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IP Risks of Reward Crowdfunding – PART II: Losing Control of Your Idea

While crowdfunding platforms can give entrepreneurs access to customers and capital, they also present many risks that can cause unsuspecting entrepreneurs to lose control of their ideas. For instance, crowdfunding puts the ideas of many early stage entrepreneurs at risk of being stolen by better-funded investors or large corporations since many crowdfunding users will lack resources to litigate against a better-funded adversary who stole their idea.

In a traditional investment model, entrepreneurs can use non-disclosure and non-compete agreements to protect their ideas and business plans. However, many crowdfunding participants will lack the expertise and knowledge to properly execute and implement such protections. Furthermore, crowdfunding platforms may not allow for such protections.

Additionally, when publishing the details of their product or invention on crowdfunding platforms, entrepreneurs must be careful to avoid exposing trade secrets (e.g., recipes, formulas, and customer lists) which forfeit special protected status upon disclosure.

Beware of user suggestions

When you publish a crowdfunding proposal, a third party could send you a suggestion regarding how your product may be improved. Another way that you could lose control of your idea is by incorporating an idea or suggestion that someone sends you or posts on a crowdfunding platform’s website (most allow comments on publicly visible projects). Some sites (such as Indiegogo) specify that project sponsor owns rights in all submitted comments. However, Kickstarter (one of largest crowdfunding sites) does not define ownership of submitted materials. If you use someone’s suggestion, it is not entirely clear whether they could have legal claim against you for a share of your success.

If your product goes on to become successful, there is a chance this third party will consider themselves to be a co-inventor and therefore, entitled to joint ownership of your patent rights. Anyone who conceives of a single claim in a patent application is considered to be an inventor. All inventors must be named in a patent application or there is the risk of the patent being held invalid. Furthermore, all inventors are considered joint owners of the patent application unless they assign their rights to a third party. Each joint owner of the patent application can license the patent rights. Therefore, before incorporating ideas and suggestions from donors, check the terms of your crowdfunding platform and/or consult a lawyer.

IP Risks of Reward Crowdfunding – PART III: Losing Your Brand

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