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
    Willton, 4 May 2011 @ 7:52pm

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

    So if someone had a patent that lets them sue anyone who benefits from the idea that 1 + 1 = 2, maybe a one year old can learn from that patent. But that's irrelevant.

    Yes, it is. So why did you bring it up?

    The point is that patents aren't needed for people to learn this stuff and people don't go around reading patents to learn anything, and that is especially true of people well versed in the field. They read textbooks, take classes, and conduct R&D to learn this stuff, then IP maximists simply take ideas learned from others after the fact and create patents on them, many of which are ideas based on concepts and research developed and conducted by others (often times funded by the U.S. govt even).

    No, technologists do not have to read patents in order to learn the state of the art. But the fact is that they could, at least as a supplement to their regular continuing education, and that's what matters.

    To say that because Mike is familiar with computer methods there might be a bio patent that Mike could learn from misses the point.

    That's not what I said. I think you're missing the point.

    The patent needs to be non-obvious to someone trained in the field, not to someone who is trained in a completely different field. and most patents simply don't disclose anything of value that can't be learned elsewhere (or anything of value whereby the information necessary to figure something out can't be picked up from elsewhere).

    So what? I can learn about World War II from reading Wikipedia, or I can learn about it from reading a history textbook. Does that mean we should discard Wikipedia?

    Better analogy: I can get packages sent to me by either the U.S. Postal Service or via a private common carrier like Fed Ex or DHL. Does that mean we should discard the U.S. Postal Service entirely?

    We can have mercenaries perform the duties of a standing army just as well as the U.S. military. Does that mean we should do away with the U.S. military?

    People would be afraid of conducting any R&D before getting a patent because if they spend money on all this R&D someone else might get (or already have) a patent and sue them after the fact. So what do they naturally do? They get patents before conducting any R&D. Basically they collect already existing information and come up with an idea that anyone else can just as easily come up with given the available information. That's what pharmaceutical patents amount to. They are generally granted before any R&D is conducted. They're essentially worthless to society.

    Something tells me that you have no idea how the pharmaceutical industry actually works.

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