Crowdfunding has become a major financing tool for small businesses from tech start ups to small services companies. This source of funding, made available by The 2012 Jumpstart Our Business Startup Act (JOBS Act) which enables small businesses to raise funds from non-accredited investors. An accredited investor must meet a personal net worth or income test that excludes the majority of the population. There are still rules about how much each person can invest for equity crowdfunding but Title III truly opens up the ability for the average American to invest.
If you are considering a crowdfunding platform for your new venture, or if you are contemplating investing in a crowd-funded project, attention to intellectual property protection is critical. Often, companies considering crowdfunding are in the early stages of development and owners may not have the appropriate intellectual property (IP) protections in place yet. Here are a few things to consider about each of the major types of intellectual property:
Securing federal and/or international trademark protection is an important early step to establishing a company and launching a brand. This, however, can be hard to do or forgotten prior to using the mark in commerce, the standard set by the USPTO. Therefore, posting a project with a proposed trademarkcould serves as an open invitation for trademark infringers in the U.S. and abroad to file for registration first. The same is true with respect to domain name registrations. Additionally, without the proper research you could inadvertently launch a brand with a trademark already in use. This is not only bad PR but could open you up to suit before you’ve even begun.Action Items: Do a thorough search on potential marks and make sure it does not conflict with state, federal or international trademarks. Consider filing an Intent to Use trademark application if you are not at the place to file a trademark application based on use. Consult an attorney to make an informed decision based on a thorough search and knowledge of requirements for proving use such that you can file a trademark based on use.
Although filing is not required to benefit from copyright protection, it is a prerequisite for a U.S. copyright owner who wishes to file suit for infringement in the U.S. If you are going to post copyrighted works in connection with your project disclosure or business plan, and if those works integral to the success of the project or business make sure you protect them. Additionally, make sure if you use the copyrighted work of others in your proposal you have the proper permissions to avoid copyright infringement.
Action Items: Review your copyrighted work and consider filing for copyright registration if any of the work you will loose is integral to the business. If you plan to use images, music, or other content from third-party sources in your proposal, be sure to obtain appropriate licensing/permission prior to posting such works publicly.
Disclosing the details of an invention before filing a patent application may bar patent protection due to required disclosures or missing the first to file window. Some crowdfunding sites require projects that involve the manufacture and distribution of “gadgets” to “show as much as they can about how they’re going to make their project, including things like a production plan, an estimated schedule, and any details you can provide for backers.”
Action Items: Preserve your rights, patent applications should be filed as early as possible as required by the America Invents Act, under “first to file”. By filing a patent application prior to disclosing a project, the inventor can preserve patent rights and potentially avoid problems with both the statutory bar and potentially conflicting applications. While U.S. patent law gives the inventor a year after disclosure in which to file, the same is not true in most of the rest of the world where a prefiling disclosure bars patent protection. Keep this in mind for projects that will rely on foreign marketing and revenue for their success.
- Think about your IP on a local and global scale. Develop a state, federal and international IP development plan. As your brand grows, depending on industry and target market you want to make sure your protections are as robust as possible.
- Consult an attorney early and often to help you develop your IP strategy and think through the hurdles associated with crowdfunding.
- Investigate services like U.K.-based Creative Barcode. that are designed to provide a provide protection for early stage intellectual property. This is NOT an endorsement of these services but this is an option to consider.
Your intellectual property is one of your biggest assets and the last thing you want to do is damage your IP rights while trying to secure funding through crowdfunding. This is just a high level view of the general issues associated with crowdfunding. Depending on the project, the IP issues could be substantially more complex.
Additionally, potential investors should be worried about these intellectual property issues as well. Potential Investors must conduct a due diligence assessment of any venture they seek to invest in as the success or failure of the idea may hinge, at least in part, on the strength and protection of those IP rights.