Intellectual property risks for startups using crowdfunding

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Editor’s Note: This guest post has been created in collaboration and with financial support from the creators of the online trademark application tool Reggster.com. If you’re also interested in partnering with us, just reach out.

Crowdfunding can be a great way for a startup company to introduce new products, get paying customers and gain publicity.

Crowdfunding entails not only great potential, but also significant intellectual property risks that companies need to be aware of before launching a campaign. For instance, TikTok+LunaTik designed a premium conversion kit to make Ipod nanos into smartwatches. Great idea, so great that it quickly raised nearly $1 million on Kickstarter. Also, so great that because it did not have any intellectual property protection it was copied and the market was already saturated with knock-offs when it was time to ship.

Here are some general patent, design and trademark aspects to be aware of if you’re planning a crowdfunding campaign.

Patent risks

For an invention to be patentable, it needs to be new (not published before), inventive (a non-obvious invention) and useful (have industrial application). From crowdfunding point of view the challenge and risk is that most crowdfunding platforms require very specific details of the product. When these details are provided, the technical invention may become “disclosed” or “published” and is no longer patentable. This is a big risk in particular with respect of technical products (e.g. electronic devices) that require strong patent protection to maintain competitive advantage on the market. To avoid losing the patentability of your invention(s), it is important to file the first patent application before the campaign is published. Also, it goes without saying that it is important to check the patentability issues before the campaign.

The loss of patentability is not the only patent risk in crowdfunding. If somebody else has patented the invention your product uses, you could be liable for patent infringement. In 2012 US maker of 3D printers 3D Systems sued a company who had just raised almost $3 million on Kickstarter (they also sued Kickstarter for providing the platform!). The case was later settled and lawsuit dropped.

Design risks

Designs protect the shape and look of the product. For a design to be protectable, it must be novel (new) and have individual character (depart sufficiently from other forms and shapes on the market). As with patents, the novelty requirement means that once the product is published, it cannot be protected with design registration. However, this rule is not absolute, the European design law allows for a 12-month “grace-period” during which registration is still possible. The use of grace period is not without its risks. If another company introduces the same design (on purpose or by accident) that will be an obstacle for the registration of your design because your design will no longer be considered new.

As with patents, it is also possible that the design of your product (e.g. its shape) infringes on another company’s design rights.

Trademark risks

In almost all countries trademark rights are established by registering the trademark. If your product name is not registered, it is not protected and is open for others to use and register. Successful Kickstarter or Indiegogo project can make your product world-famous almost overnight.

We have had the displeasure of dealing with numerous trademark cases where our client’s trademark has been registered by somebody else in China. There are companies in China that scan the US and EU trademark databases and protect corresponding trademarks in China. We have not yet had any actual cases where a Chinese company registered a Chinese trademark after seeing the name in Kickstarter or Indiegogo, but we are certain that this is already happening and the first case is already brewing.

The cost of trademark registration is relatively small, but if somebody else registers your trademark it can paralyze your business. For example, manufacturing in China might be out of the question.

Without protecting your trademark before your crowdfunding project, you run the risk that manufacturing the product will infringe another company’s trademark, even if that other company has register your product name in bad faith.

Final remarks

Not protecting your intellectual property before your crowdfunding entails two types of risks. First, you might not be able to protect your intellectual property later. Second, it is possible that your crowdfunding campaign will infringe on other company’s intellectual product.

We wish you safe and successful crowdfunding. If you want to know if your trademark is registrable, you can do a free QuickCheck on our website at Reggster.com

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