The investment that didn't happen
k9.vc
k9.vc
> “We love these guys, and it sucks to see this happen to them, but we can’t sign up for a lawsuit.”
I understand the logic behind it, but it still seems sort of weak to not stick your neck out when it really matters, and then turn around and write a blog post about how awful it all was after the fact.
In these guys' shoes, honestly, if I had something that was potentially that big, and that well-developed, I wouldn't be able to walk away from it. I'd at least look up the list of Patent Cooperation Treaty countries (http://www.uspto.gov/web/offices/pac/dapp/pctstate.html) and consider moving to a country that wasn't on it (like Chile), and launching from there.
Most likely he has limited partners who have given him money to invest, so it's not just his own money.
The company is almost certainly less likely to make it now - they could lose the suit, and then it's over. But even if they win, that's a massive mental beatdown and stress and such for quite a while. Not to mention costs.
It sucks all the way around, but an investor with limited partners can't back something that doesn't fit with the goals/metrics/risk that they promised when their LP's signed up.
Fred Wilson has blogged about this extensively - he considers his fund to be global, as do many other angel and super-seed investors.
a) Raise the round but cap legal expenses to 80-120k. This would get you a decent way down the road with discovery, pre-trial and potentially an early settlement.
b) Find a patent litigation firm that would waive the remainder of the fees on the same terms as the investment round, to be converted at a later date
c) Get in touch with one of the funds that specialize in exactly this type of company. Software patent hoarding and litigation is an industry unto itself - there is bound to be a fund out there that would take this case on. A lot of the patent hoarders have close working relationships with litigation firms
d) Patents are not really patents until they have been held up in court. Google may identify this patent as indefensible prior to any trial, and settle. At the moment they got these guys to fold with a cheap threat. Google may not want to pursuit the case at all - like.com sent this out prior to their acquisition. Google don't seem to be the type of company that would use a patent to shut down a startup.
e) Register an IP holding company internationally and license that IP to the local US operating firm
But part of me is thinking: If Google was looking for an acquistion in this space, how could they miss the Modista guys? Their stage of development kept them under the radar? Or perhaps there is more to the story than we are reading here?
The interesting aspect of this story to me is that you can utterly destroy an early-stage startup with a well-timed patent lawsuit, even if your claim has no merit. I wonder why this hasn't happened more often.
Does this seem really out of line to anyone else?
However, I'm assuming that this law was put into place because
(a) Most non-lawyers can't do a good legal job and don't know the law (or loopholes). So they are likely to do themselves harm.
(b) I think that verdicts can be reversed if it is proven that counsel was unqualified. This means that the case will need to be retried with a more qualified lawyer.
That said, I think that judges can make exceptions in some cases and let a non-lawyer represent themselves.I'm assuming that this may be true for a founder representing his/her company as well.
So for the corporation to appear pro se, it must actually appear in court, but there is no way for a corporation to do that because it really isn't a person.
So any officer arguing on behalf of the corporation is actually engaging in the unlawful practice of law without a license by representing the "person" corporation.
Your (a) is the common public policy reason given why lawyers need to be licensed. I offer no opinion on its wisdom.
Regarding (b), to get a new trial it is more difficult. You need to prove dereliction of duty (every state varies here) by the attorney AND that the errors caused you to lose and you would have won otherwise. Very difficult standard to meet. This rule protects lawyers greatly, to the detriment of their clients.
Any competent law grad who passed the bar can answer motions, reply with his own, and get this case on the court docket 2 years out to buy these guys some time.
I would have taken the case for free.
Your not comparing hoovers here, people don't just buy a "look" - they buy (from store x) because of the quality, the brands values etc.
My point was that there is obviously a difference between guys and gals, and those who are into their fashion vs. those who are not...
You can't build a filter for "I've worn a top from this store before and it fitted me nicely" or "I know garments from this store wash up nicely" or "I shop from this store because it defines part of my character"
Most shoppers buy into a store because of lots of things, quality, brand-values alignment, friends shop etc etc.
What I'm essentially saying is a lot more goes into buying a product than what it looks like.
EDIT: By the way, I still think you make an interesting point in how people really shop, and I appreciate you sharing that here.
I'm not sure I agree, but it is a thought provoking point.
The argument that the patent climate hasn't changed should not deter investors in a restart of this company, most startups would die if they are sued for patent infringement and in this case the aggressor has been pacified.
Anyone that suggests that software patents are good for innovation is clearly naive.
You would definitely want an experienced patent litigation attorney and a small team.
I think they should have responded and called the bluff - I don't think Google would pursuit it far
I hope the modista guys do well in their new venture and people who prey on other smaller startups in the name of patents are cowards, they don't deserve any respect. I know which website I'll never be visiting, I just don't "like" the people behind it anymore.
And I think Google acquired them to save themselves. They are better off acquiring them than having to face a similar lawsuit which would run into millions of dollars. The acquisition conversation must have been:
Acquire or get served!
Google? I mean they didn't buy like.com without knowing about this lawsuit.
And properly started a startup which brought patents and sued others, seeing as that is now the way to win.
But respect to these people.
What about all that talk about 'the founders count more than the idea'?