Kickstarter crowdfunding patent suit may well be the first of many 30 Nov 12
It was reported last week that high-tech start-up Formlabs and crowdfunding website Kickstarter have been sued by 3D Systems for infringing its patents relating to stereolithography – a technology more commonly known as 3D printing. The case highlights the importance for early stage businesses to carefully consider their IP strategies, as well as the IP position of competitors.
Kickstarter has been named in the suit alongside Formlabs, which used the online platform to raise funds to develop and market its proposed ‘affordable’ Form 1 3D printer. The project managed to raise over $2.9 million from ‘the crowd’, making it the most successful campaign to date in the website's technology category.
Kickstarter employs a rewards-based model to help start-ups secure financing. In return for their pledges, funders are promised a gift, the value of which often corresponds to the amount of money pledged. Formlabs offered its Form 1 3D printer to anyone who pledged $2,299 or more to its crowdfunded campaign.
While 3D Systems alleges that Formlabs’ printer infringes on one of its patents, it also claims that Kickstarter’s facilitation of the ‘sale’ of the infringing product (by offering it as a reward in turn for a financial commitment) makes the platform itself liable for infringement. 3D Systems also argues that Kickstarter’s taking of a 5% cut of pledged funds as a listing fee means that it is further benefitting from the alleged infringing activity.
A feature in the upcoming issue of IAM examines the IP issues that crowdfunding raises for entrepreneurs, crowdfunding platforms and investors. In the article, Scott Popma, a partner with law firm Finnegan, advises that start-ups should be carefully planning their IP strategies before they launch and put their business propositions online. “They should be checking what their competitors are doing, checking how much it is going to cost to get the necessary licences from other IP owners and making sure that they can deliver on their business promises,” he says, adding that early stage businesses should survey the marketplace to figure out how their intellectual property will fit into that space and how it can best be leveraged.
If 3D Systems is right about the infringement of its patent, it would appear that Formlabs did none of those things – or, at least, didn’t do them properly. According to TechCrunch, the start-up felt that it was able to make its 3D printer affordable because several patents fundamental to the technology had expired, meaning that the company “didn’t need to pay high licensing fees to get this product to market”. That indicates that the company’s managers were aware that patents were an issue, so ignorance of them – as poor an excuse as that may be – is not something that they can plead. Given that, some basic patent landscaping would surely have highlighted 3D Systems’ valid patent. Whether they did this and missed it, or ignored it, or did not do it at all, Formlabs now faces either an expensive settlement, an expensive lawsuit, or both – all scenarios which could easily put the company out of business before it has got going.
The article in the next issue of IAM also considers the specific IP issues regarding the equity-based crowdfunding model. While Kickstarter offers rewards to funders, equity portals – which are expected to grow in prominence since they were legalised by the passage of the JOBS Act back in April – give investors an ownership stake in the start-up they pledge funds to. It is hoped that this will widen the pool of potential investment for entrepreneurs, while funders – including sophisticated investors such as angels and VCs – will be able to lessen their exposure to risk by investing relatively small amounts of capital.
However, the prospect of being part-owner in a business that could be slapped with a patent infringement lawsuit before it has even launched could scare a lot of potential investors off. Given the nature of crowdfunding, and the fact that it not only gives investors an early view of a product but also competitors, it seems highly unlikely that the Kickstarter 3D printing case will be the last patent infringement suit levelled at a crowdfunded business. Hopefully, though, it will underline the need for entrepreneurs – and their potential investors – to undertake all the IP due diligence they can before they launch their businesses.
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