Much like how hackers can breach a system such as your startup IT security measures, a lawsuit seeker can find a loophole or opening that is not covered by your disclaimers, terms of service, or other protocols you have in place

When running a startup company, you’re oftentimes way too bogged down by your regular workload to worry about the legal side of things. Sure you incorporated your company and did the necessary business license paperwork, but are you truly prepared for what’s out there?

I know what you’re thinking, it’s not going to happen to me. But according to experts such as California based The Ledger Law Firm, “statistically, 36% to 53% of small businesses are involved in litigation at one time in any given year according to the SBA. Now this includes lawsuits that arise from things like contract breaches and labor violations, so don’t go thinking you have an almost one out of two chance of being maliciously two sued, but realize you have an almost one out of two chance of needing a competent lawyer.”

So say you do hire a lawyer, and that lawyer helps you patch up your legal vulernabilities and weakspots. Then great. But make sure you have that lawyer on hand for when attackers knock at your door and use the US court system for personal gain.

Much like how hackers can breach a system such as your startup IT security measures, a lawsuit seeker can find a loophole or opening that is not covered by your disclaimers, terms of service, or other protocols you have in place. Not to be confused with a frivilous lawsuit in which the lawsuit has no merit, what we’re talking about here is a malicious lawsuit in which the injured party actively attempted to find a way to be damaged in order to bring about a case of tort.

Here are some of the ways your startup, whether it’s tech or not, can be legally hacked

False advertising

Suppose you have a mobile app startup. You make consumer apps with basic social functionality and you have a moderate userbase numbering in the hundreds of thousands.

Say you have a marketer who goes and promotes your app and he does what marketers commonly do, he says “this is the best app for ___”. What did he just do wrong? Well he just violated the FTC’s truth-in-advertising laws by not backing his claim with evidence that this is in fact the best app for what it does. Now this doesn’t necessarily warrant a lawsuit, because it’s just a report to the FTC followed by an investigation into the matter, but it does set the stage for a malicious legal attack.

Also read: Businesses run into legal issues all the time, and here are 4 things you should plan for to mitigate the risks

A user could then, in theory, say that they because of that advertisement they decided to download that mobile app over the many other competitor mobile apps. Now assume it’s a work productivity app. Wow. Now imagine the damages resulting from loss in productivity and loss in business. Even a single user could claim up to thousands of dollars in damages from being “misled” by your advertising. It gets worst if the attacker intentionally caused damage to themselves in the hopes of scoring a higher settlement due to the higher potential damage claimed.

Invasion of privacy

Now lets say you have a software as a service startup. Your startup produces a web application that allows people to manage their social media accounts. How many of those have we seen around?

Now suppose that you just went there and threw up a minimally viable product or MVP. So anyone can make an account and they don’t need to enter their birthdate. How many websites require you to enter a birthdate anyways? Well now, you just opened yourself up to potentially violating the Children’s Online Privacy Protection Act of 1998 (COPPA).

Do you realize how many ways you can break the law when it comes to protecting the privacy and data of children on a social media focused business? An attacker could come in, use a child to set the case by creating an account, and then bring civil litigation when the child claims pain and suffering as the result of a privacy breach. It’s there and it’s possible.

Regulatory non-compliance

Now say you have a startup of any kind and you are attempting to fundraise a seed round or a series A. You go and solicit investors. Along the way you encounter an individual who claims to be able to introduce you to investors if you give them a small percentage of the capital raised as a referral fee.

You say to yourself, sure sounds like a good deal to me. Well my friend, you and that person just unknowingly violated broker dealer regulations and now you both have a case with FINRA and the SEC. You are using an unregistered finder who cannot receive compensation for the selling of securities including private equity, meaning your startup shares.

Now you both go to court and trust me, ignorance of the law is not a viable defense in the case of breaking the law. That does not hold up in court.

These are 3 examples of ways that things could potentially go wrong in the startup world. How many ways can you actually be attacked by a malicious tort seeker? Dozens and dozens if not more. It depends how creative they can get.

So the best option is to hire an attorney now, early on, to secure your startup and make sure you’re covered from every angle.

Keep in mind that statistically approximately 90% of corporations are involved in litigation at any given time. That’s a staggering statistic and that’s why they do so well in business. Partially their ability to get to that level of size and success was due to them taking care of their liabilities.

Now ask yourself … Do you feel lucky?

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