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 @ 9:28pm

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

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

    Because it's similar to the argument that you're making, your argument is the one that's irrelevant.

    "But the fact is that they could, at least as a supplement to their regular continuing education, and that's what matters."

    No, it doesn't matter, because they can simply just go to a better source of information, which is pretty much what everyone already does.

    "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?"

    The difference is that Wikipedia isn't a list of what I can't do without a license.

    "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?"

    The difference is the USPS doesn't prevent competitors from sending packages (though it does wrongfully prevent competitors from delivering mail into mail boxes), patents prevent competitors from existing. I'm fine with the USPS giving me the option of using them to deliver mail, I'm not fine with them preventing me from using others to deliver my mail.

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

    Something tells me that you will continue not to back up anything you say with any evidence.

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