Guides

15 Tips For Avoiding Litigation As A Startup

Protect Your Startup From Potentially Losing Millions of Dollars to Lawsuits

Share this article

Share this article

Protect Your Startup From Potentially Losing Millions of Dollars to Lawsuits

Guides

15 Tips For Avoiding Litigation As A Startup

Protect Your Startup From Potentially Losing Millions of Dollars to Lawsuits

Share this article

Startups - businesses that are initiated by ambitious entrepreneurs with an optimistic outlook on growing beyond what is expected. While business success is a potential, it is also an uncertainty.

Of the possibly millions of startups worldwide, only a few become unicorns, and most of them fail. Today's most giant unicorns are DiDi, ByteDance, SpaceX, Stripe, Airbnb, Palantir Technologies, and Lyft, all startups that have passed the $1 Million mark in business value.

Most startups will not reach significant success, partly because of the brutal market competition. However, the most common startup failures stem from the founder's overconfidence about their control over their business outcomes.

Many startup leaders tend to go through an extreme path of optimism and acquire a fantastical belief that they are unfu*kwithable. One of the most significant neglect that irresponsible entrepreneurs make is about their legal position.

Startups that do not keep their legalities secure end up losing millions of dollars to litigation.

In Microsoft's early days, just around the time of its boom from being a startup, a federal court jury found the tech pioneer guilty of patent infringement and awarded $120 million in damages to Stac Electronics. The small company had accused Microsoft of copying its technology for increasing computer disk storage capacity.

If you are planning to initiate a startup, you have to ensure that you avoid litigation as much as possible. When lawsuits inevitably occur, you are insured for its costs.

Here are FIFTEEN actionable tips that will save your startup from failing because of litigation.

  1. Pursue legal business.
  2. See to it that you are not infringing anyone's intellectual property.
  3. Protect your intellectual property.
  4. Register your copyrights.
  5. Register your trademark.
  6. Register your patent.
  7. Effectively acquire your domain name.
  8. License your business.
  9. Acquire product safety standards.
  10. Record everything.
  11. Secure contracts.
  12. Use non-disclosure agreements.
  13. Deliver.
  14. Get the right insurance.
  15. Hire a lawyer.

NO.1 Pursue legal business.

While this tip may sound unnecessary, you might be surprised at how many startups ended up having to close their business down or face legal action because it turned out that their products and operations were illegal or are highly susceptible to use for illegitimate purposes.

TikTok, launched in 2016 by startup ByteDance, will potentially be banned in the US for valid concern that the app is collecting information from children 13 years and below without parental permission, a violation of privacy laws. The app has already been banned in India in June 2020.

While the app's developers are planning to fight back against banishment, litigation costs can leave a dent on the company.

The senate grilled Facebook's Mark Zuckerberg in late 2019 for similar privacy and data exploitation issues.

Protect your business from litigations by avoiding illegal activity.

NO.2 See to it that you are not infringing anyone's intellectual property.

Be sure that the technologies, branding, and products you claim as your original design and creation are not copyrighted, trademarked, or patented by another company or entity. Do not copy or infringe the intellectual property of other businesses.

They will sue you.

NO.3 Protect your intellectual property.

Your intellectual property can be harder to look after than your physical assets. It would be best to implement heightened security measures to avoid having to file a lawsuit against an entity stealing your IP.

You must acquire securing paperwork, implement safeguards like contracts and licensing agreements, and get substantial insurance for your intellectual property.

NO.4 Register your copyrights.

While you already have the copyright to your original content, you will need to secure paperwork to make your ownership evident once you have created it. Register for copyright.

Content thieves will not hesitate to infringe your intellectual property for their advantage if they find out that you don't have the copyright to it. They know that you will have a hard time in court trying to retrieve your IP from them.

NO.5 Register your trademark.

Follow the example of Coca-Cola. Their brand name, product names, and bottle shapes are all trademarked. Not only does it give the soft drink magnate indomitable IP protection, but it allows the corporation to profit off third-party licensed products like Coke Chapsticks via royalties.

NO.6 Register your patent.

With your patents registered for your designs, discoveries, and inventions, you will avoid entities trying to copy your work. They will not risk offending a startup with a fully patented IP.

NO.7 Effectively acquire your domain name.

In 1993 the internet was not yet mainstream. The networking giant MTV was not interested in any online presence, dismissing its former VJ Adam Curry's pitches, having purchased the domain name mtv.com. A year later, Curry leaves the company, but the internet had already started to blow up.

MTV had to file a case to claim mtv.com from Curry, losing money in a long and painful fight until the defendant settled for a sellout.

Avoid such a problem by securing your domain name the moment you decide on your brand name.

NO.8 License your business.

When you license your business with the government, you ensure that you pay the right taxes and avoid having to face tax evasion cases.

NO.9 Acquire product safety standards.

By complying with safety standards and getting the correct certificates, you are effectively ensuring that your products will not cause any accident for your customers like poisoning, injury, and property damage.

If you have compliances and something goes wrong, the blame can be directed to the certifiers.

NO.10 Record everything.

When your employees, partners, and clients see that you are recording everything, especially in meetings, they will hesitate to legally offend you, knowing that you have substantial evidence for any issue.

However, see to it that the people being recorded sign an agreement that makes them understand and acknowledge their surveilled circumstances.

NO.11 Secure contracts.

Have contracts for all monetary and legal decisions and activities. Gather receipts, memorandums, licensing agreements, franchising contracts, and others.

When an entity is about to act in contradiction with an agreement you had, you can send them a warning that includes a copy of your contract marked where the action in question is referenced. The notice should be enough to stop the misdeed and mitigate a lawsuit.

NO.12 Use non-disclosure agreements.

With non-disclosure contracts in place, your employees and partners will hesitate to copy or steal your designs, technologies, or recipes. Thus, you can avoid having to run after them in an intellectual property infringement case.

NO.13 Deliver.

Walk your talk. Do not cheat your employees, partners, and, especially, customers

In 2011, shoe company New Balance was accused of false advertising after claiming that its "toning" shoes help burn calories. The company had to pay $2.3 million in settlements in 2012.

Billy McFarland, the founder of the ill-fated fraudulent 2018 Fye Festival, was sentenced to six years in federal prison.

Avoid committing false advertising to avoid clients filing cases against you, and do not breach your contracts to retain adequate legal relationships with your employees and partners.

NO.14 Get the right insurance.

While you may not avoid litigation entirely, you can save yourself from the significantly draining costs of a lawsuit. General liability insurance and other policies can save your money from being washed away in court.

NO.15 Hire a lawyer.

A lawyer knows all of the reasons why an entity will file a case against you and what you should do to avoid any potential litigation. An attorney will also smooth out your contracts, licensing details, franchising guidelines, and insurance policies.

Doing a startup is no joke, and when done irresponsibly, it can put an entrepreneur in jail or bankruptcy and business failure. If you are entering the exciting world of startups, avoid litigation by being legally secured.

Get news to your inbox
Trending articles on Guides

15 Tips For Avoiding Litigation As A Startup

Share this article