Intellectual property can be a kick in the teeth for startups using crowdfunding
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.
Sadly, many of these sour failures are the result of issues relating to IP rights, which could have easily been prevented.
Research last week from NetNames found that while 92 per cent of executives have measures in place to defend offline IP, only 40 per cent do the same for online IP. This number is doubtless far lower when it comes to startups.
A can of worms
The LunaTik watch band for the iPod nano raised $942,578 in just 30 days, but fell short of expectations of success.
Why? Because LunaTik had no IP rights in place before launching on Kickstarter, which would have provided them with at least some exclusivity to this idea. As a result there are now a plethora of other players in this niche market.
If LunaTik had registered a design for the look of their product then this would have provided them with protection against identical copies.
Furthermore, 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.
Dog eat dog world
Dog eat dog worldFormlabs are another company that initially looked to be another Kickstarter success story when their 3D printing project raised a whopping $3M.
Unfortunately, Formulabs received a kick in the teeth when their rival, 3D Systems, sued them for patent infringement.
The dangers of crowdfunding
The Formlabs story raises two key issues. Firstly, Kickstarter acts as a great shop window for IP rights holders to spot potential infringers. This really isn’t good news for start-ups who are often at too early a stage to respond to such assertions in an effective manner.
Secondly, too many entrepreneurs using crowdfunding platforms do not consider third party IP rights prior to registering with Kickstarter and can therefore suffer a serious set-back despite a promising start.
Traditional funding models don’t suffer from these problems, at least not to the same extent.
Yes, disclosing your idea to an investor could prevent you from obtaining patent protection, but non-disclosure agreements (NDAs) are one way to mitigate such problems.
Furthermore, any savvy investor will do their own due diligence before investing and therefore identify if the company can’t use its name or is infringing a patent before money is invested.
Education, education, education
As we’ve seen, Kickstarter breathes life into ideas that would otherwise struggle to get investment via traditional funding models. So how can Kickstarter work in a world where IP plays such an important role?
I think that the answer to this question is education.
Entrepreneurs need to understand the risks that they run when using crowdfunding sites.
While IP legal practitioners like me can help with this education process, as could Kickstarter, in reality the buck stops with entrepreneurs who need to think through the legal issues before launch.
A lot of entrepreneurs know that they should ideally seek legal advice before launch, but they see the legal profession as being unapproachable, stuffy and expensive.
As a result, many entrepreneurs take risks by putting their business ideas on Kickstarter before seeking any legal advice.
Do your homework
I fully understand this predicament and I think that these are problems that the legal profession needs to deal with in order to help prevent home-grown start-ups falling at the first hurdle.
But the fact remains that disclosing your idea without IP rights applied for can ultimately prove fatal to your business.
Most lawyers will give you a free consultation; don’t be scared to take advantage of this.
Alternatively, talk to an advisor at the British Library Business & IP Centre – while the advisors there are not lawyers, they’ll be able to help steer you in the right direction.
Due to the relative infancy of crowdfunding, there is surely space for a carefully thought-out crowdfunding platform that deals with these IP issues, while also providing the fluidity that makes Kickstarter so successful.
Fancy making that idea a reality by putting it on Kickstarter? If so, just make sure that you think about the associated IP issues before the project goes live.