An Entrepreneur's Guide to Getting Sued and Fighting Back When a court case threatens your business, consider taking the following steps.
By Ben Berkowitz Edited by Dan Bova
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You finally figured out the product. You hired the right guys. You released your beta version to 10,000 users and the response has been off the charts. You're about to close your third round of funding with a valuation you didn't think possible just a few months ago. Then a message from a friend pops up at the corner of your screen. "Hey," he writes. "Your company just got sued!"
After a few minutes of googling, you find a blog post describing the lawsuit and providing a link to the federal court complaint. You're stunned. You've never stolen anyone's technology or intellectual property, but now people are saying you did. The plaintiff is asking the judge to stop you from releasing your product and for millions of dollars in damages. People are calling you a thief. You take a deep breath. You need a game plan.
Related: These 3 Legal Traps Can Stop a New Business in its Tracks
1. Make the right first phone call.
Resist the urge to pick up the phone or dash off an email to the plaintiff's lawyer explaining why he or she has it wrong. Your explanation will fall on deaf ears and may later be twisted into evidence against you. Before you do anything, speak with a lawyer. This should be your very first phone call or email.
2. Build the correct team.
Build the best team to solve your legal problem. If your regular outside counsel is a guru at writing contracts and doing deals, hire a litigator. No matter how good your regular lawyer, this is not the time for learning on the job.
You want a lawyer who's experienced in litigating intellectual property and commercial cases. The person you hire should be able to tell you about similar cases he or she has handled in the past and provide a strategy and road map for defending your case. Hire someone whose character and integrity you respect and whose advice resonates with your values. If the going gets tough, this is the person who will be in the foxhole with you.
Related: In Business, the Cameras Are Always Rolling
3. Know your enemy.
In The Art of War, Sun Tzu wrote about the importance of knowing your enemy before going to battle. In litigation, knowing your enemy can be key to developing and executing a strategy for victory.
If you're being sued for patent infringement, chances are a competitor or a nonpracticing entity is bringing the case.
Suits by nonpracticing entities typically seek money damages and royalty payments for future sales of infringing products. While some nonpracticing entities are research institutes and universities, others are shell companies sometimes referred to as "patent trolls."
Competitor suits may involve well-financed adversaries who not only want money but who also want to block your product from the market. Competitor suits also have a greater potential for negative impact on ongoing business operations, as customers and business partners may worry that the litigation will disrupt your new company's ability to fulfill commitments or pay bills.
4. Empower your legal team with information.
The lawyer will work with you to gather the documents needed to defend the lawsuit such as contracts, email and notes, as well as documentation on the development of any accused product or technology. The information gathering process may also include speaking with the employees involved.
This will help the lawyer prepare the strongest defense of your business and develop a road map for your litigation efforts.
5. Pursue strong countermeasures.
If you're being sued by a competitor, discuss with the attorney whether you might have strong counterclaims to bring. If your company has patents covering technology used by the competitor, consider asserting those patent rights as counterclaims to the competitor's suit. You may also have counterclaims based on contracts or unlawful business practices.
If you're being sued for patent infringement, consider attacking the validity of the patents in separate administrative proceedings before the U.S. Patent and Trademark Office.
In the case of a suit for use of third-party technology or components, evaluate any indemnity rights you may have from the original technology providers.
