This is a guest post by Ryan Bernardo.
As crowdfunding platforms continue to grow, so do the number of funded projects that never see the light of day. But what happens if your project gets successfully funded and then you fail to deliver the rewards? The state of Washington is about to weigh in on the matter, taking action against one Edward J. Polchlopek III, aka Ed Nash, and his Kickstarter project Asylum Playing Cards.
Asylum Playing Cards
Mr. Polchlopek created his Kickstarter campaign in 2012. The campaign was for a one-off custom playing card deck, and had a goal of raising 15k. The campaign was funded and ultimately raised over 25k by the close of funding on October 31, 2012.
Rewards were promised by Christmas of that same year, however December came and went with no rewards delivered. Numerous updates were posted as to why each subsequent reward date had passed, and comments from Backers piled up expressing concern. In July 2013, all communication from Mr. Polchlopek simply stopped.
The First Consumer Protection Lawsuit
On April 30, 2014 Washington State Attorney General Bob Ferguson responded to complaints from Washington state Backers of the Asylum Playing Cards by filing a consumer protection lawsuit against Mr. Polchlopek. See a copy of the lawsuit here.
The lawsuit alleges that Mr. Polchlopek acted in an “unfair and deceptive” manner by promising Backers rewards that would be received around December 2012. The rewards were never awarded. Next, the lawsuit further alleges that Mr. Polchlopek is also liable for failing to refund Backers when it became clear that the rewards would not given. Finally, the state is asking for $2,000 per violation, full refunds of Backer contributions, and any other relief the court deems appropriate.
What Does This Mean for Your Campaign?
This specific case deals with Kickstarter, and the “terms of use” agreed to when starting a new campaign on Kickstarter states that the “Project Creators are required to fulfill all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfill.” You are legally bound by these terms. Check out a screenshot below showing what a creator agrees to when they launch a project. Review the terms of your crowdfunding platform before you start.
While the outcome of Mr. Polchlopek’s case will be unknown for some time, its effect on crowdfunding should be to put campaign starters on notice. You MUST make every effort to complete your campaign and deliver the promised rewards. It is reasonable to assume that similar legal action can, and will, be taken by more states against crowdfunding campaigns that clearly defrauded Backers.
Does that mean every failed campaign will end in a lawsuit? Probably not, but each campaign starter does have a legal obligation to complete their campaign. While crowdfunding involves some risk, Washington is making it clear that outright fraud will not be accepted. Check out their statement below.
“This is a new frontier. We hope this sends a message to other potential project creators to take their responsibilities seriously. We look forward to bringing more cases, if necessary, to protect consumers.” – Source.
The ultimate takeaway for any crowdfunding campaign is to remember to be realistic. Ask yourself: can you meet the goals you have set? Can you deliver the rewards you have promised? If you do not think you can, or don’t have the experience and skills necessary to make the campaign successful, don’t start the campaign.
Ryan Bernardo is Chair of the Intellectual Property Practice Group at Braun Blaising McLaughlin & Smith, P.C. (BraunLegal), where he draws on his experience as an entrepreneur, IT consultant, and now intellectual property attorney to provide valuable legal insights on crowdfunding related matters. Ryan uses his experience to consult with campaign owners on a variety of legal matters related to launch, funding, and completion. The materials provided in this post are for informational purposes only and not for the purpose of providing legal advice. Please contact Ryan directly if you have specific legal questions regarding your situation.
