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Startup Law Clinic – Between Innovation and Law

20 November 2013

There are various and sometimes surprising legal challenges that startup founders face. Often, founders do not have the specific legal know-how to estimate the importance of those challenges for the future success of their business idea. Additionally, the costs of legal consultancy appear deterrent for those who look for help: “Is the problem so severe that I have to solve it now? What happens to the consultancy fees if the lawyer comes to the conclusion that there is no problem?” These are typical questions leading many founders to defer the search for help for possible legal problems. But when a problem becomes obvious it is often too late. To avoid this situation, the research program “Innovation and Entrepreneurship” offers so called Startup Clinics.

The Startup Clinics serve as instrument to conduct research about promoting and hindering factors within the startup eco-system. In the clinics, members of the research group analyze together with the founders the business models of their startups and, in special cases, refer them to mentors of its network of serial entrepreneurs and experts. Beside the clinics for finance/controlling, human resources and management as well as technology transfer (in cooperation with Fraunhofer FOKUS) the HIIG offers a clinic for law. In the law clinic, researchers examine the potential risks of legal issues and possible measures to diminish them. Legal templates help illustrating next steps to form a company or to draft the terms and conditions for the product. However, this is not legal advice. In case both researchers and founders come to the conclusion that the templates must be customized for the startup’s special needs, the latter will be put in touch with one of the mentors specialized in that area.

Thus, the law clinic fulfills two functions: On the one hand, the law clinic significantly lowers the entry barrier for startups seeking legal advice. Many – potentially – upcoming problems can be foreseen and avoided. On the other hand, the clinic serves scientific research by providing access to data that are scientifically analyzed. Today, after almost six months of building up the clinic, it is possible to present first insights about how many startups joined the research process, in which phase of development their products are and how the data can be scientifically used.

The practical experiences in the law clinic draw the attention of legal research to the effects that law has on the development of innovative business models. From almost 20 startups which joined the clinic process so far, 13 startups were in the development stage for their products, 4 startups already had a limited to high growth of users and 1 startup reached, even if based on a relatively low annual turn-over, its break-even. The high percentage of startups in the development phase is interesting with regard to legal conditions which must be considered in the early development process of the business model, elsewise hindering the mature product, after having found its market fit, to scale.

One typical example is the web scraping and analysis of data. For the success of business models based on those technologies, firstly, scraping technologies must not infringe intellectual property rights of databases (e.g. some websites) or have to respect the conditions of the license for the use of the API. If the data relate, even potentially, to a person, data protection laws apply. Data protection related questions are especially interesting because of the different levels of protection existing, for example, in Germany and in the USA. Thereby, not only the legislature concerning data protection is highly disputed and in constant flux, not even the execution of existing laws is certain. German Data Protection Law seems not only to startup founders far too strict, big companies such as Facebook and Google merely respect it as binding law. Indeed, if the European Data Protection Regulation with its market place principle combined with severe penalties comes into force, even companies located outside the EU have to comply with European data protection standards, at least, as far as they offer their services on the single market. It is probable that capital ventures then start to see the collected data, as they already do with the startup’s intellectual property, not only as economic value but as asset that has to be legally proved.

But how far it is possible for startups to apply the law at the time when they do not even know their business model? How open for innovation is the law? These are two of the research questions that the project “Innovation and Entrepreneurship” poses.

This post is part of a weekly series of articles by doctoral canditates of the Alexander von Humboldt Institute for Internet and Society. It does not necessarily represent the view of the Institute itself. For more information about the topics of these articles and asssociated research projects, please contact presse@hiig.de.

This post represents the view of the author and does not necessarily represent the view of the institute itself. For more information about the topics of these articles and associated research projects, please contact info@hiig.de.

Maximilian von Grafenstein, Prof. Dr.

Associated Researcher, Co-Head of Research Programme

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