It’s All LegalTech: Why Internet & Technology Companies Need Lawyers
The common “wisdom” is that entrepreneurs hate lawyers. Apparently, all we’re good for is “racking up [billable] minutes,” according to Bram Cohen, the inventor of BitTorrent.
While he may have invented a great distribution protocol for file transfer, BitTorrent’s creator clearly fails at two different things, 1) hiring good lawyers, and 2) using lawyers to prevent legal problems before they multiply. And he’s not alone.
Technology and internet companies of all sizes seem to be continually running into legal trouble. They have a good business idea, but often fail to scope the legal risks that come with new marketing offerings and entrants.
Some examples include:
· D-Link being charged by the FTC for allegedly leaving people vulnerable to hackers by selling routers with deficient security
· Zenefits paying millions in fines for using unlicensed employees to sell insurance
· Instacart — the Uber of groceries — is facing a class action from possible employees for money owed.
These legal troubles could have been avoided if the companies had simply hired and listened to their lawyers. When companies fail to listen to advice and counsel from those tasked with protecting the company, things like Yahoo’s massive hack and subsequent lost value happen.
Companies need lawyers to help them with compliance, now more than ever.
The reason lawyers are more necessary than ever is the proliferation of connected technologies. The Internet of Things, everyday devices connecting online to share information, is predicted to grow from an installed base of 15.4 billion devices in 2015 to 30.7 billion devices in 2020 and 75.4 billion in 2025. More companies will be building technology or software that connects across local and national boundaries. With each new product or update, a company exposes itself to greater risk of running into a legal quandary.
For example, messaging app WhatsApp, has explosive adoption around the world. It is used in at least 109 countries — and it’s had legal trouble in most of them. In Brazil, WhatsApp has been closed down by injunctions from local judges at least three times in 2016. WhatsApp’s owner, Facebook, has also had to deal with legal orders relating to the app’s collection of user data in both Germany and the UK. Rapid growth not only led to investment and wealth, but also a host of legal issues that continue to this day.
These legal issues are probably why Facebook advertises open positions for privacy and product lawyers.
You do not have to global juggernaut app to run afoul of legal issues. Publishing a free game for Android software users? You could run afoul of the 1988 Video Privacy Protection Act. Making online educational games for kids? Watch out for the Children’s Online Privacy Protection Act. Building nutrition tracking software into a refrigerator? You may need to worry about the Health Insurance Portability and Accountability Act. Looking to set up a small retail business? Be sure you know the sales tax laws for each location from where you receive an order. Each of these startups ideas must navigate the legal issues cropping up in every jurisdiction where users adopt them.
Widespread adoption of connected technologies and software is what makes compliance so difficult for many companies. They don’t anticipate that a user in Indonesia will raise legal issues different from those in San Francisco. Startups need lawyers that can pivot between diverse local and global issues, and they’ll have to compete with Facebook for the limited talent that can help meet them.
Facebook is not the only one recognizing the value of lawyers in protecting the company. Harvard Business Review published the article, “Why Lawyers Make Good Early-Stage Startup Hires.” Focusing on in-house counsel, the article listed contributions that lawyers make to startups, including:
· Lawyers help startups deal with common transactions,
· Avoid costly mistakes, and
· Ask the right questions at the right times.
The article concludes that lawyers are not a drain on startups, but “contributes to a data-driven, analytic culture of thoughtful decision making.” Lawyers are trained not to take assumptions as precedent and to research issues that may not be on the radar of technical founders. Lawyer’s willingness to dig into your questions and issues are where a company benefits. If you’re like the founder of BitTorrent, external counsel may be “racking up minutes,” but in-house counsel would save your company money and legal grief.