As some kind of a follow-up of my previous question about trademark, I am curious to know about legal risks and protection options, particularly in Europe.
As far as I can see, one of the greatest fears and potential risks of any young startup is being sued by a bigger company (for example, for trademark infringement, violating the big company's patent rights). The second largest might be fear of the cost of fighting a legal battle yourself, e.g. to protect some asset, innovation or a brand name/mark.
I'm still not sure whether those fears and risks are substantiated and justified or rather anecdotal and result from quite a bit of scaremongering. There's also the human element, a single horror story from one company gets much more attention than all the 'no-news' from the majority of companies who never experience anything remotely similar.
If I were to worry about my house being burgled or set fire to, I would easily find home-owner insurance, and the insurance company would do the estimation of risk for me and tell me the fee for having this piece of mind (also taking into account the value of my possessions). In Germany, there is quite a common insurance for 3rd party liability for individuals.
Are there any equivalent insurance options for startups when it comes to legal risks and associated fees? Alternatively, or in addition, Is there a way to more accurately estimate this risk? (e.g. are there any statistics on how many startups get into a legal dispute and the average cost of such...)
I don't know about in Europe, but in Australia we have two core types of insurance that a business would take out:
Even with those in place, you would realistically only get coverage for a certain amount (ie. 5 million dollars), so if you were really getting sued significantly, it may not be enough coverage.
Also based on Australian law, if you have a proper company set up, this affords you some protection over your personal assets in the case of something going wrong. Effectively the company gets sued and not you personally.
Disclaimer: This is based on Australia, so you would need to find equivalents for your county. I am not a lawyer, this is based on my interpretation of information I have received from legal advice. Hopefully this gives you some areas to look into, but you need to research thoroughly as the law is a tricky thing.
Insurance is available for at least some intellectual property risks. See Intellectual Property Insurance: What Lawyers Need to Know.
However, it may be that you overestimate the risk to a startup of intellectual property suits. Paul Graham tells startups not to worry about patent litigation : suits are an expensive distraction for other startups and big companies compete by locking competitors out of their sales channels and are more likely to buy a startup than sue it.
There is such a thing as legal expense insurance. They will pay the biggest chunk of lawyers fee is you get sued. Professional liability insurance is available for select and well understood professions. However a general business liability insurance is just way too broad and way too unpredictable for anyone to insure.