Company Filing Chapter 11 Bankruptcy Due to Patent Dispute

In the world of venture-funded companies, it’s not uncommon for industry observers to witness unexpected moves. However, a recent development involving privately held company Searchmetrics might have founders and venture investors wondering if this unconventional strategy is worth replicating.

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The Unexpected Chapter 11 Filing

Searchmetrics, the U.S. subsidiary of a Berlin-based search optimization company, has filed for Chapter 11 bankruptcy protection in Delaware. But what’s surprising about this move is that it’s allegedly being done to escape a long-standing battle with venture-backed competitor BrightEdge.

The Allegations Against BrightEdge

Sources close to Searchmetrics claim that the company was forced to file for bankruptcy due to a dispute with BrightEdge, which allegedly stole Searchmetrics’ intellectual property and filed patents around it. According to Searchmetrics, they had secured patents on their technology in Europe but failed to do so in the U.S., creating an opportunity for BrightEdge to exploit.

The Rivalry Between Searchmetrics and BrightEdge

In a letter submitted to the court, Searchmetrics’ chief restructuring officer, Wayne Weitz, describes the companies’ rivalry:

"One of [Searchmetrics’] primary competitors in the U.S. market is BrightEdge Technologies [which] sought to acquire or merge with Searchmetrics in or about October of 2013. During acquisition discussions, BrightEdge became privy to Searchmetrics’ confidential, proprietary, competitive information and business practices, including its business model and growth plans."

The Alleged Smear Campaign

Weitz also alleges that BrightEdge developed a campaign to eliminate Searchmetrics’ presence in the U.S. market while engaging in acquisition discussions with them. This included a smear campaign designed to lure customers away from Searchmetrics and a series of patent disputes.

The Financial Implications

Searchmetrics has raised approximately $32 million from investors, including Holtzbrinck Digital, Iris Capital, and Kreos Capital. BrightEdge, on the other hand, has received around $62 million in funding from investors such as Illuminate Ventures, Insight Venture Partners, Intel Capital, Altos Partners, and Battery Ventures.

The Consequences of This Unconventional Strategy

While this move may seem surprising to some, it’s essential to consider the potential consequences. Filing for bankruptcy can have significant repercussions on a company’s reputation and ability to secure future funding. However, it may also provide an opportunity for Searchmetrics to restructure its debt and emerge stronger in the long run.

The Takeaways

The unconventional strategy employed by Searchmetrics has raised eyebrows among industry observers.
The allegations against BrightEdge highlight the aggressive tactics used by some venture-backed companies to gain a competitive advantage.
The financial implications of this move will be closely watched, as it may set a precedent for other companies facing similar disputes.