What a nightmare. How do small fries defend themselves? What happens if some loony decides to drag a very small business into a frivolous lawsuit? Sinking $100k into trying (and not even necessarily succeeding!) to defend against ridiculous claims is utterly outside of financial reality for many. But what's the alternative? Lose everything?
How do the little guys defend themselves against this garbage?
If you're smart, you figure out how much legal help you can afford. There is some help available pro-bono, some through legal clinics.
It's helpful to figure out what you feel that you should do, and what you actually need to do. Getting the other side to spin its wheels can be helpful, though for a morally motivated pro se opponent, this can be challenging (by "morally motivated", I mean an opponent who's motivated by their own moral outrage, not necessarily acting morally), as they are essentially gifting themselves their own legal services. Being prepared can be helpful, but that can cost.
Often you don't need to do too much, sometimes that's not the case. And law can very much be a war of attrition.
There are some countermeasures which can be taken, generally launching a countersuit, making disclosure demands, etc., though these also have their own costs, and if your opponent doesn't have deep pockets, they're not particularly effective and/or interesting to your own legal counsel (who after all is looking for their billable hours or 30% contingency).
A very good rule of thumb is not to do business with assholes (or marry one), though this won't cover you in all cases (e.g.: Oatmeal vs. FunnyJunk).
There are also personal liability policies available, though they can be expensive. On the positive side, they make your problem your insurance company's problem, and they may be motivated to respond effectively to shut down your opponent. More often these or other legal insurance policies will cost a fair bit up-front and pay for a small fraction of legal costs.
If we weren't successful at our startup, I'm not sure how I'd pay to defend myself. The reality is that I probably would not have been able to, which would have resulted in a default judgement followed by bankruptcy.
I'm not from money. I'm the son of factory worker and a stay and home mom who cleaned houses to help pay the bills. This whole ordeal is utterly terrifying. I (along with my other partners) bootstrapped our company on money earned and saved by working our assess off. I personally contributed over $60,0000 to start our company, and that money came from nothing. I earned it fixing computers and working on our startup in-between customers and at night.
The thing that keeps me going is anger. That's the only emotion that trumps my fear. I'm outraged at the absurdity of the allegations levied against me.
How do the little guys defend themselves against this garbage?