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 @ 9:35pm

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

    Maybe not you, but I've seen IP maximists argue some pretty ridiculous things that at least come close to the above argument. For instance, see

    bob writes
    "Would you like the Polio vaccine inventor to keep that knowledge to himself? How about the inventor of some of the antibiotics on the market now? Be careful what you wish for. Patents were invented to circumvent secret societies and guilds. Without intellectual property laws, knowledge retreats behind paywalls and even more sinister situations."

    Read what the argument is, specifically, read the last sentence. The implication is that without IP others there wouldn't be anyone to spread knowledge. But that's false. Here on Techdirt alone lots of people are spreading knowledge. Wikipedia is full of knowledge that's released under a licensed at least in part designed to circumvent IP. As far as I'm concerned, even if some people will refuse to 'disclose their knowledge' by applying for patents, I'm fine with that, because, like most people, I will simply find that knowledge elsewhere.

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