Crowdfunding & Intellectual Property Rights

Crowdfunding is an increasingly popular way for start-ups and small businesses to gain capital. However, while it offers an excellent way to raise funds, those seeking crowdfunding support must carefully consider how to guard their intellectual property (IP). With crowdfunding, information is disseminated quickly and broadly, allowing businesses to pitch ideas or products to large audiences and receive contributions from funders worldwide, but there are some crowdfunding risks pertaining to intellectual property rights worth consideration. 

Here, we explore intellectual property rights in crowdfunding and what start-ups and small businesses can do to protect themselves.

What Is Crowdfunding?

Crowdfunding is a method to raise funds for a project or business by soliciting small contributions from many people, typically via online crowdfunding platforms. With crowdfunding, entrepreneurs can bypass traditional financing methods, such as relying on the backing of one or a few large investors, and access smaller individual contributions or investments from a much wider audience. Entrepreneurs can pitch their ideas and products to potential backers through crowdfunding platforms like Kickstarter and Indiegogo and receive contributions in exchange for rewards or, in the case of some platforms, equity in the company.

A benefit of crowdfunding is that it allows businesses to grow an online community around their offering, gain new customers and access key market insights.

Crowdfunding platforms usually charge a fee for successful campaigns and, in return, offer a secure and user-friendly platform for businesses to use. Additionally, many platforms utilise an all-or-nothing approach to fundraising; fundraisers who successfully meet their target receive the funding, and contributions for unsuccessful campaigns are returned to investors, meaning no financial loss.

Different countries have established their own laws and regulations surrounding crowdfunding to protect investors, ensure fair practices, and maintain market integrity.

Entrepreneurs and companies using crowdfunding platforms must understand the laws and requirements in their respective countries to avoid legal issues and ensure successful crowdfunding campaigns.

Crowdfunding and Intellectual Property Rights

In crowdfunding, businesses commonly promote and sell products or services protected by intellectual property rights. Intellectual property rights are the legal rights that protect the creations of the mind, such as inventions, designs, trademarks, and copyrights. 

These rights give the owner the exclusive right to use, sell, or license their creations and prevent others from using or reproducing them without permission.

 Some entrepreneurs want to use the power of crowdfunding to validate their product-market fit, and in the process raise funds for steps towards commercialisation. However, if your plan is to raise capital to fund patent protection for your new innovation, you might end up shooting yourself if the foot.

The Role of Novelty in Patents: Novelty is a fundamental requirement for obtaining a patent. It refers to the condition that an invention must be new and not publicly used, sold or disclosed before filing a patent application.

The Risk of Losing Novelty through Crowdfunding: Publishing details of your innovation on a crowdfunding platform can destroy the novelty of your innovation, meaning it will not be possible to obtain patent protection in any country that does not offer a grace period. Countries like New Zealand, Australia and USA all offer a 12 month grace period meaning provided your patent is filed in that country within 12 months of your crowdfunding disclosure, then you cannot get valid patent rights there. Europe is a large market that does not offer a grace period - meaning if your crowdfunding campaign goes live before you have filed a patent application, then it will not be possible to obtain valid patent rights in Europe.

Intellectual Property Risks in Crowdfunding

Without sufficient protection, entrepreneur and start-up creations risk being replicated or mimicked by competitors, resulting in reduced profits and potential harm to the company’s reputation.

For example, a start-up that creates a unique design for a product but doesn’t have adequate IP protection may quickly have copycats pop up on social media platforms attempting to profit from selling knock-offs of the design or idea.

Additionally, many crowdfunding platforms are accessible and marketed to consumers in countries throughout the world. That means, your brand featured in the funding campaign materials and videos is potentially being used in a trade mark sense globally. To minimise the risk of infringing on another company’s IP rights, companies and entrepreneurs must conduct thorough research prior to their campaign going live otherwise, they may face unexpected legal action.

Intellectual Property Tips for Crowdfunding

There are several ways to protect yourself when crowdfunding. As a start-up or small business, you can do the following: 

Conduct thorough IP searching: Conduct thorough patent, design and trade mark searches before launching your crowdfunding campaign to ensure your product, service or brand does not infringe on any existing IP rights. you will need to consider what core markets to cover in the search if your budget will not extend to global searching. This can be done by consulting with a lawyer or IP specialist.

File for IP protection prior to going live: File for IP protection, such as patents, trademarks, and designs, if the product or service is unique and has the potential for commercial success.

Use Non-Disclosure Agreements (NDAs): NDAs can protect confidential information that needs to be disclosed to people helping you prepare for the crowdfunding campaign, such as designers, videographers, 3D printers, content writers and such like. This can help to preserve the novelty of your innovation, and discourage collaborators from stealing ideas or designs.

Monitor the campaign: Closely monitor the market during your crowdfunding campaign to ensure your IP rights are not infringed upon. This includes monitoring the comments section or your page, and social media channels, for potential copycats or imitators.

Take legal action if necessary: Take legal action to protect your rights if you discover a third party is infringing upon your IP rights. This usually involves sending cease-and-desist letters.

Need Help with IP Protection While Crowdfunding?

Crowdfunding can be an effective way for start-ups and small businesses to raise capital and bring products and services to market. However, first protecting your intellectual property rights is important to ensure that competitors do not steal or copy your ideas and creations. By conducting a thorough IP search, filing for IP protection, using NDAs, monitoring the campaign and market, and taking legal action (if necessary), start-ups and small businesses can protect their intellectual property rights and set themselves up for long-term success. 

If you want to know what your intellectual property rights are and how to protect them, get in touch with Innovation Liberation Front today. We offer a full suite of IP protection services, including trademarks, designs, patents, and plant variety rights.