How to avoid litigation
Litigation can be an intimidating prospect for startups. It’s nearly always a costly, time-consuming undertaking, and it doesn’t help that the legal deck isn’t always stacked in a small business’s favour: the ‘American Rule’ holds each side responsible for its own financial burden (meaning legal costs will often outweigh any damages awarded) and even ‘loser-pay’ systems will often have high barriers to entry – the UK, for example, recently introduced a major court fee hike that will likely end many cases before they even get started.
If your case is going to end before it begins, make sure it’s on your terms. There are usually better ways to resolve disputes than taking them to court: you likely don’t have the time or resources to mastermind a legal strategy. Litigation should be considered a matter of last resort; below are four ways that can help your startup avoid it.
1. Protect number one
The best way to avoid court is to avoid doing things that could get you there. And many disputes can be easily avoided this way. Intellectual property disputes, for example, can often be warded off by properly registering copyrights and patents for your products – and ensuring that any outsiders privy to their development sign non-disclosure agreements.
Meanwhile, most business disputes are about contracts, and the best way to avoid them is to ensure your agreements are clearly written and contain all of the relevant information. Litigation tends to start when contracts are ambiguous, so leave as little room for doubt as possible.
Beyond this, protecting your company from potential abuses is often a simple matter of doing your research before entering into an arrangement with another business. If you consequently feel uneasy about working with them – back away.
2. Ask the experts
As an entrepreneur, you likely aren’t equipped with the legal knowledge necessary to forge the best path forward – and even if you are, you’re far too close to this particular case to be objective about your grievance or your chances of success.
Bigger organisations don’t have this problem. They have in-house lawyers – occasionally entire departments – to examine legal issues from a detached, rational perspective. Startup owners don’t have that luxury: in a small company, fraud, negligence, and other abuses have the potential to destroy your livelihood. When you’re under this kind of pressure, the temptation to go on the warpath is understandable – but misguided.
Before you pursue your case, it’s essential to know whether or not you have a case. Talk to a legal professional to assess your options: they have the required impartiality, and can give you a full account of your chances of success.
3. Look for an amicable solution
From time to time, you may encounter an opponent so thoroughly unreasonable that pursuing legal action is your only hope of redress. But most opponents aren’t keen on enduring a lengthy court battle, and will be prepared to explore alternatives to going to court. Alternative dispute resolution such as mediation can be a godsend in such cases: getting a third party to negotiate a settlement can remove much of the hassle involved in seeking justice, and minimise legal fees and disruption to your operations.
4. Understand your opponent
“Know your enemy, and know yourself”, said Sun Tzu 2,500 years ago – a saying still applicable today. Knowing who you’re up against in court can help you weigh up your options. Pursuing litigation against a small opponent with low revenues is unlikely to be worth a legal challenge – there’s little value in pursuing a substantial award that you will never see.
Equally, going up against a large opponent presents its own difficulties: if they can afford to wage a legal war of attrition and bully you into backing down, they will likely do this rather than risking a hit to both reputation and finances.
If you (David) are up against a Goliath-esque corporation, then it’s worth considering third-party litigation funding: it lends your lawsuit a degree of legitimacy – it wouldn’t be funded if the financier thought it was a loser, and it can put startups with limited resources on an even footing with large corporations.
If, despite your best intentions, your business is faced with litigation – don’t panic! Remember that the most drastic course of action is not always the wisest. If you can settle on the court steps, you probably should. And while it can be a powerful weapon, you should only ever opt for litigation as a last resort with an expert team to guide you through the process.
