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5 Recent Startup Lawsuits and What Your Small Biz Can Learn From Them

By Christopher Coble, Esq. | Last updated on

If you pay attention to legal issues small businesses face, you've probably seen a lot of headlines recently about startups getting sued. Is this just a function of more startup business in the market? Or are startups especially susceptible to litigation?

Here's a look at five startups that have been sued recently, and the lessons you can take from the lawsuits.

1. The Department of Labor v. Peter Thiel

The Suit: News broke yesterday that the U.S. Department of Labor has filed a race discrimination lawsuit against Peter Thiel's data software startup, Palantir, claiming Asian job candidates "were routinely eliminated in the resume screen and telephone interview phases despite being as qualified as white applicants."

The Lesson: The lawsuit is the result of a review of companies that do business with the government -- so don't discriminate in hiring and expect extra scrutiny if you're startup is a government contractor.

2. Jay Biederman v. Domo Inc.

The Suit: A former manager is suing the software startup, trying to obtain financial statements in order to estimate how much his shares in the company are worth.

The Lesson: Tech startups have an interest in keeping secrets, especially those relating to intellectual property, but they could be forced to open their books to shareholders if they're incorporated in Delaware.

3. Flextronics v. Skully

The Suit: You may not recognize the names, but the situation is all too common. Flextronics, a global electronics manufacturer sued the now-defunct motorcycle helmet startup Skully, claiming they're entitled to more than $1 million for materials and inventory related to the Skully project.

The Lesson: No matter how cool your product or how popular you are, try not to burn through all of your capital on "vacations, sports cars and a strip club." Pay your debts instead.

4. Vendors v. Cuff

The Suit: Five manufacturing partners are suing Cuff, a failed smart jewelry maker, in bankruptcy court, claiming hundreds of thousands of dollars in unpaid bills.

The Lesson: Cuff fell apart after one of the founding partners over-promised on jewelry that wasn't ready for production, so only sell what you can deliver.

5. LifeLock v. CEO, CFO, GC

The Suit: LifeLock sued the former chief executive, chief financial officer, and general counsel of a technology startup it acquired, claiming they conspired to hide intellectual property before the merger so they could use it in another startup.

The Lesson: Startups, especially in the tech industry, often get gobbled up by bigger companies; be diligent in researching a startup you're acquiring, and be honest if you're on the other side of the acquisition.

Startups face a host of legal issues as they're getting off the ground. Contact an experienced commercial attorney if you've got legal questions about your startup or small business.

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