Tech companies can often find themselves involved in class action lawsuits for various reasons. How they handle the situation can lead to a positive outcome or result in some severe pain for the company involved, sometimes even being enough to close them down. Therefore a tech company must understand what they are and what recourse they have for defending themselves.
What are they?
The name class-action lawsuit comes from a result of a group of people starting litigation and becoming class members and sharing the litigation rather than creating many individual but similar cases. One of the main benefits for the plaintiffs in joining forces is that they can avoid different outcomes. This is especially advantageous as different results could work in favor of the defendant. Another reason is that the weight in their numbers gives legitimacy to their claims.
How does a class action lawsuit begin?
For this particular type of lawsuit to get started, there only needs to be one individual to present their grievance to a lawyer to begin proceedings. However, it should be noted that a class-action lawsuit that has already started in this way will end up representing more than just one person as the case progresses and gains momentum. For it to gain any traction, the grievance will need to be shared by several individuals, i.e., they will all have similar issues with the company they are taking to court, such as in the case of Apple and their lawsuit over poorly designed keyboard keys.
How do they work?
Some laws or jurisdictions may require a certain amount of people to start the proceedings, with a general rule of thumb is that around 50 and over is often considered sufficient. However, a tech company facing a class-action lawsuit should not be complacent about any suit being thrown out due to a lack of plaintiffs because there is no real set amount needed.
The plaintiffs will need to move the process forward to find out how many more are required. This is why a class action lawsuit can often look as though it is moving quickly to the defendant. Any tech company facing this prospect should take things slowly and consider everything before jumping in to defend themselves.
Why do tech companies find themselves involved?
A tech company will usually have many moving parts due to the nature of its operations. However, the reasons can vary depending on whether they sell software as a service (SaaS) or physical products. As alluded to earlier, one of the more famous class-action lawsuits against a major tech company in recent times was Apple secretly throttling older phones’ performance to reduce battery fatigue.
They lost this particular case by admitting the problem and settling with the claimants and anyone with the iPhone models in question that applied for compensation. This was an excellent case for other tech companies to learn from. Notably, if they know what is wrong and they are in the wrong, steps should be made to create a fix and probably settle early rather than dragging their brand through the thorny bush of public scrutiny.
Some of the main reasons tech companies mainly get involved include but are not limited to:
- Defective products
- Employment discrimination
- Lack of diversity of genders and race
How a technology company should prepare for each of these different examples will differ significantly. However, one thing that remains true for any lawsuit, class action or otherwise, should be hiring a fantastic law firm that operates in the tech industry. One such firm is Miller Law Firm who specializes in resolving cases as efficiently as possible. The longer a class action goes on for, the more money the company loses, not to mention the loss in potential future sales due to the bad publicity.
How should a technology company prepare themselves?
Apart from hiring a law firm as previously mentioned, a tech company should take stock in what the actual claim relates to and understand that the higher in profile they become, the more likely it will be to face these kinds of issues. As a result of so many moving parts and the fact that technology is such a large part of most people’s lives these days, tech companies will often be the leading businesses in the news for perceived wrongdoings.
The CEO should seek out counsel either from in house or out but should make sure to pursue advice from those they trust the most as well as those departments intimately involved with the case at hand. For example, if it is about a faulty compression motor for a refrigerator, they should talk with their engineering department and involve their outsourced suppliers. There are different risk levels attached to specific class action suits, and I will cover each risk. Please note that this is not legal advice.
Level 1: Regular risk
This is when the company isn’t facing any significant loss in brand reputation or actual business. A tech business involved in this kind of low-risk case should mainly be concerned about not letting a sort of negative PR run rampant. They should work closely with their marketing and PR teams to keep the ship steady. However, smaller companies should take care of balancing the methods they go about this as silence, and too much PR spin could turn something relatively minor into something that grows out of control.
Level 2: Complicated but high risk
This is when the actual business might not be at risk regarding collapse and bankruptcy, etc., but rather the brand is in trouble. Most companies rely on their brand power to push sales, and technology companies, particularly, depend on their brand’s ability to differentiate themselves from the myriad of competing businesses. Therefore, the most focus should be on protecting the company’s name, and difficult decisions might need to be made. One such tricky decision could be an admission of fault, such as in the case LinkedIn faced.
This case highlighted the ability of a CEO to protect their brand by carefully playing the game and therefore came out looking genuine. It gave their users a chance to put the incident behind them and carry on, rather than losing face in a very public manner.
Level 3: Entire company at risk
This one is far, far trickier than levels 1 and 2. It will involve balancing the need for aggressiveness to keep the business’s survival as the focus, with making sure to come out of the situation with the brand and the needs of the customers still in somewhat good standing.