Difference between revisions of "Disputes in Crowdfunding"

Revision as of 02:51, 11 December 2014

The following article deals with disputes in crowdfunding. It covers several topics - who are the people and services involved, which are the possible disputes, what kind of legal background there is (which "Terms and Conditions" the platforms enforce). All the disputes are also further explained through examples of existing cases.

Up until 2014, there are relatively few disputes in crowdfunding, as that is a rather new thing. There are even less cases which went to court, because the risks of a lawsuit are too large and people are not prepared to lose their money over it. However - anyone, who wishes to participate in online crowdfunding, should be aware of these possible risks, the disputes and frauds they might encounter. There are four major groups of disputes - intellectual property disputes, false promises and frauds, platform disputes and payment service disputes. For those, who would like to read further and learn more than this article offers, there are some links to the websites where more detailed information can be found.

General Information

Involved Parties

There are four different parties, which take part in all operating crowdfunding platforms - in this article they will be referred to as the creator, the platform, the backer and the payment service.

Creator

The creator is the person who launches the campaign for a particular project with the objective of raising funds for the development of the suggested project. He is also referred to as the launcher, the project owner, the campaign owner, the campaign launcher, the project creator, the uploader etc.

The creator can be in one way or another involved in all of our suggested disputes - intellectual property disputes (presentation disputes, idea thefts, identity thefts, reselling scams), frauds (false promises to the backers, launching non-existing projects), platform disputes (the platform can whenever cancel the project without any explanation) and payment service dispute (in which case the creator is not directly involved, but he is the one who suffers the damages).

Platform

The platform is the crowdfunding website, which acts as the mediator between the creator and the backer. The creator uploads his campaign on the platform, where it can be seen by the backers, who then decide if they would like to fund it. The platform reserves rights to change or cancel the uploaded projects if they see fit and are protected by "Terms and Conditions", to which one must agree if he wants to use the platform. The most popular crowdfunding platform currently are Kickstarter, Indiegogo, GoGetFunding, RocketHub, Crowdfunder, Crowdrise, Somolend, AngelList, Invested.in, Quircky etc. The crowdfunding platforms usually take a certain percentage of the raised money (they for example collect 5% of the raised money, but most of them only if the project ends successfully).

The platforms distance themselves from any intellectual property disputes or possible frauds, they are however the main problem when it comes to - as we call it - platform disputes, as they reserve the right to change or cancel any project at any time for any reason, without having the obligation to explain why. In certain cases such actions led to the court, but due to the clearly stated Terms and Conditions, the platform normally is not legally found guilty of misconduct.

Backer

The backer is a member of the public who financially backs the projects by contributing funds. The backer can also be referred to as the contributor, the investor, the funder, the supporter etc.

Backers can be involved mostly in disputes over frauds (fraud from the creator - where they support a deceitful project, fraud by backer - where they promise funds, which they do not provide, or false promises - where they are promised rewards, which they do not receive).

Payment Service

Payment service is the intermediary, through which the donated funds are transferred from the backers to the creators. It is one of the online payment systems, for example PayPal or WePay, which facilitate the transfer of money between backers and creators, and they also take a cut for both the platform and themselves.

Payment services can sometimes be included in disputes, especially when their Terms and Conditions are not in accordance to those of the crowdfunding platforms. In those cases the creator can successfully carry through his campaign, but at the end he cannot receive the donated money because of the controversial content of the project.

Platform "Terms and Conditions"

All crowdfunding platforms are protected by "Terms of use", which you have to accept if you wish to participate on the website. Although these Terms of use may vary from one platform to another, they all have a few main things in common. All platforms clearly state, that by using their services you are agreeing to the terms and conditions of the website, which are then further explained. Most platforms protect themselves from any intellectual property issues, they have rules about what can and cannot be uploaded, they urge the users to respect the Third Party's (collaborating websites') Terms and Conditions. Most platforms also reserve the right to cancel, edit, reject, interrupt, suspend any project at any time for any reason. They also distance themselves from any disputes between the different groups of users.

Relevant sections from "Terms and Conditions" of three different platforms (Kickstarter, Indiego, GoGetFunding) show the common points of all crowdfunding platforms.

Types of Disputes

Disputes and frauds that occur in crowdfunding can be categorized into four groups depending on the subject of the dispute. In each of them there can be different involved parties. Most disputes occur between individuals (creator, backer) and are being discussed and solved amongst themselves. These individuals are the most vulnerable, since most platforms and payment services protect themselves by their Terms of use.

Intellectual Property Disputes

Main article: Intellectual Property Disputes

Disputes over intellectual property include misuse of presentational material, idea theft, identity theft and reselling of an existing product. Most disputes occur over projects, which violate the patent, copyright or trademark rights of others, and over projects, which have not been lawfully protected.

Fraud and False Promise

Main article: Fraud and False Promise

Frauds and false promise disputes occur between project creators and backers. One of the two parties either fails to fulfill their promise, or intentionally doesn’t deliver the reward.

Platform Disputes

Main article: Platform Disputes

Platform disputes occur when project creators feel they have been mistreated by the platform. Their campaigns are either cancelled, paused or frozen by the crowdfunding platform, in some cases without an obvious reason and explanation.

Payment Service Disputes

Main article: Payment Service Disputes

Disputes involving the payment service occur because of their and the crowdfunding platform’s contrasting policies. The person at loss is usually the project creator, who is unable to receive the collected funds.

References