Crowdfunding is becoming an increasingly popular option for some startups to raise capital for the initial manufacturing run for new inventions. Crowdfunding is a financing method that seeks to solicit money from a large number of individuals online to fund, for example, the production of various products or content, or various charitable causes. Some of the most recognizable crowdfunding websites today include Kickstarter, GoFundMe, Patreon, and Indiegogo, to name a few.
In the context of funding new products, crowdfunding websites provide a platform for a startup to advertise a product they want to bring to market and solicit money from interested people to finance the manufacture of the product. Typically, interested people pledge an amount that entitles them to receive the product if sufficient funds are collected to fund the manufacturing. While startups can have great success by financing an invention through crowdfunding, it is crucial for startups to ensure they have made the proper intellectual property considerations before their invention is disclosed for the world to see.
Patent Rights:
One primary concern is a crowdfunding campaign may jeopardize the ability of the inventor to obtain a patent on the proposed inventive product. Such inability to acquire patent rights can make it difficult to maintain market share and grow the business if the crowdfunding campaign is successful. Specifically, in many cases, disclosure of an invention in a crowdfunding campaign will start clock on the grace period that an inventor has to file for patent protection, after which the invention is said to be statutorily barred from patenting. In the United States, 35 U.S.C. §102 prevents an applicant from applying for a patent if their invention was offered for sale, in public use, or disclosed in a publication more than one year prior to a patent application being filed. While there are some other fact-based considerations, it is likely that publishing an invention for a crowdfunding campaign would constitute either an offer for sale or a public disclosure, thereby starting the one-year clock for an inventor to file for patent protection.
Another consideration is that the United States Patent Office operates generally on a first-to-file system for ownership of patent rights, where the first party to file a patent application for an invention gets priority for obtaining a patent. Therefore, if a startup discloses an invention to the public via a crowdfunding campaign, there is a risk that another entity may independently apply for a patent on a similar invention. This consideration further highlights the importance of securing intellectual property rights prior to a public disclosure.
One practical and cost-effective option to avoid these risks and preserve the ability to seek patent protection is to file a provisional patent application. A provisional patent application is essentially a placeholder for a standard utility patent application, that allows the owner to preserve their ability to file a non-provisional patent application for one year. Before expiration of the provisional application at the end of the year, the applicant has the option to file a non-provisional application claiming priority to the filing date of the provisional application.
Provisional applications are a cost-effective solution because they have significantly lower filing fees, they do not go through an examination process by a patent Examiner, and they have fewer requirements on the format and specificity of the patent application disclosure in comparison to non-provisional applications. Provisional applications are commonly used to secure a filing date on an invention assessing whether commercial interest and manufacturing overhead justify the cost of filing a non-provisional patent application. Another advantage for startups is that once a provisional application has been filed, the applicant can legally represent that the invention in “Patent Pending”, which could be of great value in fundraising and/or marketing for a product.
Other IP Considerations:
In addition to preserving patent rights, intellectual property rights should be considered when utilizing third parties to develop and implement a product. It is common to engage other developers, engineers, or manufacturers to help take an invention from an idea to a reality. Startups should be sure to have a developer agreement in place that clearly states who owns what rights in the intellectual property that will be developed. A common misconception is that the person paying to develop the intellectual property will own the intellectual property rights, which is frequently not the case, as the developer would likely retain their rights for their contributions, absent an agreement stating otherwise. In addition, many standard agreements of developers often favor the developers when it comes to ownership of intellectual property rights. Such contractual terms can be nuanced and difficult to properly interpret. Accordingly, it is important to have developer agreements carefully reviewed by an intellectual property attorney to ensure that you will retain sufficient rights in any intellectual property that is developed.
Bottom Line:
Inventors and startups seeking to attain funding for their invention need to carefully consider how to protect their intellectual property rights when publishing their invention to a crowdfunding site. Early consultation with an intellectual property attorney is recommended to ensure intellectual property rights are preserved over the course of promotion, development, and manufacturing for a crowdsourcing campaign.
If you have any questions regarding patent rights with regard to crowdfunding or any other intellectual property concerns, please reach out to Jonathan Soike or another member of our Intellectual Property team at BrownWinick. We are here to offer trusted legal advice and add value to any matter, including those with complex and novel issues.
