uses them. and that's what patents are. They don't disclose anything, they're simply a way of telling people what they can't do under the false pretext that controlling others somehow discloses valuable information to them.

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