Start-Up Legal Evaluations

The biggest problem I am seeing with start-ups, from a legal standpoint, is issue identification. For example, we are often told by a new client that it needs a "terms of use and privacy policy" drafted. Well, that is part of the equation for launching a low risk site. But is a client really knowledgeable enough to identify its legal needs? Rarely.

There are domain name and trademark issues, privacy matters, web development and hosting contract issues, and many other legal concerns that should be addressed. And, for those following the Web 2.0 movement to leverage user generated content, the risks escalate since the content is being created and delivered by third parties. How do you guard against a contributor's content using someone else's trademark, disparaging a product or service or company to the point of defamation, using someone else's creative content protected by copyright (registered or unregistered), or violating state privacy laws by disclosing private information?

The response I get when reviewing these issues is often surprising. Well, a start-up says, so and so is doing the same thing I want to do. My response after research is often that "so and so" has a lot of money and is not an easy target to sue, or "so and so" is owned by young kids with nothing to lose, or "so and so" is actually owned by a guy in a third world country. The point being that the legal liability that exists for any site has to be viewed in context in order to understand the true legal risks. And, of course, the fact that other sites are doing something wrong means nothing at all. Maybe they just got don't care, got bad legal advice, or no legal guidance at all.

I also find that most start-ups don't understand what they have to lose. Most think if they incorporate the only risks are with the corporate assets. Most lawsuits are suits against the individuals also, whether a corporation exists or not. So, when the new start-up thinks all it has to lose is its corporate assets and the personal bank accounts and home are protected, they should think again. I'm not a fan of overstatement, and this isn't intended to scare new online enterprises into seeking legal assistance. It's just good advice. We are litigators. We defend lawsuits. We deal with these misunderstandings and issues everyday.