How to make $100K offering zero value and kill a startup on the way

February 3, 2011 No Comments by maya

To not make matters worse for my friend, I’ll keep the companies involved anonymous. Let’s for now call the high-tech company that’s trying to do something meaningful in the world ‘Startup’, and the suing company ‘Shell’.

This is a true story of Shell and Startup.

Startup is a company in growth stage, VC backed, with a team of hard working founders, about 40 employees, and an innovative technology.

Shell is a company with no management, no employees, no offices and no product. It was established for the sole purpose of the following, and will cease exist as soon as it’s done. Till it re-emerges, much like a dorment predator, in a new identity, going after the next victim.

Here’s how the business model works

Shell buys an expiring patent and sues a dosen companies in the relevant fields for infringement. There’s no case here, and both parties know that, but Startup must now defend itself. Defense means years in court, management attention, and tens to hunderds of thousands of dollars in legal fees. Fees that won’t be reimbursed even after Startup wins because Shell will be long gone and the people behind it hid under layers of parent ‘Shells’.

Shell offers the sued parties to settle. For $100K each. The deeper pocket companies pay and get on with their businesses. Startup is not in the business of being ‘right’, it just wants its life back. But it can’t write off that kind of money so easily and so it’s dragged to legal defense.

By the time Startup wins it had already lost.

This begs the question: has our legal system gone so detached from common sense, it doesn’t identify the M.O. of an innovation-serial-killer?

And speaking of our lose of wisdom

This TED Talk by Philip K. Howard – founder of Common Good, a drive to overhaul the US legal system, couldn’t be more spot-on! He beautifully demonstrates how the land of free has become a legal minefield, especially for teachers and doctors, whose work has been paralyzed by fear of suits. What’s the answer? A lawyer himself, Howard has four propositions for simplifying US law.

And this is repeat TED speaker Barry Schwartz, in a moving call for less regulation and more common-sense:

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