Protecting your Intellectual Property while Crowdfunding

ALEXIS KANAREK – “Countless success stories are evidence that Kickstarter offers a quick and easy way to turn ideas into reality. But it seems with every sweet success story that comes out of Kickstarter there is a sour failure lurking around the corner.”

Crowdfunding platforms, like Kickstarter and Indiegogo, provide innovators with the funds and exposure their ideas need to become a reality, by allowing them to raise small amounts of money from a large number of people via the Internet.

Kickstarter is a modern, social tool that allows an individual to become an entrepreneur, either by receiving funding for his or her creation or by committing to fund someone else’s with as little as a few dollars. Employing reward-based crowdfunding, Kickstarter allows entrepreneurs to pre-sell a product or service, helping launch a business concept without incurring debt or sacrificing equity.

However, Kickstarter maintains that it is merely a platform used to connect creators with backers and does not protect the intellectual property rights of projects posted on the site. Thus, Kickstarter has inevitably become a “great shop window for [intellectual property] rights holders to spot potential infringers.” Furthermore, many entrepreneurs fail to consider the importance of intellectual property rights prior to launching their crowdfunding campaign.

Without professional funding, such as venture capital and angel investment, technology startups using Kickstarter generally lack the revenue, budget, or foresight to protect their intellectual property through mechanisms such as patents. However, “patents provide a critical tool in the David-and-Goliath competition they will have with larger incumbents in the field they seek to disrupt.”

Thus, with this funding and exposure comes the threat of failure despite a promising start, as a result of issues relating to these intellectual property rights, which could have easily been prevented.

This genuine concern became a reality for LunaTIK, a company that used Kickstarter to raise nearly a million dollars in funding in order to develop a premium conversion kit designed to allow customers to wear their iPod nanos as wristwatches. However, lacking intellectual property rights, this innovative product failed to realize its anticipated success.

As a result, competing products diluted LunaTIK’s market share, resulting in far fewer sales than expected when the product finally launched. Had LunaTIK obtained a design or utility patent, or even a provisional patent, its product would have been protected against identical copies. However, “as soon as LunaTIK disclosed their idea by putting it on Kickstarter they killed any real hope they may have had of obtaining patent protection.

Facing a similar issue, Formlabs, Inc., another company that launched its product on Kickstarter, was taken to court by 3D Systems, Inc., in 2012, for patent infringement after raising nearly three million dollars in funding in order to bring its high definition three-dimensional (3D) printer to market.

3D Systems, a company that develops 3D printing technology and owns several patents in the field, first filed suit alleging that Formlabs’ “Form 1” 3D printer had infringed on one of its patents both directly and indirectly. Although this case was settled favorably in December of 2014, allowing Formlabs to continue producing 3D printers, the two years of unnecessary and costly litigation could have been prevented by recognizing the importance of due diligence and patent protection.

Thus, it is important to recognize that although patent, copyright, or trademark protection can help minimize the problems associated with crowdfunding, they are not a solution, but merely a preemptive measure to ward off litigation. Further, while these intellectual property issues trouble those who utilize crowdfunding to raise capital and launch their ideas, they are not unique to this form of funding and should be considered by any entrepreneur or business leader.

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