By Lila Bailey
While this seems like an easy way to save money in the short term, it can lead to a variety of problems, from minor PR dramas to massive class action lawsuits or regulatory investigations. Spending a bit of money on a lawyer to draft Terms that are specific to your company’s products and needs now can actually save your company substantial time, money, and brand damage down the line.
Here is a list of five things for startups to think about before deciding to copy another company’s Terms:
1. You could get in trouble with the media, regulators, and class action lawyers — in that order.
You may think that all publicity is good publicity — until you start losing users, traction, and the goodwill of your investors. Beware negative media hype. A billion dollar company that has an in-house PR team may be able to leverage that kind of publicity, but little guys often can’t survive it. Bad publicity has killed more startups than it’s helped. No one talks about it — because they’re dead.
Good Terms set a tone: they accurately describe your company’s products, services, and relationship with users. Fail to do that, and trouble can come in many forms. For example, some other company’s Terms:
- may be drafted to comply with the laws of a different legal jurisdiction;
- may be out of date and therefore not in compliance with the most recent regulations in your industry; and/or
- could leave out crucial protections because the products and services your company offers are different from those described in the copied Terms.
These issues leave your company legally naked should you ever find yourself in court.
2. It could spook your investors or blow up your acquisition/exit strategy.
Nothing scares off potential investors and stalls an acquisition quite like your company being mired in a class action lawsuit, or an investigation by state or federal regulators (see point 1). These stories rarely hit the media because they happen behind closed doors, but I can’t count the number of times I’ve heard colleagues bemoan the stupid lawsuit that shut down the deal they were brokering. Many of those failed deals would have moved forward smoothly had the company invested in iron-clad Terms and a lawyer to help implement them properly.
3. Good policies can be an asset: it’s an opportunity to distinguish your company from the competition.
4. It’s illegal (and a bit shady too).
It might not seem like a big deal or that it should even be illegal when “everybody does it.” However, it is a violation of copyright law to copy someone else’s work without permission. Put another way, copying another company’s Terms is the same as copying someone’s code, photo, book, or song and passing it off as your own. Even though the thing you copied is a legal document, copyright law still applies.
And think about the culture you want to create at your company. Do you really want to steal the legal rules governing your company’s interactions with your users? Sets a bad precedent, no?
5. The future does matter: bad Terms could invalidate your entire user agreement.
A single poorly drafted provision can get thrown out, or worse, can invalidate your entire user agreement. This is the business equivalent of thinking you had homeowner’s insurance, and finding out after your house burned to the ground that, in fact, you had an expired policy.
Nonetheless, certain provisions that courts have invalidated in the past keep showing up in the Terms of companies that should know better. For example, in 2012 a court threw out Zappos’ Terms in the aftermath of a massive security breach, based in part on a unilateral amendment clause that had been invalidated in several prior cases. Ultimately, it left the company unprotected in the class action lawsuits that inevitably followed. If your company unwittingly copied Terms with a major mistake like this one, it would leave your company exposed and legally defenseless.
In short, it may seem easy to adopt Terms from other companies. It works for them so why can’t it work for you? But in reality, companies risk hefty fines, class action lawsuits, dead exits, and effectively risk their future success. Take the time and do your due diligence. Your employees, customers, and investors will thank you later.
My name is Lila Bailey and I’m the founding partner of The Law Office of Lila Bailey, where I specialize in digital copyright and privacy issues. I regularly assist start-ups in drafting Terms of Service and Privacy Policies. For more information, check out www.lilabailey.com or find me on Twitter @LilaBaileyLaw.