October 24, 2014

11 Tips for Avoiding Startup Legal Battles

legal battles

When starting a new business, planning for potential legal issues is essential. The last thing you need to be focusing on is damage control, particularly if you have a brilliant, game-changing idea that could be a thriving business otherwise.

To find out how to make sure your crazy startup idea isn’t going to get you into hot water, we asked members of the Young Entrepreneur Council, an invitation-only organization comprised of the country’s most promising young entrepreneurs, the following:

“What’s one valuable tip you’d give an entrepreneur with a disruptive technology/service to prepare for legal problems down the road? “

Here’s what YEC community members had to say:

1. Consult With an Attorney

“Entrepreneurs should consider consulting with an intellectual property attorney while they are developing their products to avoid potential legal disputes. By doing so, they can possibly navigate around intellectual property battles instead of having to fight them.” ~ Doug Bend, Bend Law Group, PC

2. Build an Army of Engaged Users

“If you’re small, the existing institutions will fight you on their turf with lawyers and lobbyists. The easiest way to disrupt entrenched interests, such as unions and trade associations, is to bring the battle out into the open. Acquire and engage a passionate user base, and it will take on the old industries for you.” ~ Neil Thanedar, LabDoor

3. Put Together a Legal Team

“Get a high-quality legal team in place. Traditional industries are fighting back hard against new innovations, and if you don’t legally prepare in advance, you might struggle before you ever make it out of the starting blocks.” ~ Andrew Schrage, Money Crashers Personal Finance

4. Don’t Over Plan Around Legal

“Disrupting old industries is inevitably going to cause some type of legal or regulatory challenges. You can’t avoid it, and you can’t plan around it. But don’t let the future threats of legal issues prevent you from building your company at the start. If you build something awesome, then you’ll have a reason to fight, but start with the building something awesome first.” ~ Eric Koester, DCI

5. Invest in Legal Support

“If you’re going to disrupt the status quo, it’s critical to know your rights, legal precedence and regulations that you may need to fight. Don’t go into this blind — even if you have legal training. Focus on the growth of your business, and hire a legal team that can research and fight for you. ” ~ Kelly Azevedo, She’s Got Systems

6. Invest in Liability Insurance

“Although it may not keep you out of court in our litigious society, a general business liability insurance policy may mitigate your exposure when you end up there. Even though most people know that insurance can protect them from personal injury and property damage claims, it can also cover claims of false or misleading advertising for startups, including libel, slander and copyright infringement.” ~ Peter Minton, Minton Law Group, P.C.

7. Include Board Members

“If you know you are gearing up for a fight, I would look to include board members who are either lawyers or have been closely associated with other companies that have had similar legal situations.” ~ Sam Saxton, Salter Spiral Stair and Mylen Stairs

8. Use Patent Lawyers to Protect Technology

“Disruptive technology from a small company attracts attention from larger companies with confidence in their legal budgets. Expect patent infringement and appeals to your patents as larger companies try to outlast your legal resources. Choose a patent attorney who is well versed in every legal protection possible and will apply for every patent you need before the technology is publicly known.” ~ Jay Wu, A Forever Recovery

9. Hide Under the Radar and Make Allies

“Incumbent companies will do whatever it takes to protect their market shares and interests to the point where they’ll find ways to sue you just to throw a wrench in your wheel. It’s best to stay below the radar while you’re getting your business in order, gathering funding, etc. During that time, look for large strategic partners that might benefit from your entry, and get them on your side. ” ~ Andy Karuza, brandbuddee

10. Be Prepared

“All entrepreneurs should assume that they will encounter some sort of legal issues once they start showing success. To combat these legal issues, start preparing immediately. Before you launch, you should perform your due diligence and create a list of all foreseeable legal situations. Review these with your lawyers to develop strategies to defend against or prevent these issues. ” ~ Kevin Tighe II, WeBRAND

11. Build a Relationship With Your Lawyer Now

“Begin building a great relationship with your lawyer before the legal issues arise. You need to be comfortable with their communication styles, confident that they won’t run up the clock unnecessarily and assured they understand that ultimately they are the advisors, and you call the shots. ” ~ Michael Simpson, DJZ

Legal Concept Photo via Shutterstock

8 Comments ▼

The Young Entrepreneur Council


The Young Entrepreneur Council The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.

8 Reactions

  1. Well, legal battle is the least thing I want to do on behalf of my business :) But yes, some things are inevitable in business, and one of them is legal issues.

    I once dealt with a dispute related to a website purchase and it almost went ugly due to some misunderstandings. I was accused of scamming and all (which I didn’t, obviously!) and he kept throwing groundless accusations. I had to contact an acquaintance of mine, an attorney, to have someone from his office to represent me.

    It worked out nicely, and things were settled before any legal battles happen – so… hiring an attorney to represent you work wonders!

  2. I agree with #2. Sometimes, all it takes is an army of loyal followers who are crazy about your brand. As surprising as it may be, this can actually help you get out of the stickiest situations. You may not even need to overplan around legal issues with this.

  3. Startups cut this corner, especially those in tech and later do expensive clean up. “Lawyering Up” can also stall progress. The answer is to include trusted council from the get go. My attorney in Silicon Valley, Kerry Smith,@ Montgomery Hansen, is also my most trusted advisor in all start ups. Without him, it would have been a perilous journey indeed!

    You don’t have to do a massive law firm to get a start up to reality, but the smartest companies have a great legal defense to support their offense. The others tend to not scale or fail, not from the lack of lawyers, but from the crush of their “we know it all already” leadership.

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