Becoming slippery from lawsuits

March 5, 2006 9:37 PM

Is it possible to anonymize my business somewhat to make it a more slippery target for frivolous B2B lawsuits?

I am a small-peanuts sole proprietor software developer, and I do almost all my business online. I learned that a medium-sized company (50-100 employees) in a related market threatened one of my competitors, another small-peanuts developer, with a cease & desist. I took a look at some of the large company's patents, and they've patented surprising things like basic trigonometric formulas, rudimentary graphical displays of information, and so forth. They cater to a certain industrial market. In this instance I think they were afraid that the small-peanuts guy was on their turf (since he was building a program for hobbyists that did something like what the big corporation sells to their big clients).

The idea of defending myself in a frivolous lawsuit is laughable. A small developer CANNOT match financial resources with a big corporation, who can just wear the little guy down until he can no longer afford an attorney. It seems to me the advantage of the "little guy" is he can be slippery and elusive if he so chooses, unlike a brick-and-mortar whose contacts are all listed in Dun & Bradstreet.

So I am wondering if there's a good way to pre-emptively anonymize my business, such as by establishing a "P.O. Box" type address, shifting my company name slightly to something that makes it harder for databases to match, refusing certified letters, and so forth. Or setting up ghost corporations and becoming some sort of "vapor company" that can't be found.

It seems to me that one step would be to make my SSN difficult to match up to the business name. My main concern here is the merchant account and DBA bank account that I have, because my SSN is tied to those.

In short, I want to make it expensive or difficult for a company to take me to court, obtain a judgement, or collect. I also might be interested in disputing filings that might bite me later, however that's done, perhaps anonymously so that they don't turn and seem revenge. Also it seems that it might be too costly for a small company to follow up on the lawsuit, especially if they'd have to do it in my jurisdiction (this company that concerns me is 1500 miles away).

I know my competitor had no interest in intruding on the big company's products. Neither do I... I'm not interested in their market or copying any of their products. But I am certainly not interested in bowing when they get the whim to expand their little monopoly into my area.

My other thought is to defend myself in court (yeah, i know, "only a fool", but only a fool would throw away money on lawyers when they'll just have to do it ad nauseum), and if that doesn't work, let the judgements fall on me (with no intention of paying; I am comfortable enough where I don't need credit) and continue business as usual.

Obviously I can't do anything rash right now without having an effect on my business -- I'm sure some steps would cost an unacceptable amount of money. I'm not expecting any cease and desists in the near future. But I do want to start weighing all my options BEFORE something bad happens. Maybe there's something I can do to put a card up my sleeve. Or am I just fuxxored if they file suit no matter what I do?

posted by chef_boyardee to law & government (11 comments total)

Making yourself "slippery" just makes you look like you're doing something wrong when you finally end up in court. Just live your life, and run your business like a normal, honest proprietor. If the time comes, hire a lawyer. You won't outrun the big guys, but you'll make yourself look worse if you finally end up in the spotlight.
posted by MrZero at 9:51 PM on March 5, 2006

I hate to say it, but it sounds like you're Out To Do Bad Things. I'm not implying that's what you're out to do, but you're certainly making yourself SOUND that way.

Truly, I sympathize with your intent, but I can't help but feel that this is the wrong way to go about it. Make yourself too "slippery" and companies won't be interested in dealing with you. And if you DO get dragged into a lawsuit, you begin on entirely the wrong foot; the plaintiff's lawyer WILL cite everything you did above as evidence of intent to commit infringement.

I'd honestly just try to conduct my business as normally as possible, then if you come under heavy fire, look for charitable foundations looking to defend you as a political point. While much-maligned for being so very political, Cory Doctorow (of boingboing.net) is very much in the know about situations like this and may be able to point you in the direction of such a foundation, and even publicize your cause.

Not an optimal solution, but I regret to say that there sounds like NO optimal solutions for this kind of problem. I wish you nothing but good luck.
posted by Imperfect at 10:29 PM on March 5, 2006

Well, MrZero is right, it would certainly "Look bad" to do this, and be really hard for you to get client work this way, but from what it sounds like you're selling direct to consumer. Keep in mind that the patent mongers might be able to get your information via your domain name registration, or your paypal banking information or any number of things that allow customers to transfer their money to you.

The best thing, probably would be to move your business overseas. You could setup an "office" (meaning a P.O. box) on an offshore tax haven or something like that (this is something the largest companies do to avoid paying U.S. Taxes).

You could also do something like setup a server in China or India, and even outsource your IT so that the server and all correspondence goes through the Indian company. I think $bigcorp would have to be pretty pissed to try to actually take you to court in India or China, so you could avoid frivolous lawsuits.
posted by delmoi at 10:36 PM on March 5, 2006

I'm really curious/interested to see what kind of professional answers you get. But here's a (warning: IANAL) thought, which may or may not make sense legally. What if you had one corporation set up to do business (sell the product, maybe service it?) and another that did the work (coding, patents, whatever)?

Corp A (the "front company") would contract legally with Corp B to do the back-room work. A pays B a nominal fee, most of which is paid out in salary to its CEO, chef_boyardee, as salary. (This is possibly not kosher (the payment, not Chef Boyardee or his fine canned foods)</lame>, so look for alternate methods...)

The point of this is that Corp B, though it holds some "intellectual property" has very little monetary assets. If Corp A gets sued, well, hey, we didn't do it, Corp B is the dirty thief and we just hired them to do work. Then Corp B can either a) be based off-shore and give MegaCorp the finger; or b) hand over its $17.25 in assests to MegaCorp to "settle" the suit.

Again, IANAL, so this may not work AT ALL. You'd have to be super-careful about who sits on your boards, who each company has as employees, etc., and even then the court (I assume) can decide that your two corporations are conspiring to screw MegaCorp, and you, Mr. Owns-Both-of-Them, are in deep. Have to admit, it does sound at least borderline fraudulent. But surely a lawyer can work something out...
posted by SuperNova at 10:57 PM on March 5, 2006

The whole business with SSNs not matching up is just shenanigans.

What you need to do is to stop being a sole proprietor and start being a corporation (LLC or actual Corporation). Then make the corporation "judgement proof" by keeping as little money in it as possible so that even if they do so you and win, they get nothing for their trouble. It costs money to form a corporation, but it will be worth it in the long run. Just make sure you follow corporate formalities or you will end up screwing yourself. Buy a book about corporations from Nolo Press or Corporations for Dummies or whatever.

(I am Not A Lawyer)
posted by falconred at 11:06 PM on March 5, 2006

I just want to return to this question with a little more practical answer.

Go see a lawyer who deals in small businesses. You aren't doing anything wrong, and as long as you don't ask the lawyer to help you do something illegal, the lawyer will keep everything confidential. That way, you can tell the lawyer specifics about your business and your concerns, and the lawyer can give you realistic advice about what you should do.

Organizing a corporate entity of some sort, if it would be beneficial for your situation, won't cost you very much now. However, it might help protect any of your personal assets in the future. At the very least, a brief consultation with the attorney should be free.
posted by MrZero at 11:34 PM on March 5, 2006

If you have a sole proprietorship right now get rid of it and switch to a limited liability corporation. This separates your business assets from your personal assets. If you're sued and lose you can liquidate your limited equipment and company assets and start again from scratch. Your savings will be safe and your house will be safe.
posted by Alison at 6:28 AM on March 6, 2006

I'm doing something similiar to SuperNova's plan for a hobby manufacturing company.

We have two LLCs. Company A owns all the plant and Company B owns the raw material on hand and does the actual making and selling. Company B leases everything they need to make the product from Company A. If someone sues Company B the judgement would be effectively limited to raw materials, unfinished product on hand (minimal as units are built to order), and the cash in petty cash drawer. If the suit was timed just right they might be able to all seize some of the profits of one unit. Company B closes shop and Company A then leases the plant to shiny new Company C and we continue on.

I don't know how you would swing it in an IP setup up though.
posted by Mitheral at 7:34 AM on March 6, 2006

Also please remember that this whole "company A rents to company B" stuff will appear to be the dog-and-pony show which it truly is if you are ever in court, and the judge will most likely ignore your separate corporate entities.
posted by MrZero at 8:44 AM on March 6, 2006

If we were foolish enough to have 100% match up of shareholders and A only did business with B. Neither is true in my case.
posted by Mitheral at 9:17 AM on March 6, 2006

Well, that's good for your situation, Mitheral. But, since you didn't mention it, and since it's the complete opposite of what SuperNova proposed, I just thought I'd give fair warning to the original poster that courts will look to the substance of the transactions, not just the corporate forms involved.
posted by MrZero at 12:37 PM on March 6, 2006