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.
