See a lawyer while your startup is young

Disclaimer: This post is taken from a presentation I gave at the first EFF Bootcamp for Startups. It is not specific legal advice and is directed at small startups. Big start-ups have different concerns, huge start-ups, such as Google (where I work), have still different concerns.

Don’t Win at the Supreme Court
Don’t see a lawyer if your goal is for your technology to be vindicated as “legal” at the Supreme Court. If that’s your goal, quit your start-up, do three years of law school and join the EFF. Vindication at the Supreme Court does not have a place on the “goals” list of a startup because your users don’t care, its expensive (you can't afford it), it takes too long and it doesn’t give you a competitive advantage (because others can use your win to do what you are doing). Hopefully you stopped reading at “your users don’t care.” No-one has ever used a service or bought a product because it won a court case.* And, to top it all off, winning a court case is hard and time consuming. If winning at the Supreme Court is one of your goals you are very likely to forget the others (the important ones that matter to your users).
You should see a lawyer for two basic reasons: money (both going out and coming in) and the environment.

Money Going Out
Lawyers are expensive. Even if we win. ReplayTV once said that the difference between Brobeck (a law firm that went bankrupt when the tech bubble burst) and Fenwick (a firm that is still thriving) was that ReplayTV was a client of Fenwick. That was not because Fenwick was basking in the fame of winning the ReplayTV case (in fact, it never got to a ruling on the merits) but because ReplayTV said that they were paying Fenwick $3M/quarter. Fenwick was not a particularly expensive firm and the ReplayTV case was not a particularly expensive case. Do you have an extra twelve million dollars a year?
If not, get some good legal advice early.

Money Coming In
Lawyers and money people are a lot alike. They can both be quite conservative and they work together. When you get money, either from venture capitalists, bankers or through an acquisition, you can bet that they will have some lawyers taking a look at your business practices. If you’ve already been sued, the lawsuit may make the
deal harder to do. If you are taking a lot of legal risks, the investors will have to jibe your risk tolerance with their own. You may have been willing to “bet the company” on a decision but it is unlikely that a VC firm will want to “bet the fund.” With lawsuits targeting investors and parent companies becoming more prevalent, this will become a bigger and bigger issue.
Another reason your deal will be harder if you don’t get good legal advice early is personal. The people doing the deal are vouching for it. No one wants to have invested in a company bankrupted by legal bills. The people doing the deal are also likely to be the ones that will have to clean up your mess. No-one likes cleaning up messes. It is not sexy work and it is much easier to prevent a mess than clean it up afterwards.

The Environment
Finally, you should be concerned about the environment. Though the legal environment is not a paradise for innovation, it is much closer than it might otherwise be. Immunities such as the Communications Decency Act Section 230(c) and Safe Harbors such as the Copyright Act’s Section 512 are designed to give you enough protection to
innovate and thrive. Maybe not paradise, but you could make it worse. That’s because, companies that are less incented to want innovation see suing you as an easy way to shape the law to their ends. That is because they think they can count on you to be sloppy, not to have done your legal work and not to have the money to effectively defend your case. They are often right.
The point is that, like the physical environment, the legal environment can change. Don’t be a careless polluter.

So What Should You Do?
Don’t take this rant to mean that you should NEVER do something that you might get sued over. Anyone could sue you for anything and I am definitely NOT saying that you should do nothing. You should do lots of things. You have a relatively high risk tolerance. Absent personal liability or criminal charges the only thing you have to lose is your startup. If you are a small startup, there is a relatively high chance of that happening already, without any lawsuits (the vast majority of startups don’t get killed by lawsuits).
What you shouldn’t do is take legal risks carelessly. The value you bring to users may be entirely dependent on the legality of some business practice. If that’s the case, you may want to proceed even though the legality is contested by some. Some of the file-sharing services are good examples (here I am thinking of everything from Microsoft shares to Grokster). The value they bring to legitimate users in making non-infringing files quickly and cheaply available would not exist if they are liable for their users’ infringement. So their choice is either a) find another business or b) take the legal risk. It may be a smart business move for some businesses to choose (b) as Microsoft has and Grokster did (indeed, even Grokster won at both lower courts). However, it is unlikely to ever be essential to a business to advertise itself as being the "the Next Napster." Indeed the Supreme Court held in Grokster [pdf] that though the technology may have been OK, intent as evidenced by unnecessary statements such as that one might create liability.
Think hard about what legal risks are essential to your business and which are not. Lawyers can usefully help with that thought process, so see a lawyer while your startup is still young.

Credits for Images
These beautiful public domain illustrations were digitized as part of Google Book Search.
Benjamin Clarke, The British Gazetteer, Political, Commercial, Ecclesiastical and Historical, H.J. Collins, London (1852), original from Oxford University Library.
Robert L. Wade (ed.), The Illustrated Family Magazine for the Diffusion of Useful Knowledge, Bradbury, Soden & Co., Boston (1846), original from Harvard University Library.
John Cumming, The Lives and Lessons of the Patriarchs Unfolded and Illustrated, John F. Shaw & Co., London (1865), original from Oxford University Library.

* I say virtually none because I own a few Diamond Rios and "What a Long Strange Trip: The Illustrated History of the Grateful Dead" for precisely those reasons.

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