6 ms·

Would this be a viable way to escape some frivolous patent lawsuit? I've often wondered about this, and even tried to research it somewhat, but I'm still unsure

Would this be a viable way to escape some frivolous patent lawsuit? I've often wondered about this, and even tried to research it somewhat, but I'm still unsure about it. Suppose I have an LLC for my small (one-man) business in the U.S., and then I get targeted by a patent troll with some ridiculous claims. Can I simply start up another LLC in another country (one with saner patent laws), transfer my domains/hosting/whatever else to it, and dissolve the U.S. LLC? It seems too easy.

rprasad 14y ago
The U.S. has jurisdiction over ICANN and thus over all TLD's that are not country TLDs (i.e., .co, .tv, .ly, etc.). But jurisdiction extends only to the domain itself, not to the company, unless you are doing business in the U.S., in which case you are subject to the jurisdiction of the U.S. to the extent of your business contacts. Transferring your U.S. assets will probably not spare you, as jurisdiction is established by past or present contacts (though past in this context means at the time of the tort/claim giving rise to the lawsuit).
- hmmmmmmmmmm 14y ago
  Thanks for all your comments on this page, they're very illuminating. I understand why a lawsuit could target the American LLC, but even if I dissolve it or let it go under, why wouldn't I and my assets still be protected? I understand that once I switch to the foreign LLC I'd have to avoid any business ties to the U.S. (i.e. move my hosting overseas). I assume that I'd still have subscribers to my service in the U.S., but it doesn't make sense to me that that would constitute doing business there. By that rationale wouldn't every internet company be subject to the jurisdiction of every country on Earth?
  - rprasad 14y ago
    Jurisdiction for the lawsuit arises from (1) past contacts with the U.S. at the time of the claim from which the lawsuit arises or (2) current contacts with the U.S. For example, if your LLC is being sued for...say, slander, that supposedly occurred 6 months ago, and your LLC were conducting business in the U.S. 6 months ago, your LLC would be subject to the jurisdiction of the U.S. courts based upon your past contacts. (Otherwise, businesses would just leave the country to avoid jurisdiction.) On the other hand, if you are currently in the U.S., but were not in the U.S. 6 months ago, you are still subject to the jurisdiction of the U.S. courts based on your current contact with the U.S. Again, your personal assets would be protected. However, the LLC's assets would not be protected. Once you've been targeted by a lawsuit, there's no point in moving the LLC's assets overseas. If anything, you're more likely to have an enforceable court order freezing the LLC's assets in whatever jurisdiction you've moved to. I assume that I'd still have subscribers to my service in the U.S., but it doesn't make sense to me that that would constitute doing business there. By that rationale wouldn't every internet company be subject to the jurisdiction of every country on Earth? Accepting and continuing to do business with the U.S. subscribers constitutes doing business in the U.S. Under most double taxation (prevention) treaties, a software/online "service" is deemed performed where the customer uses the service, unless there is a significant human element to the service in which case the service is deemed performed where that particular human performs his tasks.
    - hmmmmmmmmmm 14y ago
      But if I've dissolved my American LLC and sold/transferred all its assets to my new LLC (or LLC equivalent) in $COUNTRY, what can they really do? They can't sue my old LLC, it's nonexistent. They can't sue me, I'm not liable for the activities of my American LLC. They could sue my new LLC, but they'd have to file in $COUNTRY, where the patent (or whatever) laws are more favorable to me. I suppose they could get an injunction in the U.S. to prevent my new LLC from selling to customers here, but with a webapp that I just sell subscriptions to, how could they enforce that? I'm sure that I'm missing something here, but I don't know what.
      - pyre 14y ago
        It's a good bet that whatever company takes money from your US customers on your behalf has enough ties somewhere in the chain to the US to be forced to drop you as a customer.
sigkill 14y ago
Even I would like an expert to answer this. Assuming my domain is a .com domain, does the USA have jurisdiction over the company even if say, it's registered in Sweden?
- Vivtek 14y ago
  I'd also like to hear an expert's opinion, but isn't the entire point of a limited liability company to limit liability?
  - rprasad 14y ago
    Limited liability refers to the liability of the shareholders/investors for the obligations and judgements against the company. Their liability is "limited" to the amount of their investment. Contrast with a partnership, in which the owners/investors are subject to potentially unlimited liability. For example: LLC A settles a lawsuit for $10 million. Investors B and C's liability is limited to the size of their investment (we'll say $100). Partnership X settles a lawsuit for $10 million. Partners Y and Z are each liable for the $10 million (the opposing party only gets to collect $10 million once, he simply can choose to go after either or both partners for payment). The opposing party can go after Partners Y'z and Z's personal assets, unless they declare bankruptcy.
  - jlarocco 14y ago
    I'm not an expert, but that's not quite how LLCs work. LLCs limit the liability of the owner. Not the LLC. Lets say I install plumbing in your house and it fails and damages your property, so you sue my company. If I'm a sole proprietor or a couple of guys doing business as a partnership then suing the company effectively means suing me (us) personally. If I lose and owe you $1 million, you can have my plumbing stuff seized to pay the debt, but if that doesn't cover all of it then I personally owe you the remainder. You can put a lein on my house and screw up my credit and put a collection agency after me until I pay off the debt. On the other hand, if I have an LLC or a corporation, then the liability is limited to the property of the LLC or corporation. You can have my vans and warehouse seized, but you can't take my personal property like my house. If the LLC can't pay the full debt then it can owe you and make payments or something, but you can't "ruin" the owners. In this case, simply "dissolving" the LLC wouldn't solve the problem. While it existed the LLC presumably had property, and that's what they would go after. If you tried to pull a "The LLC didn't have any property" then they'd probably toss you to the IRS for running an illegitimate LLC. And when the IRS was done auditing you, the patent guys would come back and go after you personally. I'm definitely not a lawyer or any kind of business expert, though. If anybody knows better I'd also be interested.

rprasad 14y ago

The U.S. has jurisdiction over ICANN and thus over all TLD's that are not country TLDs (i.e., .co, .tv, .ly, etc.). But jurisdiction extends only to the domain itself, not to the company, unless you are doing business in the U.S., in which case you are subject to the jurisdiction of the U.S. to the extent of your business contacts. Transferring your U.S. assets will probably not spare you, as jurisdiction is established by past or present contacts (though past in this context means at the time of the tort/claim giving rise to the lawsuit).

hmmmmmmmmmm 14y ago
Thanks for all your comments on this page, they're very illuminating. I understand why a lawsuit could target the American LLC, but even if I dissolve it or let it go under, why wouldn't I and my assets still be protected? I understand that once I switch to the foreign LLC I'd have to avoid any business ties to the U.S. (i.e. move my hosting overseas). I assume that I'd still have subscribers to my service in the U.S., but it doesn't make sense to me that that would constitute doing business there. By that rationale wouldn't every internet company be subject to the jurisdiction of every country on Earth?
- rprasad 14y ago
  Jurisdiction for the lawsuit arises from (1) past contacts with the U.S. at the time of the claim from which the lawsuit arises or (2) current contacts with the U.S. For example, if your LLC is being sued for...say, slander, that supposedly occurred 6 months ago, and your LLC were conducting business in the U.S. 6 months ago, your LLC would be subject to the jurisdiction of the U.S. courts based upon your past contacts. (Otherwise, businesses would just leave the country to avoid jurisdiction.) On the other hand, if you are currently in the U.S., but were not in the U.S. 6 months ago, you are still subject to the jurisdiction of the U.S. courts based on your current contact with the U.S. Again, your personal assets would be protected. However, the LLC's assets would not be protected. Once you've been targeted by a lawsuit, there's no point in moving the LLC's assets overseas. If anything, you're more likely to have an enforceable court order freezing the LLC's assets in whatever jurisdiction you've moved to. I assume that I'd still have subscribers to my service in the U.S., but it doesn't make sense to me that that would constitute doing business there. By that rationale wouldn't every internet company be subject to the jurisdiction of every country on Earth? Accepting and continuing to do business with the U.S. subscribers constitutes doing business in the U.S. Under most double taxation (prevention) treaties, a software/online "service" is deemed performed where the customer uses the service, unless there is a significant human element to the service in which case the service is deemed performed where that particular human performs his tasks.
  - hmmmmmmmmmm 14y ago
    But if I've dissolved my American LLC and sold/transferred all its assets to my new LLC (or LLC equivalent) in $COUNTRY, what can they really do? They can't sue my old LLC, it's nonexistent. They can't sue me, I'm not liable for the activities of my American LLC. They could sue my new LLC, but they'd have to file in $COUNTRY, where the patent (or whatever) laws are more favorable to me. I suppose they could get an injunction in the U.S. to prevent my new LLC from selling to customers here, but with a webapp that I just sell subscriptions to, how could they enforce that? I'm sure that I'm missing something here, but I don't know what.
    - pyre 14y ago
      It's a good bet that whatever company takes money from your US customers on your behalf has enough ties somewhere in the chain to the US to be forced to drop you as a customer.

sigkill 14y ago

Even I would like an expert to answer this. Assuming my domain is a .com domain, does the USA have jurisdiction over the company even if say, it's registered in Sweden?

Vivtek 14y ago
I'd also like to hear an expert's opinion, but isn't the entire point of a limited liability company to limit liability?
- rprasad 14y ago
  Limited liability refers to the liability of the shareholders/investors for the obligations and judgements against the company. Their liability is "limited" to the amount of their investment. Contrast with a partnership, in which the owners/investors are subject to potentially unlimited liability. For example: LLC A settles a lawsuit for $10 million. Investors B and C's liability is limited to the size of their investment (we'll say $100). Partnership X settles a lawsuit for $10 million. Partners Y and Z are each liable for the $10 million (the opposing party only gets to collect $10 million once, he simply can choose to go after either or both partners for payment). The opposing party can go after Partners Y'z and Z's personal assets, unless they declare bankruptcy.
- jlarocco 14y ago
  I'm not an expert, but that's not quite how LLCs work. LLCs limit the liability of the owner. Not the LLC. Lets say I install plumbing in your house and it fails and damages your property, so you sue my company. If I'm a sole proprietor or a couple of guys doing business as a partnership then suing the company effectively means suing me (us) personally. If I lose and owe you $1 million, you can have my plumbing stuff seized to pay the debt, but if that doesn't cover all of it then I personally owe you the remainder. You can put a lein on my house and screw up my credit and put a collection agency after me until I pay off the debt. On the other hand, if I have an LLC or a corporation, then the liability is limited to the property of the LLC or corporation. You can have my vans and warehouse seized, but you can't take my personal property like my house. If the LLC can't pay the full debt then it can owe you and make payments or something, but you can't "ruin" the owners. In this case, simply "dissolving" the LLC wouldn't solve the problem. While it existed the LLC presumably had property, and that's what they would go after. If you tried to pull a "The LLC didn't have any property" then they'd probably toss you to the IRS for running an illegitimate LLC. And when the IRS was done auditing you, the patent guys would come back and go after you personally. I'm definitely not a lawyer or any kind of business expert, though. If anybody knows better I'd also be interested.