While I do not agree with the patent bullying especially because the said patent was very general, I would not go to the extent to say "they didn't even use computer vision or any algorithms for most of their matching". I know a couple of smart computer vision engineers who worked there, and probably the stuff done "by hand in other countries" was getting the training data and getting a lot of it, which I think is fair.

I was an early user of the technology back when it was Riya. It recognized the people in my photos with a 95%+ success rate. The riya team was a dozen solid AI experts from various US and Indian schools, together with Munjal. Google made an offer to buy them before they even launched, apparently just for the tech. So there is definitely some technology to it, I think the only difference today is that the technology is not as unique or special as it once was when Riya first launched (~5 years ago).

As for this story, I don't understand the investor reaction. You would think that finding that Google fear you would be even more a reason to invest in the company and to raise a boatload. They should have raised the 500k with a view of raising a larger round a little later on - who knows, part of the patent settlement may have been that Google buys the company. Not unheard of

ps. software patents suck. i wish there was a mutual agreement amongst valley companies not to enforce against each other. a bit like mutually assured destruction with the soviets. most people here understand it is the execution and not government idea protection that makes you successful. google has their own history of this with adwords and adsense, so i am sure they could be bought around :)