How Can Emerging Tech Companies Build a Business to Avoid Litigation?

May.23.2022

Disputes with vendors, business partners, customers and employees are inevitable. However, they are not top of mind when an emerging tech company has its sights set on growth. Many contentious issues can be avoided or reduced with attention to a few key areas that can ensure your next simmering disagreement doesn’t boil over:

1) Consider Your Terms of Service.

2) Carefully Draft and Review Provisions.

3) Be Thoughtful and Professional in Communications.


1) Consider Your Terms of Service.

From Every Perspective. Remember that your terms of service govern both your customers and you. Know your audience and draft accordingly. When drafting for consumers, be clear and concise and only ask for what you reasonably need now or may need in the near future. For example, if your platform offers user-generated content, ensure your license to use their content doesn’t imply that you’re going to resell their content to third parties without permission or contribution.

If Introducing a New Feature or Product. Review your terms of service to ensure they address potential product or feature misuses. For instance, if your platform ranks offerings by popularity, consider ways that publicity-seeking actors can manipulate those rankings through bot traffic or other paid clicks. If your terms of service call for arbitration to resolve disputes, consider whether plaintiffs’ lawyers will band together to overwhelm you with mass arbitration filings (particularly troublesome where your terms of service agree to pay some of their arbitration fees).

2) Carefully Draft and Review Provisions.

Acceptance. Contracts rarely end with the parties in the same position as when they were signed. When drafting acceptance criteria for your product, be specific about deliverables and the counterparty’s timelines for evaluating the product. If the customer raises complaints and you disagree, be sure to explain those disagreements in writing rather than simply agree to fix the purported problem. Be wary of contracts giving the other party “sole, absolute discretion” to make decisions.

Renewal. When drafting service renewal provisions, consider whether your customer may become more dependent on your product, or may want to expand its use. Thus, rather than agree to a set renewal price (which may be too low by the time renewal comes up and the relationship has grown), leave yourself flexibility to negotiate a new fair price based on the customer’s then-current use and anticipated future use.

Termination. For termination provisions, be specific about which party gets what assets, and who will get paid for what. Consider work in progress, or work that cannot be easily severed, such as half-developed software. Ensure that you can be made as whole as possible in these “broken glass” situations.

3) Be Thoughtful and Professional in Communications.

What Is Discoverable. When a dispute devolves into litigation or arbitration, a company’s documents and an employer’s comments can be discoverable by an adversary. This includes oral and written communication, emails, messaging apps such as Gchat and Slack, and even text messages if you use your phone for work. As they say, “don’t put anything in writing you wouldn’t want broadcast in Times Square.” And simply because a message disappears from your view, doesn’t mean your company hasn’t saved it somewhere. Be smart and stay professional.

Preserving Documents. Likewise, once a dispute has arisen, the company’s lawyers will likely send a “preservation notice” or “litigation hold.” This means you need to save all documents possibly relevant to a dispute, including suspending any auto-delete policies. Failure to do so can lead to severe monetary or evidentiary of sanctions, such as the judge instructing a jury they should assume the missing documents contained negative information.