"Is a creator legally obligated to fulfill the promises of their project?
Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) This information can serve as a basis for legal recourse if a creator doesn't fulfill their promises. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill."
I can’t help but think that this is the wrong approach by Kickstarter. I think it should only be possible to ask for refunds if the creator doesn’t make a good faith effort.
I understand that Kickstarter wants to draw a clear and unambiguous line, but I also think that one of things that makes Kickstarter great is the potential for failure. It’s not just a boring pre-order service – or at least I don’t want it to be, at least not exclusively.
The potential for failure is already the current reality of Kickstarter but I always feel as though they try to absolve themselves from it. I think they should instead communicate it offensively.
Kickstarter can remain a place for boring pre-orders (those projects can be awesome, too, e.g. Smut Peddler).
However, Kickstarter could also create a clearly marked higher risk type of project. The product doesn’t exist at the start of the funding period (either completely or nearly completely). Kickstarter could require creators to be more transparent with their budget. Maybe there could also be a, say, $2,500 ceiling for each individual backer or something like that. But Kickstarter could also allow for failure without refunds.
I think all of this is doable. People who don’t like risk can still back low-risk pre-order Kickstarters, people who enjoy backing something that could fail can do just that.
(That being said, the linked project appears to have been fraudulent and no good faith effort appears to have been made, so it’s certainly appropriate to get the courts involved.)
I can’t help but think that this is the wrong approach by Kickstarter. I think it should only be possible to ask for refunds if the creator doesn’t make a good faith effort.
The creator can just not offer rewards.
Or small no-risk rewards that are worthless but let the backer enjoy the fact they backed. If that isn't enough to encourage someone to back, that's tacit admission that they're backing to "buy" the reward.
Hm, yeah, right, didn’t really look at it from that angle.
However, I’m not sure how well that would work. I mean, I would personally have no problem with conditional rewards. (I backed Broken Age and I would have no problem with the reward being “Access to our documentary episodes of the making of the game and the game if we manage to finish it”.)
I’m backing to get the reward, of course, but I accept that the project might fail and that I might not get a reward. I have no problem with that. But if the creators actually manage to make something in the end I would still like to get that thing automatically.
Kickstarter doesn't get to make law. Just because a TOS says you're legally obligated to do something doesn't mean you are. In fact given the very public nature of kickstarter's failures, and their own disclaimers about the risk associated with backing a campaign, it will be extremely difficult to make the case that this falls under standard consumer protection laws. You're not making a purchase, your taking a risk to finance a project. That is the entire and sole point of kickstarter.
They're not making law, they're facilitating contractual obligations between the creator and the backer. Backer gives creator money, creator agrees to a contractual obligation to fulfill that promise.
Contract law, fine. But this is the consumer protection act specifically http://apps.leg.wa.gov/rcw/default.aspx?cite=19.86.020. My argument is that there is ample proof that kickstarter is not engaged in trade and commerce relevant to this law. For example "It's hard to know how many people feel like they're shopping at a store when they're backing projects on Kickstarter, but we want to make sure that it's no one." - https://www.kickstarter.com/blog/kickstarter-is-not-a-store . The fundamental nature of speculative projects is that they can fail. If this case goes forward and is found against the creators for reasons other than explicit fraudulent activity with no attempt whatsoever to complete the project then it will be terrible law and undermine kickstarter completely.
You should look at the case involved before commenting on the legitimacy of the case. From the Kickstarter comments.
> There were tons of backers investigating the life of ~REDACTED~ and his company Altius Management, especially after the artist reached out and told us that he never got a cent, and the US Playing Card Company said that they had never heard of the guy.
This was a case of selling customized playing cards through a well known company, it was a very low risk venture and he failed to make (assuming that quote is accurate) even minimal attempts to create what he started the Kickstarter for.
This wasn't even a "we screwed up and decided to give up early" it was a "lol thanks for the free $25k".
No, no, no. I agree with you. Fraud is fraud, I'm just saying this is the wrong law to use, and the outcome a successful prosecution under this law is uniquely troublesome for kickstarter.
How is it the wrong law to use? It seems to be exactly the law designed to address the kind of commercial fraud alleged.
The troubling thing for kickstarter is a result of the fact that kickstarter bothv wants buyers not to see backing a project as a simple pre-order but simultaneous wants to create exactly the kind of obligation that exists with a pre-order and use it to reassure backers. (And given that that is the only thing backers get, there's pretty much no way for kickstarter to work without getting downed in outright take the money and run scheme without that kind of obligation.)
It's not fraud because Kickstarter is not a store?
The project creator made a promise to deliver. I'm not sure how Kickstarter's TOS (repeating that they have a responsibility to deliver, but that Kickstarter isn't a party to the contract and can't enforce it) immunizes them against their own obligations.
I've sold things on message boards, which are also not stores. If I didn't deliver, why shouldn't I be prosecuted under the same law?
> It's not fraud because Kickstarter is not a store?
It's fraud, but it's not commerce, so this is the wrong law to use.
> I've sold things on message boards, which are also not stores. If I didn't deliver, why shouldn't I be prosecuted under the same law?
Because people on message boards know they're not buying from a store and can't expect the same level of state consumer protection, and it's not in the states interest to expend resources on protecting message board buyers. If you didn't deliver you'd be breaking the law and the people who bought things would be able to sue you, but I wouldn't expect the state AG to go after you.
Kickstarter allows for delays of delivery (possibly even indefinite delays, but that is unclear, so other comment threads), so long as the project continues to communicate to its backers. The problem here is that the project stopped doing that--demonstrating that it was no longer abiding by the terms of the contracts between it and its backers.
Each of the backers only contributed small amounts to the project, so a tort action by each/any of them would have been economically unfeasible. Hence, the consumer protection law kicks in, allowing the state to pursue action in their stead because it is far more cost-effective. (For example, the AG's office personnel are salaried, so legal fees aren't dependent on hours spent, etc.)
How is Kickstarter any different than me paying an artist to write a song for me on my behalf or a carpenter to build me a house?
I'd certainly have ground to sue the artist or carpenter if they failed to eventually deliver a song or house (or indeed, didn't deliver one according to the terms of our agreement).
I think those are bad examples for the typical / canonical crowd funding campaign, because those are examples of craftspersons producing yet another of a well known product. The craftsperson can be judged on their past works, and they can accurately judge the cost to do it again.
The ideal kick starter is more like a trading expedition in days of old. They are proposing to set sail for distant shores and bring back untold riches, but a lot could go wrong along the way. The ship could sink, the lands they reach may have no goods for trade, the locals might not be interested in the goods the explorers brought, trade goods they do acquire could spoil on the way back... this is not fraud, this is risk shared by the backers. If you don't want risk, invest in T-bills and buy goods in physical stores.
Because you're funding a project that may or may not work out. The whole point of crowdfunding is supposed to be, "You give us money to develop an idea, and you might get a reward in return", not, "I'm paying you $35 for an order that includes a bumper sticker and a t-shirt with your logo on it." It's less like your carpenter example, and more like a VC firm dumping money into a startup.
It's supposed to be speculative investment. Whether or not Kickstarter and others have decided to backpedal and pretend they have some kind of legal precedent for holding project owners to their word, in order to make their own business seem more legitimate than it is, is another story.
There's no requirement that the Kickstarter complete the core project - just that they provide any promised reward.
Many projects, where the project is highly speculative, provide explicit rewards and then an offer to get the benefits of the main project that's conditional.
Also, in what way is it not like an experimental house design using, eg, 3d printed concrete (in some new manner)?
There's a well established body of contract law about how to handle that kind of contract to build a house with a new technology, and the liabilities involved.
There's no requirement that the Kickstarter complete the core project - just that they provide any promised reward.
That makes no sense. Much of the time, the reward is directly related to the core project.
Also, in what way is it not like an experimental house design using, eg, 3d printed concrete (in some new manner)?
I'll repeat myself - I have no idea what model Kickstarter is now framing themselves under or how it applies to the legal system, but in the original model for crowdfunding in general, you were giving a voluntary donation to an idea with the explicit knowledge that you might never receive it or any associated awards if the project failed. You weren't paying for a t-shirt - you were giving money to someone's business/creative idea and receiving a "free" t-shirt in return.
What Kickstarter's Terms of Use, then and now, actually imply and signify in a legal sense, and whether or not the defendant can easily make the claim that risk was fundamental to nature of Kickstarter project backing and thus the backers voluntarily chose to engage in a speculative transaction which had no legal obligation to be fulfilled, are questions for an attorney to answer.
Do I think the guy cut and ran? Yeah. Do I think that's wrong? Yeah. But I also think if it was made completely clear to each and every person donating that what they were doing was contributing to a project, not making a purchase (Kickstarter even states themselves that they are not a store here: https://www.kickstarter.com/blog/kickstarter-is-not-a-store), then enacting Consumer Protection borders on protecting people from their own stupidity.
This is specifically not one of the Kickstarter backers suing for breach of contract, though. This is the state attorney general bringing a prosecution for violation of consumer-protection laws, which is a different legal situation.
50 states, as many as 50 ambitious state Attorneys General looking towards higher office ... absent something at the Federal level, it's hard to see how this won't "undermine kickstarter completely"
The fundamental nature of speculative projects is that they can fail, but nothing requires Kickstarter to be used for speculative projects, and when it is, nothing requires the rewards to be dependent on project, rather than funding, success.
To illustrate the first point, companies have used Kickstarter for projects that were essentially fully developed first, and where the Kickstarter was only to provide capital for the production run (to alleviate the risk of scaling production wrong) -- with rewards being (or including) the thing being produced. As long as the rewards offered have a production cost (not retail value) less than the support level required to earn them, this eliminates the creators risk in production of a run that includes both the rewards and additional units to be sold through whatever "regular" means are appropriate to the product (ideally, it also provides buzz through the rewards to spur sales of those additional units). From that, the company can then assess future demand and appropriately scale later production runs.
To illustrate the second point, its quite possible to do a speculative product and offer rewards related to but not dependent on the project. For a game project, for instance, you could do things like exclusive prints of concept art, etc.
If you want people to share your risk, well, there are avenues that do that -- like sale of equity. Of course, those are more heavily regulated than simple sale of goods, because its very easy for avenues where you are asking the purchaser to assume risk to be used as vehicles for fraud.
And if Kickstarter commitments aren't enforced like sales commitments, it will be as much (or more) the doom of Kickstarter as anything that would strictly enforce them -- because as soon as any uncertainty is resolved in that direction, Kickstarter will become (and become known as) as an ideal vehicle for fraud, and backing projects on Kickstarter will become the equivalent of falling for a 419 scam.
> Kickstarter doesn't get to make law. Just because a TOS says you're legally obligated to do something doesn't mean you are.
When someone makes a conditional offer to you of something of value, and you accept it, and you accept that conditional offer, its not the offering party making law that makes it binding, its this thing called "contract law".
> In fact given the very public nature of kickstarter's failures, and their own disclaimers about the risk associated with backing a campaign, it will be extremely difficult to make the case that this falls under standard consumer protection laws.
The "in fact" claim here would be a lot more convincing if your post actually referenced even a single way in which "the very public nature of kickstarter's failures" or their disclaimers had any bearing on the applicability of "standard consumer protection laws"; or, more to the point, the specific consumer protection laws at issue in the instant case.
> You're not making a purchase, your taking a risk to finance a project.
While financing projects is certainly the uniting theme of Kickstarter offers, the actual terms seem to me very much like an advance purchase conditioned on sufficient volume of commitments, and if it were legally treated as anything differently, it would be an easy place to do take the money and run schemes that are the exact kind of fraud that many consumer protection laws are designed to prevent.
There may be something in the relevant terms, etc., that courts would find warrants substantially different treatment -- but I've yet to see a convincing argument made of a specific, relevant distinction.
I can't believe people actually have this understanding of kickstarter. Maybe I've been living in a bubble, but my understanding has always been that you are basically preordering something, insofar as you're entering a contract with the party running the kickstarter involving their obligation to deliver the backer rewards. I don't think something like that needs a TOS to rewrite the law.
Sure, there is a risk that the project fails and doesn't deliver, just like there's a risk that whatever company goes bankrupt between you preordering something and them finishing and shipping it.
My understanding has always been that you are, in effect, taking a risk on a development project. It's not a crowd purchasing system, it is a crowd funding system. The TOS terms of service seem to allude to this given the "best effort" qualification.
Section 4.9 of the complaint specifically calls out this statement in Kickstarter's TOS. I believe it underpins the entire legal action, because if backers reasonably understand the project could fail and they would get neither reward NOR a refund, then the burden of proof on the state increases enormously.
I just talked with the assistant AG in charge of this case. He seems pretty with it, and they're not trying to do anything crazy here - they see it as a pretty straightforward breach of contract sort of thing. They chose this case because it seemed "very clean" and likely to have a solid outcome that would be a good deterrent for bad actors and encourage backers who get shafted.
Healbe kickstarter only closed like three weeks ago, and mu has offered refunds and work is ongoing. This card thing closed in October of 2012 and stopped updating in July of 2013, and offered no refunds. That makes it a much clearer case than these. Even if it is "business errors" he's apparently liable for them.
The important bit here is not the non-delivery, but the fact that the creator failed to keep up communication about the project.
The suit states that Kickstarter rules state that the creator is legally bound to fulfill, but may delay as much as need, but also must communicate regularly.
The project in question stopped communicating in July 2013, so the accusation is demonstrated intent to not deliver, thus breaking the legally binding contract.
> The suit states that Kickstarter rules state that the creator is legally bound to fulfill, but may delay as much as need, but also must communicate regularly.
The suit does not state anything about creators being allowed to "delay as much as need".
> so the accusation is demonstrated intent to not deliver
No, the accusations are, in the first cause of action, representing that rewards would be delivered in approximately December of 2012 and not delivering them and, in the second cause of action, failure to provide refunds to those who requested them, and failure to offer refunds to those who had not requested them, given the failure to deliver.
Note specifically the middle part of 4.9. It does not say word-for-word the same thing i said, but it very strongly implies that delays are fine (and in fact they normally are accepted on kickstarter) as long as communication is kept up.
It's not uncommon for things to take longer than
expected. Sometimes the execution of the project proves
more difficult than the creator had anticipated. If a
creator is making a good faith effort to complete their
project and is transparent about it, backers should do
their best to be patient and understanding while
demanding continued accountability from the creator.
> Note specifically the middle part of 4.9. It does not say word-for-word the same thing i said, but it very strongly implies that delays are fine (and in fact they normally are accepted on kickstarter) as long as communication is kept up.
The suit says that the Kickstarter FAQ strongly suggests keeping up communication in the event that delays are unavoidable, that does not say that the creators are allowed to delay as much as they need. Particularly, there is nothing inconsistent about it being a recommended course of action in the event that a binding obligation is not able to be met -- the fact that something is required doesn't always mean it is possible.
I feel obligated to point out that you guys are discussing the exact issue that the case will hopefully set some precedent for: that is, what constitutes an acceptable delay.
My guess is that it will shake out that any delay is actionable for a suit, but communications are a mitigating factor. It depends a lot on what kind of defense Altius goes for.
> I feel obligated to point out that you guys are discussing the exact issue that the case will hopefully set some precedent for: that is, what constitutes an acceptable delay.
We're really not, we're discussing what the suit actually says. What is actually an acceptable delay is a separate question.
I'm inclined to agree on the specifics of this case, but not in the abstract. Kickstarter and other crowd funding entities represent an interesting dearth of case law. Here, consumers aren't necessarily protected by either consumer laws or by investment laws.
Considering large corporations have purchased Kickstarted projects and major films have been produced with crowd funding, these are very important issues to begin sorting out.
The amount at issue in the suit isn't just the dollar value to make restitution to the victims (which itself might be more than just a straight refund), but also the $2k per offense civil penalty under the applicable consumer protection law. Depending on how offenses are counted under that law, the penalties may be more significant on their own than restitution.
Or he could be, say, nipping a problem in the bud. There have been a few big but dubious crowdfunded projects recently. If scam artists think they can raise a bunch of money and then say, "oopsie," and have it all be a free pass, there could be a flood of bad projects.
He was a pioneering American con man. Many of the scams he pulled weren't illegal at the time, so they had to come up with new laws to prevent him and imitators from fleecing more people.
Whether or not this AG knows and cares about limiting criminal innovation, you can be sure some of them do.
It's easy to make an attack on a politician and dismiss things, but I think it's much more likely that someone (Bob Ferguson) is trying to set a precedent on crowdfunding and their obligations to the funders.
Makes sense. But they should wait for a better case.
This seems like a founder that underestimated the amount of time and resources required to start a company and produce a product. It sucks, but it happens.
Nah. Ed Nash had the art, he had USPCC print the proofs; the only remaining thing he needed to do was give USPCC money. He didn't. His backer tiers were similar to other card deck backer tiers, so it's not like he didn't get enough money from the Kickstarter. He either kept the money or (more likely) spent it on some other aspect of his promotion business earlier, in the hopes that he'd get the money to print the cards from somewhere else.
Kickstarted card decks are really simple and low risk as long as you have the art. USPCC does a couple of dozen of these every year.
I dunno. If I were the AG, I'd want to go after someone who was mentally competent to defend themselves. Everything I'm reading about this Pictures for Sad Children guy seems to indicate that he's at a minimum severely depressed and perhaps not quite all there. Plus, there seems to be near zero chance of recovering damages, and a default judgement does little to establish precedent.
Yes, but it isn't about going after $25K. It is about protecting everyone else who lives in WA and wants to participant in Kickstarter. The AG is hoping to set a precedent with this case.
Kickstarter's a known internet site so it is probably worth it for the publicity. Its the AG version of a committee meeting calling CEOs for some "wrong doing"[1].
1) note the quotes and yes, I think there is an element besides "guardian of the voters" here.
How often does this happen? Maybe a better question: has it ever happened that a failed project has refunded all money? I suppose I've been lucky with Kickstarter (and Indiegogo); although several rewards are currently late, it appears that progress is being made and they will be delivered eventually.
I feel like perhaps if the creator can't deliver, he should make public all work produced by the deadline. That way, at least if an interested party among the backers wanted to pick up where the creator left off, they'd be able to do so.
This seems like something Kickstarter could fairly easily work into their TOS.
Is there a precedent for this in traditional investing, such as a case where an angel invests in a company and the founders take the money and run, or blow it without making a real attempt at the company?
I don't live in Washington, but if this were happening in CA I'd have no problem with it; it isn't so much about recouping that money as it is setting a precedent.
If there are no repercussions to collecting a bunch of crowdfunding money and disappearing, doing that will become a lot more common (likely with amounts a lot higher than $25k) which will eventually just serve to kill the entire crowdfunding model since nobody wants to be a sucker twice.
(Shrug) That's a legitimate function of government. Do you want to live in the THX-1138 world, where the cops stop chasing you as soon as you make them spend enough money?
Cops chasing people is for the most part stupid, record their plate, send them a ticket. High speed police chases represent serious dangers to the public for little benefit. Many modern police departments have policies in place to discourage police chases because of the danger posed to the officers, public, and the suspects themselves.
In the broader sense of justice it would have been very prudent for the unproductive war on drugs to have ended years ago as the costs to society outweigh the benefits to society.
Fiat justitia ruat caelum, like an eye for an eye, is actually a pretty stupid policy.
For sure, I'm not sure how high speed chases end but I'm guessing it's either a crash, or a set of spike stripe. Spike strips are about logistics where a higher speed makes the logistics more difficult. And in the event of a crash the (insured) property is destroy anyway.
Since the UK is covered in CCTV the best idea is probably to 'chase' them via CCTV and deploy spike strips intelligently while they are driving at low speed.
So for the most part a high speed chase involves huge risk for little gain.
Spreading out over millions of state taxpayers the cost of the necessary legal procedures to make whole the few dozen Washington State residents who invested and got burned, so that each person's individual contribution is epsilon while still sufficing to redress the wrong? Seems sensible to me, too.
If you beat me up and I incur $10k in ER bills, chances are prosecuting you is going to cost more than that. The point is not to recoup the costs, but to make it risky for others to do the same thing.
I absolutely would support it if they were being charged with fraud, as in your example I would be charged with assault. But a civil suit for such a small dollar amount typically goes to small claims court.
Its really not -- civil penalties that are not about restitution -- like the $2,000 per violation penalty attached to the consumer protection law Washington is invoking here -- serve a very similar function to criminal fines.
> I absolutely would support it if they were being charged with fraud
They are being charged with violations of Washington's Consumer Protection Act including "unfair or deceptive acts or practices in trade and unfair methods of competition". Which isn't a whole lot different than "fraud".
Well, you can run that argument for a lot of things. Sometimes it is more important to protect the system which will bring good in the future. Costs go before the earnings (no pain, no gain). If you let these things go off, next thing you know it becomes the new ebay/PayPal where Nigeria will takeover and scam it to dead.
I hope they use this case to set an example. No easy scamming on this platform, walk along.
> So Washington's taxpayers will spend hundreds of thousands on legal fees to collect the ($25,146 / 50) = $502.92.
First, where does the "/ 50" come from?
Second, while the suit calls for restitution to be made part of the courts orders, it also seeks civil penalties of $2,000 per violation of the applicable consumer protection law, and for costs including legal fees.
That's kind of a weird assumption (even if you assume that all of the backers were from one of the fifty states -- and not from, say, DC, any other part of the US that isn't a state, or any foreign country -- it would be more natural to assume that they'd be distributed proportionately with the population of the various states than an even number per state. Anyhow, per the suit, approximately 31 of 810 -- closer to 1/26 than 1/50 -- of the backers reported that they lived in Washington at the time they chose to back the project.)
They're consumers, what websites like kickstarter call crowd funding is not very different to good old pre-ordering legally speaking. And if you pre-order a product you have a right to delivery or getting your money back.
"Is a creator legally obligated to fulfill the promises of their project?
Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) This information can serve as a basis for legal recourse if a creator doesn't fulfill their promises. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill."
https://www.kickstarter.com/help/faq/kickstarter+basics?ref=...