Crowdfunding can be great. Kickstarter, Indiegogo and dozens of others can get donors signed on to your projects and help you create the Next Big Thing. But before you rush to post your idea and start collecting quarters, consider the risks as well. Seth Quest forgot about that part. He just declared bankruptcy because a donor to his Kickstarter project sued him for nonperformance (Seth couldn’t bring his project to market after collecting donations). Sure, I think the guy who sued him was being unreasonable, but there are lots of unreasonable people out there.
Here are three key legal risks that you face when you post a project on a crowdfunding website.
1. Killing Your Patents
Disclosing your patentable idea starts a one-year clock under the U.S. Patent Act. If a patent application is not filed during that time, then a patent cannot be filed. And the news is even worse in other countries where you might want to protect your idea. AND, beginning in a few weeks, the American Invents Act will have the U.S. move to a “first to file” patent system. At that point, you could be in a race with your donors to reach the patent office.
2. Losing Your Brand
The basic rule is that whoever applies to register a trademark first will get the registration and can block other similar trademarks. If you use your cool new brand name and logo to submit a crowdfunded project, someone else could file for trademark protection before you do. You could file a lawsuit to get the trademark back, but that would eat up a lot of those crowdfunding quarters you’ve been collecting.
3. Giving Away the Farm
Even if you don’t make any mistakes in disclosing your trademarks or patentable ideas before you protect them, you could undermine your success by using an idea or contribution that someone sends you or posts on the crowdfunding website. (Most allow comments on publicly visible projects.) Some sites (such as Indiegogo) specify that the project sponsor owns rights in all submitted comments. But one of the largest crowdfunding sites, Kickstarter, does not even define the ownership of submitted materials. So if you use someone’s suggestion, it’s not clear whether they might have a legal claim against you for a share of your success.
If you’re using crowdfunding, you may not be thinking about the business and legal issues that will crop up once you’re successful. But you should at least consider these issues before publishing your best ideas for the whole world to see.