Legal Fees: How to minimize or rid the expense.

Julian — Sat, 29 Mar 2008 23:44:13 +0000

I’ve been reading a few blogs lately, particularly posts entailing the costs and procedures of a new start-up. There seems to be a growing trend of minimizing start-up costs and times, and I think it is great that entrepreneurs are finally learning of the many places and ways to downsize their investments to get a start-up running. (Keep an eye out for a friskily controversial new post we’ll have coming up on this topic).

But here’s something that caught my eye, an excerpt from Guy Kawasaki’s side of ‘da net’:

$4,824.14. The total cost of the legal fees [for Truemors] was $4,824.14. I could have used my uncle the divorce lawyer and saved a few bucks, but that would have been short sighted if Truemors ever becomes worth something. Here’s a breakdown of what I got for this amount of money.

Now before I go on, do know that what Guy dropped nearly $5 grand on was more than just a “Terms of Use” agreement (see here), but for the sake of this post I’ll be focusing on what’s out there.

First of all, do you really need something like a Terms of Use, or a Non-Disclosure Agreement to protect your start-up? Let’s take a look at what can happen, and what good one can do for you.

Hypothetical, disadvantageous situation:

There’s far too great of a variety of websites and services offered on the internet to list specifics for each type of situation, but to make my point, I’ll use a content sharing / storage service. Call it StartupX. Imagine this, you have no acceptable use policy (aka, a Terms of Service, or a Terms of Use), and you’re running a successful marketing campaign. A flurry of new users sign up, and life is good. Then you notice a few illicit files being uploaded, and oh baby take my word for it – these files are viral. By the time you go and check out what these users are up to, this trend will catch on. Since the users didn’t agree to anything prior to creating their account, they go wild.

Imagine by nightfall, your server has copyright infringement written all over it, with thousands of mp3′s, ripped or unreleased movies, and more. You wake up the next morning to find your inbox flooded with hundreds of cease and desist letters, take-down notices, and legal threats from the likes of the RIAA, the MPAA, and independent producers. You’ve dropped some dollar on your site (or worse, you’ve raised a few grand from angel investors, but then again this article isn’t about those ventures), and you really hate to see it go down. You’ve seen what organizations like the RIAA have done to other sites. That’s not you.

But what can you do? StartupX didn’t require, or even give users the choice, of accepting and abiding to a Terms of Service (because it doesn’t exist). You, as whole representative of StartupX, can’t ride on the fact that the user’s are to blame… and now, not their server, but your server, houses thousands of infringed content. Now correct me if I’m wrong, but I do believe this makes you the one responsible for these files. And now, you have no choice but to shut down your service, all because you couldn’t shell out the $5,000 in legal fees to cover a Terms of Service (Admittedly, though, this could be taken to trial, which would just mean more fiscal duties). But hey, look at the bright side, chances are StartupX just made some big headlines in the blogosphere.

So what can be done to prevent this kind of situation from ever arising on your field? Plenty. Of course the statement implying one needs to spend $5,000 to obtain a viable Terms of Service (above) is a joke – a ToS, and plenty of other legal forms and agreements, can easily be found all over the internet for a one time fee of $0. (Now this doesn’t go without saying, if you’ve raised capital, or are planning to launch a large service that needs to be scalable, hiring a lawyer to consult and write your agreements for your start-up is the best way to go). I’d like to end this post by providing a few useful links to free legal templates that are out there for your use.

Terms of Service

Non-Disclosure Agreement (Good when outsourcing development, design work, or other services that you may want to keep on ‘the down lo’, or may need to reveal some figures to)

Privacy Policy (Good when requiring personal or private information from your users)

Operating Agreement (See comments for some discussion on this topic)

http://www.formation-llc.com/freesingleoperatingagreement.htm

And finally, if you’d like to Incorporate or set up a(n?) LLC, or trademark your name, the most recommended place around is LegalZoom.

If you enjoyed this post please feel free to comment, or share it (check out the “SHARE” button below this post).

Update: A few commenters have brought to my attention that the example situation I described may be a little too extreme, so maybe its best not to take the story too seriously, as one would still be protected under various laws or acts in the US (EG. The DMCA). The goal of this post was to remind entrepreneurs about the importance of legal work for your start-up. I loved the great discussion through the comments, by the way.

Indie Startups » privacy policy

Legal Fees: How to minimize or rid the expense.