Summary – Online crowdfunding platforms, such as Kickstarter, have given innovators and creators the opportunity to secure critical funding needed to get their ideas off the ground floor and avoid the need to rely on traditional forms of funding. These crowdfunding platforms have been championed as a democratization of the funding process, helping start-ups, creators, and innovators with projects that may not otherwise have found willing investors.
While Kickstarter success stories are plentiful, so are the inherent risks of using an online crowdfunding platform, especially risks relating to intellectual property (“IP”) issues. With the US-based service recently opening its platform to Canadian-based projects, eager innovators and creators will find that both the successes and the risks associated with IP issues are likely to cross the border into Canada.
The Kickstarter Effect.
Started in 2009, Kickstarter is an online crowdfunding platform that allows project creators to create publicly accessible campaign webpages where creators make their “pitch” as to what their idea is and why the funding is needed. A project creator sets the funding target and the duration of the funding period. The public can review each creator’s pitch and decide whether to fund a given project. However, instead of providing a loan to the creator or requiring equity or ownership in the project in exchange for investment, the creator provides alternative forms of “rewards” to backers that provide funding, e.g., first run of the start-up’s product, dinner with the design team, the backer’s name in the credits of the film, etc. Project creators maintain full ownership and control of their projects, whether or not the funding goal is achieved.
Previously only available in the US and the UK, Kickstarter has now opened its crowdfunding platform to Canadian-based projects. Project creators will be able to launch their projects in Canada beginning September 9, 2013.
While Kickstarter is not the only online crowdfunding platform, it has become one of the most popular platforms due to its track record of success for a variety of projects, e.g., a publicly accessible space photography telescope ($1.5 million in funding); an affordable 3D printer ($2.9 million); a customizable e-paper watch ($10.2 million); the first truly immersive virtual reality headset ($2.4 million); a hoodie guaranteed to last for 10 years($1.0 million); the Veronica Mars movie project (starring Kristen Bell) ($5.7 million); the world’s thinnest watch($1.0 million); Zach Braff’s independent film ($3.1 million); a new video game console ($8.6 million); and theworld’s first 3D printing pen ($2.3 million).
In many cases, project creators are drawn to Kickstarter due to their financial constraints. Retaining legal counsel for guidance on potential IP issues before launching a Kickstarter project may not be high on the priority list. However, innovators and creators looking to draw on Kickstarter’s successes should be wary of investing time and money into launching a project on Kickstarter without first considering the various risks and pitfalls related to IP. Careful consideration of IP issues may help project creators prevent the loss of any IP rights related to their projects and may insulate them from any third party IP claims that could threaten the success of their projects.
Patents: The Perks of Being a Wallflower While Unpatented.
In order to create a convincing pitch, project creators must disclose enough information about their project on their Kickstarter campaign page to convince potential backers that the idea is worthy of funding. However, revealing sufficient detail about an invention to attract backers exposes a creator to risks that may jeopardize the patentability of the invention.
Disqualifying Disclosures.
Unlike making a pitch to traditional investors, where non-disclosure agreements (“NDA”) can prevent the disclosure of sensitive and confidential information about a project, the nature of the Kickstarter platform requires disclosure of information up front to the public without the protection of an NDA. Generally speaking, public disclosure of the patentable subject matter of an invention prior to the filing of a patent application may disqualify the invention from patent protection.
However, the Canadian patent system gives inventors a one-year grace period to file a patent application if the patentable subject-matter was disclosed by, or through, the inventor not more than one year prior to the filing date of the patent application.[1]
Whether the one-year grace period is triggered also depends on whether the public disclosure was an “enabling disclosure”. Canadian law requires the public disclosure to be sufficient to enable a person skilled in the art to make use of, or be able to perform or work, the invention, allowing the skilled person some room for trial and error experimentation. It is not enough for the public to merely be made aware of the invention.[2]
Even where the information disclosed on the Kickstarter campaign page does not constitute an “enabling disclosure”, the inventor must also be cautious of any sales to, or use by, the public of a product embodying the invention, which may also constitute an “enabling disclosure”. Canadian case law has established that the sale to, or use by, the public of an invention amounts to an “enabling disclosure” where the public is able to discover the invention and make use of it through analysis of the product without the use or application of inventive skill,e.g., where a skilled person is capable of reverse engineering the invention embodied in the product.[3]
It is common for Kickstarter project creators to offer “rewards” to backers in some form of proto-type or pre-production products embodying the invention. For example, the Kickstarter campaign for the Oculus Rift virtual reality headset rewarded backers who pledged $275 with an unassembled prototype DIY kit of the headset, including parts and the instructions for assembly. Such offerings to the public may constitute an “enabling disclosure” and trigger the start of the one-year grace period.
The Early Bird Gets to Patent the Worm.
Canada’s patent system operates on a first-to-file basis. This means that the date of first invention is irrelevant for the purposes of establishing entitlement to patent an invention. What is relevant is the date of filing of the patent application and the date of the first enabling disclosure.
Even where a project creator is careful in ensuring that its disclosure of the invention on the Kickstarter campaign page, or any rewards offered to backers, do not amount to an enabling disclosure, a competitor may come across the campaign page, take notice of the competing invention and then file its own patent application for a similar or overlapping invention before the project creator files its patent application. As the competitor would have filed an application covering the invention first, the competitor may have the right to patent the invention, irrespective of the fact that the project creator came up with the invention first. In such cases, not only might the project creator lose the rights to obtain a patent for the invention, the creator’s project may end up infringing the patent of the competitor’s similar invention.
Success Breeds Success Except When You Infringe a Patent.
Even with a successful Kickstarter campaign, the risks associated with IP issues can run beyond the duration of the fundraising campaign and threaten the success of the project in the long term. For example, without the assurance of first having conducted a prior art search, a successfully funded project may be subject to a third party’s patent infringement claim. For example, Formlabs’ Kickstarter campaign to raise funds for a 3D printer ended on October 26, 2012 as the most successfully funded technology campaign in Kickstarter’s history, raising over $2.9 million and far surpassing its fundraising goal of $100,000. Within a month, 3D Systems brought a patent infringement lawsuit against Formlabs in the US Federal District Court seeking injunctive relief and damages for infringement of its 3D printing patents. Whether or not such infringement claims end up being successful, the costs of defending such claims alone may render the project dead out of the gate for some project creators.
Other situations may also prove problematic for the project creator, especially after a successful Kickstarter campaign with onerous promises to deliver rewards to project backers. An injunction or a settlement agreement arising out of the infringement claims may prevent the project creator from producing and/or selling the product as originally pitched in the Kickstarter campaign or in fulfilling the rewards as promised. This may raise issues of the project creator’s breach of contract with the backers. Even if the product is altered to avoid patent infringement claims, a product that does not match the original Kickstarter pitch or reward may subject the project creator to claims of false or misleading representations to the public under Canada’s Competition Act[4] or other similar complaints.
All or Nothing.
Kickstarter operates on an ”all-or-nothing” crowdfunding model. The project creator sets the fundraising goal and the campaign’s duration. Payment from the backers is collected only after the campaign has ended and only if the money pledged is at least as equal to the fundraising goal. If the project is not successful in meeting its fundraising goal, the project creator does not collect any money. This could prove to be a difficult situation for the project creator who provided an enabling disclosure of the invention with the intention of seeking protection of its patentable invention after receiving funding. Now, without any funding, the project creator may be rushed to find alternative funding to meet the one-year deadline to file a patent application.
Copyright: Imitation is a Costly Form of Flattery.
It is likely a trite point for Kickstarter project creators that the unauthorized use of copyrighted content should be avoided for fear of copyright infringement claims. However, project creators should also be vigilant in preventing even minor, inadvertent uses of copyrighted materials in their campaigns and consider avoiding projects that are unclear as to copyright ownership as Kickstarter’s copyright policy could lead to harsh consequences for their projects.
Under Kickstarter’s general Terms of Use (“TOU”), the project creator agrees not to use the Kickstarter platform for any activity that infringes IP rights, including copyright, and agrees that Kickstarter may suspend or cancel a campaign for any reason, including a violation of its IP policies:
Kickstarter reserves the right to reject, cancel, interrupt, remove or suspend a campaign at any time and for any reason. Kickstarter is not liable for any damages as a result of those actions. Kickstarter’s policy is not to comment on the reasons for any of those actions.
Kickstarter also reserves the right to cancel a project creator’s access to the campaign “without cause or notice”.
The Kickstarter Takedown.
Kickstarter’s copyright policy allows copyright owners to file a complaint of copyright infringement against a Kickstarter project by using the US Digital Millennium Copyright Act (“DMCA”) takedown notice form. Once Kickstarter receives a DMCA notice about a project, the infringing material will be removed, or access to the project will be disabled, until the dispute is resolved. Kickstarter will put a notice of the infringement complaint in place of the campaign page (e.g., this project “is the subject of an intellectual property dispute and is currently unavailable”). Any backers of the project will also be informed of the infringement complaint.
Project creators should be mindful of seemingly minor, inadvertent uses of copyrighted content, as this could result in a project being suspended or cancelled altogether. For example, GameStick launched a product of the same name for “the most portable TV games console ever created”. GameStick’s entire campaign wastemporarily suspended due to a DMCA complaint filed with Kickstarter with respect to copyrighted images of a video game used in GameStick’s pitch video, for which it did not obtain the rights to use. With only a 30-day fundraising window for its project, GameStick was fortunately able to resolve the dispute before the campaign deadline by editing out the images of the video game from the pitch video.
Fair dealing provisions do exist under the Canadian Copyright Act, which provide for “user rights” which allow for the use of copyrighted material without authorization from the copyright owner in certain circumstances, e.g., research, private study, education, parody, satire, criticism or review, and news reporting purposes[5]. While Canadian courts have given the categories of fair dealing a large and liberal interpretation, whether the use of the copyrighted material is commercial in nature or purpose is a relevant factor that goes against a finding of fair dealing.[6]
As Kickstarter projects and their campaign pages are inherently commercial in nature, it may be difficult to establish that an unauthorized use of copyrighted content falls within the fair dealing provisions and thus not copyright infringement. Further, the filing of a copyright complaint may still lead to a temporary suspension of the campaign, which may have negative consequences that outweigh any benefit that the use of the copyrighted material under the fair dealing provision may have provided.
Infringement Complaints may be Future Proof.
It is also possible that copyright infringement claims against future endeavours might trigger a suspension of a Kickstarter campaign under the Kickstarter’s copyright policy. For example, UK illustrators Geoffrey O. Todd and Rich Berner launched a Kickstarter campaign in the UK to produce a sequel to Maurice Sendak’s popular book Where the Wild Things Are. The book, to be titled Back to the Wild, had not yet been produced and was merely a proposal with sample illustrations for the story. However, HarperCollins Publishing, publisher of Sendak’s Where the Wild Things Are, filed a DMCA notice on July 3, 2013 alleging:
The infringing material is a proposal to create a “sequel” to WHERE THE WILD THINGS ARE, entitled “Back to the Wild,” using the characters, scenes and copyrightable elements of the original work. Any such unauthorized “sequel” would clearly violate the Estate’s right to create derivative works.
As with the UK-based Back to the Wild project, the Kickstarter TOU for Canadian projects also refers to the DMCA takedown notice process, which suggests that Canadian projects may also be subject to American copyright laws in terms of suspending or cancelling projects. Interestingly, the UK-based creators for Back to the Wild project stated that they were “very careful not to impinge on Mr. Sendak’s copyright and have taken the necessary legal advice around this whole project”.
Time is of the Essence.
It should be noted that Kickstarter’s policy with respect to the receipt of DMCA infringement complaints is that if the dispute is not resolved within 30 days, Kickstarter may “cancel the project, all pledge authorizations will expire, and the project will be permanently unavailable”. For GameStick, the dispute was quickly resolved by editing the offending video, but for other project creators such as the case for the Back to the Wild project, 30 days may not be sufficient time to resolve the issues.
Another consideration to keep in mind is that Kickstarter campaigns are funded on an “all-or-nothing” basis. Kickstarter’s TOU state that backers are able to reduce or cancel their pledges at any time up until the last 24 hours before the end of the campaign. As backers of a project are notified of any infringement complaints filed against the project, it is easy to see how the filing of a complaint could pose a significant risk to a project, especially where complaints are filed near the end of the fundraising campaign. Even where the complaint is proven to be illegitimate or the dispute was otherwise resolved favourably, it may prove to be too late to convince former backers to refund the project before the deadline.
Originality Pays Off.
Given the foregoing, project creators should strive to include only original content in their campaigns. Even where copyrighted content is being used under license (e.g., licensed stock images or content used under creative commons licenses), the project creator should at least ensure that the copyrighted content is clearly being used within the parameters of the license.
For example, content that is available to the public for use under creative commons licenses may vary in terms of attribution requirements, restriction to non-commercial uses, restriction on derivative works, restrictions on further distribution, etc. There is also no guarantee that the publisher of the content is actually the copyright owner or has the right to license out the content. The creative commons license is an “as-is” offer of the content with no representations or warranties as to ownership.[7] There is no registration or vetting process for making content available under a creative commons license.
Given the potential risks that copyright issues pose to a Kickstarter project, project creators need to be cognizant of the content of their projects and their fundraising campaigns in order to maximize the potential of their projects.
Trade-marks: Failure to Launch a Brand.
Similar to Kickstarter’s copyright policy, Kickstarter’s TOU and trade-mark policy allow trade-mark owners to file a complaint against a project for trade-mark infringement. Upon receipt of a complaint, Kickstarter may remove the infringing content or disable public access to the project until the dispute is resolved. The TOU also reserves Kickstarter’s rights to suspend or cancel the project altogether.
Under Canadian law, trade-mark infringement may occur where a project creator uses a name, design or logo that is identical or confusingly similar to another party’s established trade-mark used in association with same or similar products or services.[8] Trade-mark owners are also protected from other parties “passing off” their products or services as those of a trade-mark owner and thereby misappropriating the goodwill associated with that trade-mark owner’s mark. “Passing off” also includes another party creating the pretence or misrepresentation to the public that their products or services are sponsored by, or associated with, the trade-mark owner.[9]
A project creator is particularly vulnerable to trade-mark infringement claims where a chosen name, design or logo has never been used by the project creator in the marketplace prior to the launch of the Kickstarter project. Launching a Kickstarter project under a brand without first checking the Canadian Trade-Marks Register and the marketplace for the existence of similar trade-marks could lead to significant costs and setbacks in having to rebrand the project after the launch.
For example, Sunstone Games launched a Kickstarter campaign for a video game titled “Kaiju Combat”. Wizards of the Coast, who own the trade-mark for KAIJUDO in association with video games, filed a trade-mark complaint with Kickstarter, alleging that use of Kaiju Combat was confusingly similar with its KAIJUDO mark for the same types of products. According to Sunstone, their Kickstarter campaign page was suspended for 3.5 months while Sunstone and Wizards of the Coast negotiated a settlement deal. Ultimately, Sunstone was forced to refer to its game as “Colossal Kaiju Combat” and was prohibited from using that name in any official game title (the project is now called “The Fall of Nemesis: Clash of the Kaijujin”). Sunstone is also prohibited from advertising the URL <kaijucombat.com> and instead must direct the public to <sunstone.co>.
Although the project was ultimately successfully funded (by only $12,513 above the goal of $100,000), Sunstone was forced to expend its resources in defending against the trade-mark infringement claim. Further, the brand identity that Sunstone tried to create with its video game may now be less clear as there were multiple names being used to refer to its product.
Appreciating a Depreciation of Goodwill.
Canadian trade-mark law also protects registered trade-mark owners from uses of their marks by third parties that would have the likelihood of depreciating the goodwill associated with their marks.[10] For example, one party’s use of a competitor’s trade-mark in a comparison chart of hair colour products to encourage consumers to switch over to their products in manner that disparaged its competitor was considered by a Canadian court to depreciate the goodwill of the competitor’s trade-mark.[11] For project creators, using a well-known trade-mark in a Kickstarter campaign in a manner that creates some negative association with the trade-mark may also be subject to depreciation claims.
Given the aforementioned risks, a project creator should, prior to developing a Kickstarter campaign, check that any names, designs or logos that the creator intends to use in association with their project, products and services do not conflict with any other trade-marks on the Trade-Marks Register or in the marketplace. A trade-mark registrability and usability search can easily be performed by a trade-mark agent prior to the development of the project, thereby possibly reducing the likelihood of scenarios such as the Kaiju Combat project where the project creator was forced to rebrand their project after already having invested significant resources in developing the project under an unusable brand identity.
Conclusion – Project creators are often inevitably caught in a “catch 22” situation, where the creators lack the upfront capital to retain legal counsel for issues related to launching a Kickstarter project and engage the Kickstarter platform in order obtain the necessary capital to start the project. Project creators may also be unwilling to invest in IP protection upfront without knowing whether the necessary funding can be obtained to bring the project to market. However, the foregoing paragraphs highlight just some of the common risks and pitfalls related to IP inherent to the Kickstarter crowdfunding platform and are not exhaustive of all the potential IP issues. Ultimately, it is essential for innovators and creators to turn their minds to all the potential IP issues relating to their project before launching a Kickstarter campaign as this may help preserve their IP rights and may reduce the risk of any IP infringement claims in both the short and long term.
