This venture-backed company just filed for Chapter 11 bankruptcy to resolve a patent dispute

Searchmetrics
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In the world of venture-funded companies, not much surprises industry observers. Yet a new strategy employed by one privately held company might have founders and venture investors wondering if it’s a maneuver worth replicating.

What happened: The U.S. subsidiary of a venture-backed Berlin-based search optimization company called Searchmetrics just filed for Chapter 11 bankruptcy protection in Delaware.

What it’s interesting: Sources close to Searchmetrics say the company was forced to file to escape a longstanding battle with venture-backed competitor BrightEdge, based in Menlo Park. Specifically, Searchmetrics alleges that BrightEdge stole its intellectual property, then filed for patents around it. (Searchmetrics says it had patents on its technology in Europe but failed to secure similar patents in the U.S., which created an opening for BrightEdge to exploit.)

Here’s how Searchmetrics’s chief restructuring officer, Wayne Weitz, describes the companies’ rivalry in a letter he submitted to the court today: “One of the [Searchmetrics’s] 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. Ultimately, Searchmetrics and BrightEdge could not agree on terms and the acquisition discussions fell apart.

“Unbeknownst to Searchmetrics, whilst in the midst of the acquisition discussions, BrightEdge developed a campaign to eliminate [Searchmetrics’s] presence in the U.S. market. BrightEdge started by engaging in a smear campaign designed to lure the Debtor’s customers and prospective customers to BrightEdge by making false and disparaging statements about Searchmetrics’s products, and then initiated vexatious, baseless, and prolonged litigation against [Searchmetrics] on two fronts. This Chapter 11 Case was initiated to bring [this litigation] to an expeditious and cost-effective end to permit the Debtor to reorganize, failing which, [Searchmetrics] will be liquidated.”

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