Startups Targeted by Competitor Lawsuits

San Francisco based Hampton Creek has been stealing market share from Fortune 500 Unilever with it’s Just Mayo product. Unilever, willing to invest to protect it’s Hellmann’s mayonnaise brand, has filed suit against Hampton Creek claiming false advertising. The Just Mayo product contains no eggs, which Unilever claims is required in mayonnaise. Even if Hampton Creek is found to be in the right and does not face a judgement the legal costs are likely to be astronomical. This lawsuit strategy is increasingly used by large corporations to drown their start-up competitors in legal bills.

These lawsuits can come from all directions, with corporations coming up with novel allegations against less financially flush competitors. Insurance is potentially available in many circumstances. In this case of an allegation of false advertising – insurance would likely cost a few hundred dollars per million dollars of coverage. In addition, many policies provide unlimited legal defense cost reimbursement until a settlement is paid or judgement is rendered equal to the policy limits. A tech start-up could potentially have years of litigation costs covered for an allegation of false advertising for under $500 per year.

The first insurance policy a tech or traditional start-up purchases is a business owners policy (also called a “package policy” or abbreviated as a “BOP”). This policy includes general liability, which is generally required by landlords and covers slip and falls in a companies place of business. What is often overlooked, is that most general liability policies include “advertising injury” which cover false advertising claims as well as many lighter intellectual property allegations (often alleged violations of another’s slogan, trademark or trade dress). Broader coverage for copyright infringement and more involved intellectual property violations are covered under a professional liability or IP specific insurance product.

As your startup grows and begins to sign customers, vendors and investors – you are likely to upset an established competitors. An expert broker with strong industry and financial knowledge can help your firm scale insurance protection as you grow. Not all policies are created equal, partnering with an independent insurance intermediary can help you secure the most comprehensive coverage possible at a price you can afford. Contact an experienced insurance broker today.