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By David Drake

 

In this day and age, the number of innovative ideas popping up daily are numerous. It is easy for creators and inventors to come up with similar products as each of them tries to meet a need in the market. Creators also face the potential danger of someone, or some group, stealing their ideas and claiming it as their own. This is a growing problem in the modern world, particularly with the rise of crowdfunding platforms like Kickstarter and Indiegogo.

Many enterprises, mostly start-ups, face the problem of raising funds for their ideas. That’s where crowdfunding platforms come in by offering the chance to showcase an idea or creation, and pitch it to a large pool of potential investors. This has proved to be a very useful tool for both entrepreneurs and investors as they can meet, agree on contracts and eventually grow together.

 

What No one Tells You About Crowdfunding and Intellectual Property

No restrictions on viewing one’s products, anyone can come, see the creation and clone it on their own.

 

However as mentioned earlier, these sites present a significant problem for innovators, one that could prove fatal, yet is commonly ignored. Kickstarter and Indiegogo offer an avenue for innovators to showcase their new inventions and ideas. For one to make a good pitch to investors on the sites, you have to make sure that they understand your creation; what it is, how it is made, its design and a whole lot of details that are put out there for anyone to analyze. And since there are no restrictions on viewing one’s products, anyone can come, see the creation and clone it on their own. Since the entrepreneur who first put it there did not have any intellectual property rights on the material, they will just lose it with no legal claim on their creation.

Definitions

For one to understand how this can happen in a ‘free and fair’ world, we must first be aware of the rules concerning intellectual property. Intellectual property, according to the World Intellectual Property Organization (WIPO), is defined as “creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” These include any invention, song, product, concept, design or any other work used for financial gain or recognition. Other relevant definitions include:

Patent- An exclusive right granted by the government to a person conferring to him the sole right to exclude others from making, using or selling an invention.

Copyright – A legal right that grants the creator of an original work exclusive rights to its use and distribution.

 

What No one Tells You About Crowdfunding and Intellectual Property

When someone has a new invention or idea, he is required to protect his work from infringement by patenting his work. | Photo Credit to Dennis Skley via Flickr cc

 

There are many other concepts that an innovator has to familiarise themselves with so as to protect their work. When someone has a new invention or idea, they are required to protect their work from infringement by patenting their work. This way you have some claim to your work, and can take legal action against anyone who attempts to lay any claim to it. Such has been the case for many who have tried to replicate any piece of work from another creator.

Popular Cases

A recent case in point is the infringement case that Apple and Samsung were involved in. Both sued the other because each claimed the other had copied a piece of creation that they had made. However, it was Apple who ended up winning the case, which ran from 2011 to late 2015. Samsung ended up paying billions of dollars to Apple for infringement of the design of the Samsung Galaxy Tab, which Apple claimed had copied off the Apple IPhone.

 

What No one Tells You About Crowdfunding and Intellectual Property

Samsung ended up paying billions of dollars to Apple for infringement of the design of the Samsung Galaxy Tab

 

Another famous case was the Napster file-sharing website. The site,  founded in 1999, allowed people to download music for free on the internet rather than buying CDs. Napster did this with no rights to the music they shared. The RIAA then sued it, and forced it to close its doors (servers). The site now charges its users to download music.

For technology start-ups on crowdfunding sites such as Kickstarter, the danger of someone “stealing” their work is grave. Many entrepreneurs forget to protect their creations when launching a crowdfunding campaign which has led to severe consequences for some entrepreneurs.

Popular Victims

Lunatik, for instance, designed a premium conversion kit that allowed people to wear their iPod nanos as wristwatches. They managed to raise a million dollars on Kickstarter. However, they had no intellectual rights for their product. Competing for products diluted Lunatik’s market share, and they ended up making much fewer sales than anticipated. Their innovation ended up as a failure due to the lack of intellectual property rights which eventually led to significant losses.

 

What No one Tells You About Crowdfunding and Intellectual Property

Their innovation ended up as a failure due to the lack of intellectual property rights

 

Formlabs faced a similar issue when they launched their product on Kickstarter. After launching its product, a (3D) dimensional printer, they were taken to court by 3D systems for patent infringements. Formlabs had successfully raised 3 million dollars on Kickstarter and were in mid-production, but they had to wait two years until, finally, the judge ruled in their favor.

Possible Solutions

The problem has affected many other companies who have suffered due to lack of intellectual property rights. However, sites like traklight.com have stepped in to try and solve the problem. Launched by a law student, the site aims at promoting “Safe Crowdfunding” to improve the safety of intellectual property. Creative barcodes also offer a solution by attaching a “Digital IP Tag” to a piece of intellectual property to make sure each product can be traced back to its owner. Such solutions have been very effective in protecting creators from IP theft.

Crowdfunding without having to worry about intellectual property theft remains to be a big problem for entrepreneurs. Some laws have been passed to curb this theft. The US government in 2013 enacted a law called the Innovations Act that would protect entrepreneurs from patent trolls. These are firms who look for any chance to sue for patent infringement even if they did not create the product.  A new patent system called the First-Inventor-To-File (FITF) system was designed to make sure that the first person to apply for a patent gets it first. This will ensure that no one else can come after you to claim your intellectual property as theirs.

 

What No one Tells You About Crowdfunding and Intellectual Property

A new patent system called the First-Inventor-To-File (FITF) system was designed to make sure that the first person to apply for a patent gets it first.

 

Crowdfunding has, nonetheless, proven to be very successful and has enabled many entrepreneurs to build up their businesses.  I have  documented this financial phenomenon in my book “The Crowdfunding Economy”. In this book, I explained how crowdfunding has grown to become such a force in the modern economy, with the promise of a brighter future and a multitude of opportunities for all.

 


 

David-Drake_2014David Drake is the Chairman of LDJ Capital, a multi-family office; Victoria Partners, a 300 family office network; LDJ Real Estate Group and  Drake Hospitality Group; and The Soho Loft Media Group with divisions Victoria Global Communications,Times Impact Publications, and The Soho Loft Conferences. Reach him directly at David@LDJCapital.com.

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