Infanticide: How anti-competitive lawsuits by deep-pocketed incumbents are killing early stage startups

These days, Southwest Airlines is synonymous with low airfares and solid customer experience. But in the late 1960's when it was founded, the fledgling airline (then Air Southwest) was almost sued out of existence. Shortly after raising $543,000 in seed funding from investors (roughly $3.5M in today's dollars, inflation adjusted), the founders were barred from starting their disruptive low-priced airline by a restraining order filed by incumbent airlines Braniff, Trans Texas, and Continental. The money was raised and the license was granted, but Southwest's would-be competitors decided they didn't want the competition. 

Seven months later, Southwest's initial $543K had been spent entirely on legal fees fighting the anti-competitive incumbents who wouldn't let them fly. 

The same thing is happening again-- only now the year is 2012, and the industry is one that is what you'd normally consider to be one of the most egalitarian in the history of business. 

Techcrunch reports young and promising startup Touch of Modern was sued by today. I've been an advisor to the company for years, and you'd be hard pressed to find a more hard-working, dedicated founding team that has endured every roadblock and frustration a startup can experience. They recently decided to pivot to selling modern design-oriented furniture, art, electronics and housewares aimed at young professional men -- a segment they understood well since it was one to which they also belonged. Things have been going great for them, and I couldn't be happier for them.

Until today, when Fab decided it didn't like a Southwest springing up in their backyard. The suit claims violation of trademark and trade dress infringement, improper use of IP (apparently the UI) and ironically, unfair competition. While there are similarities between some pages of the design, I find it difficult to believe Fab can claim all right to the use of Helvetica, or industry-standard design elements like checkout buttons. Ultimately, design elements that are defacto industry standard, just like business models, shouldn't be copyrightable or patentable -- yet today's lawsuit seems to indicate that some entrepreneurs believe they are. 

This is merely the most recent lawsuit in a series. Craigslist has been waging war against widely loved website Padmapper for some time, even going so far as to impose insanely inappropriate and radically intrusive exclusive copyright terms for ALL content posted to Craigslist. (Thankfully they've seen the error in that, though the lawsuit persists.)

What makes me angry about this kind of legal action is that it's just bad for the consumer. Padmapper saves people millions of hours a year of wading through disorganized text-based posts just to find a place to live. Touch of Modern actually seeks out modern products exclusively, to the exclusion of the standard bourgeois bohemian hipsterdom of Fab -- and their customers love them for it. Anti-competitive litigation has always happened in business, and it will continue to happen, but that doesn't mean it can't or won't incite outrage among the people who actually matter -- us, their users. 

I for one will never shop at so long as they insist on anti-competitive practices and crushing young founders who don't have the fat pocketbook of investor cash to spend on lawyers. I wish I could say the same for Craigslist, so I'll use it grudgingly for now. But I'll gladly pay for, invest in, and do whatever I can to help tomorrow's Craigslist killer. 

Oh, and Southwest Airlines? They fought, they won, they flew, and the rest is history. Trans-Texas Airlines went out of business in 1982, and Braniff went out of business in 1990. Southwest is one of the most well known and loved brands in the world. 

To Padmapper and Touch of Modern, I say don't give up. Southwest didn't.