This article is not meant to constitute legal advice. I recommend consulting an attorney for all crowdfunding legal matters. It’s simply meant to get you thinking about the legal implications of your crowdfunding project (emphasis on Kickstarter).
Can you get sued for failing to deliver on your rewards?
This is what the Kickstarter FAQ section has to say: “Yes. Kickstarter’s Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) This information can serve as a basis for legal recourse if a creator doesn’t fulfill their promises. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill.”
Here is what Indiegogo has to say in their TOS: “You shall meet all commitments you make in your Campaign including, but not limited to, delivering all Perks you offered with your Campaign. If you are unable to fulfill any of your commitments (including delivering any Perks), you will work with the Contributors to reach a mutually satisfactory resolution, which may include refunding their Contributions. You will comply with all applicable laws and regulations in your use of Contributions and delivery of Perks.”
If you haven’t heard about the first consumer protection lawsuit involving a Kickstarter creator and his backers, I recommend reading Crowdfunding Liability – Why you need to deliver on your rewards.
Does this Legal stuff really matter for Crowdfunding?
Check out what Mark Nowotarski, who is the President of Markets, Patents & Alliances L.L.C says on this topic.
“Intellectual property hazards are quite prevalent with crowdfunding projects. Projects have been shut down halfway through their funding campaigns for reported copyright and trademark infringement. Massively successful projects have also been sued for patent infringement immediately after receiving their funds.
On the flip side, many projects have had their products, their images and their brands freely copied on both US and offshore shopping sites. Ostrich Pillow, a unique public napping pillow that looks like a plush Diver Dan helmet, raised $195,000 on Kickstarter. They now have numerous knockoffs being offered on aliexpress.com at 1/5 the price using the exact same graphics and trade name as their Kickstarter campaign.
Olloclip, a 3-in-1 lens for the iPhone camera, initially raised $65,000 on Kickstarter and have grown to a $10 million company in two years. They have had to vigorously enforce their rights against off shore counterfeiters. They recently brought suit against an importer of knockoffs alleging infringement of their utility patent, design patent, copyrights, trademarks and trade dress. That case is ongoing.” – IP Watch Dog.
General Intellectual Property
“Before launching a campaign, the project creators should first identify all of their valuable pieces of intellectual property, and then decide how to protect them. In the case of patents, one option is to file a provisional patent application. Trade secrets — such as valuable and confidential names, processes and customer lists — simply should not be revealed in the campaign.
Trademarks may be further protected by filing registration applications at the state and/or federal level. Moreover, project creators need to be careful not to infringe others’ intellectual property in the process of launching a campaign. For example, project creators should secure licenses for all copyrighted materials (songs, video, copy) that they intend to use in the campaign, and they should be sure to run trademark searches on any names or logos they intend to use in the campaign.” – NwCorporateLaw
Patents
I highly recommend checking out this post ‘Patent Protecting Your Invention When Launching a Kickstarter Campaign‘ which provides a bit a cheat sheet and step-by-step process for crowdfunders. I’ve provided a teaser screenshot of it below. Click the image to be taken to the article.
The Markets and Patents blog also has a nice quick tip for protecting your intellectual property: “A provisional patent application is a low cost way to make your invention “patent pending” for a full year while you are raising money. If your project meets its goals, then you move on to the more formal “nonprovisional patent application”. If not, then you’ve saved quite a bit of money in legal fees.” – MarketsAndPatents.
Trademarks
Richards Patent Law is a solo practice focused on serving the needs of small businesses and entrepreneurs. They’ve provided some thoughts on the topic of trademarks and crowdfunding. I’ve included a snippet here:
“On the trademark side, use of a name in a crowdfunding campaign can lead to potential trademark infringement issues. If you have not properly vetted the name and logo you are using prior to launching your crowdfunding campaign, you may receive a cease and desist letter from a trademark owner who believes his or her rights are being infringed. This is exactly the wrong way to start a campaign in which publicity is critical to the success of the project and in which a name change mid-stream can be devastating.” Read more: RichardSpatentLaw
I also recommend reading the article: Avoiding Trademark Infringement When Starting Your New Crowdfunding Campaign
In it, Ryan Bernardo, the Chair of the Intellectual Property Practice Group at Braun Blaising McLaughlin & Smith, P.C. (BraunLegal), explains the following:
“General guidelines for picking a name for your project:
1. Don’t pick a name that simply describes your project or product. If you’re making a new light bulb, don’t call it the “Super Bright Bulb.”
2. Don’t pick a name that is trendy or common since too many people might already be using the same name.
3. Check to see if the domain name is available. If not, it could indicate that someone else is already using the name.
4. Do a quick search on major crowdfunding sites; does the product already exist with that exact name or a very similar one? Don’t use it.”
How to Protect Yourself
In this Mashable article on the Risks of Crowdfunding, author Nellie Akalap states: “It makes sense to launch a Kickstarter campaign through a legal business structure, such as a Limited Liability Company (LLC), as opposed to posting it as an individual. An LLC or other structure offers a layer of protection that can essentially shield your own personal assets from that of the business. So, if something should happen to your project or business, the business is liable for it, and not you personally. Make sure your LLC or corporation is officially established and then conduct all business and enter contracts through the LLC or corporation.”
Places to Get Crowdfunding Legal Advice
We’re currently holding an AMA on our forum where Ryan Bernardo has agreed to answer a few basic question related to the legal aspects of crowdfunding.
Other service providers include:
– Paxton Law Group (My lawyers who are awesome and extremely knowledgeable in multiple areas).
– Ryan Bernardo (He’s written several guest posts for us and has helped creators in the past).
– Arina Shulga (I know her, she’s very familiar with crowdfunding, and she’s written some great pieces on her blog).
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