Thanks to the JOBS Act and the rise of sites like Kickstarter, crowdfunding is hot. But how do you ensure your idea is protected when it's out there for all to see?
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As the world becomes more connected through online social networks, it’s easy for entrepreneurs to share too much information on crowdfunding sites about their best ideas (learn more about the basics of how crowdfunding works). Actually, entrepreneurs should assume that crowdfunding sites are visited not only by potential project funders, but by potential competitors and copycats too.
So what should entrepreneurs know and do before signing on at crowdfunding sites? In addition to consulting corporate counsel, here are some issues to be aware of and action steps to help safeguard your company’s most valuable intellectual property.
- Protect your patent applications. According to U.S. patent law, inventors must file a provisional or nonprovisional patent application in the U.S. within one year after first disclosing the invention to the public or making the invention available for commercial sale. Other European and Asian market countries are not as generous as the U.S. regarding deadlines for filing a patent application after public disclosure, which can occur at a crowdfunding site if entrepreneurs are not careful. Actually, most countries don’t allow inventors to file patent applications on inventions once they have been sold in the marketplace or otherwise been “publicly disclosed.”
Given the high-stakes, high-cost nature of patent applications, it’s probably best for entrepreneurs to file patent applications first, then determine what information is prudent to disclose at crowdfunding sites later on. Skilled legal counsel should be consulted to help determine what level of information is suitable for crowdfunding site disclosure.
- Explore copyright potential. Crowdfunding sites have been popular vehicles to raise funds for documentary and independent film projects, plays, video games, mobile games, online Web series and many non-profit interests. To entice potential donors, entertainment-oriented project producers may post treatment summaries or completed scripts to help demonstrate that the project is “real” or provide potential funders with a better understanding of the creative nature of the proposed project.
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Prior to posting completed scripts or other works online, it may be worthwhile for entrepreneurs to file a federal copyright registration on the “work.” The process is fast and inexpensive, and it usually doesn’t require an attorney’s assistance. Registering a new work online with the U.S. Copyright Office costs only $45, or $500 for expedited processing.
The primary value of a timely federal copyright registration is maximizing financial penalties against copyright infringers. Provided copyright owners file a federal copyright application within three months of the work’s publication date or before infringement begins, entrepreneurs can seek actual or statutory damages of up to $150,000, plus attorney fees.
Owners of creative works in certain areas known for copyright pirating, such as the film and music industries, can file a preregistration application on works in progress. Works that can be covered by preregistration filings must be unpublished but intended for commercialization. The preregistration application fee is considerably more expensive than a standard copyright registration — over $100 versus just $35.
Copyright preregistrants have to register the final work with the U.S. Copyright Office in less than three months after first publication. In cases of likely copyright infringement, preregistrants also have to file a registration on the final work in less than one month after the owner becomes aware of likely copyright infringement.
- Double up documentation. In addition to filing a copyright registration, writers may gain some extra comfort and proof-of-authorship documentation by filing their scripts and other works with the Writers Guild of America. Registration fees are just $20; $10 for Writers Guild members.
- Understand liability risks. Participants in crowdfunding opportunities are amply warned that the projects they fund may never take shape or achieve their intended promise. Despite these warnings, crowdfunding participants may still hire a lawyer to try to recover invested funds from entrepreneurs. Pesky lawyers may also claim that the entrepreneurs changed the artistic or functional nature of a project without approval from crowdfunding participants. Especially opportunistic crowdfunding participants who offered feedback on a project or suggestions for unique enhancements — say, for example, on a video game — may seek an ownership or royalty interest in finished works too.
The real deal in business is anyone can sue anyone at any time. They might not win in court; however, entrepreneurs will have to spend their precious time and funds to answer every legal claim.
The best course of action at crowdfunding sites is to resist oversharing. Present an accurate and highly detailed description of your project at crowdfunding sites, without disclosing trade secrets or other proprietary information that might end up in the hands of competitors or shady opportunists. No one will ever protect your business better than you can!