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 @ 8:08pm

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

    What does the length of resolution time have to do with the frivolous nature of the lawsuit?

    Lawsuits that are indeed frivolous can be disposed via a motion to dismiss for failure to state a claim upon which relief can be granted. Such motions are commonly granted for defendants that are subject to frivolous claims of vexatious litigants, and they typically end the lawsuit in less than a year's time.

    Other suits can be disposed of via a motion for summary judgment, which occurs after discovery but before trial. Such motions rule on claims where there are no disputed factual issues, thereby streamlining cases. In the case of a truly frivolous lawsuit, the facts of the given case should be such that no possible claim can be made under the facts. A summary judgment motion can typically dispose of a case within 2 years' time.

    That's how truly frivolous lawsuits are typically handled. They also tend to result in the plaintiff being sanctioned for bringing a frivolous lawsuit and wasting judicial resources. In sum, truly frivolous lawsuits are handled rather quickly in comparison to legitimate claims.

    What does the frivolous nature of the lawsuit have to do with the number of opportunities available to dispose of the lawsuit? The above is just your unsubstantiated opinion.

    I have been practicing law for about two years, and I've been involved in a number of litigations, both patent and others. My opinion is based on my legal experience and education. What is your opinion based on? What Mike says?

    If you think my opinion is wrong, feel free to tell me why.

    Just because someone might be afraid of losing a lawsuit doesn't make the lawsuit any less frivolous.

    Frivolous. You keep using that word. I do not think it means what you think it means.

    Tell me: if a lawsuit is truly frivolous, what do you think are the chances that said suit will end with a favorable judgment for the plaintiff?

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