"Is a creator legally obligated to fulfill the promises of their project?
Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) This information can serve as a basis for legal recourse if a creator doesn't fulfill their promises. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill."
I can’t help but think that this is the wrong approach by Kickstarter. I think it should only be possible to ask for refunds if the creator doesn’t make a good faith effort.
I understand that Kickstarter wants to draw a clear and unambiguous line, but I also think that one of things that makes Kickstarter great is the potential for failure. It’s not just a boring pre-order service – or at least I don’t want it to be, at least not exclusively.
The potential for failure is already the current reality of Kickstarter but I always feel as though they try to absolve themselves from it. I think they should instead communicate it offensively.
Kickstarter can remain a place for boring pre-orders (those projects can be awesome, too, e.g. Smut Peddler).
However, Kickstarter could also create a clearly marked higher risk type of project. The product doesn’t exist at the start of the funding period (either completely or nearly completely). Kickstarter could require creators to be more transparent with their budget. Maybe there could also be a, say, $2,500 ceiling for each individual backer or something like that. But Kickstarter could also allow for failure without refunds.
I think all of this is doable. People who don’t like risk can still back low-risk pre-order Kickstarters, people who enjoy backing something that could fail can do just that.
(That being said, the linked project appears to have been fraudulent and no good faith effort appears to have been made, so it’s certainly appropriate to get the courts involved.)
Kickstarter doesn't get to make law. Just because a TOS says you're legally obligated to do something doesn't mean you are. In fact given the very public nature of kickstarter's failures, and their own disclaimers about the risk associated with backing a campaign, it will be extremely difficult to make the case that this falls under standard consumer protection laws. You're not making a purchase, your taking a risk to finance a project. That is the entire and sole point of kickstarter.
Section 4.9 of the complaint specifically calls out this statement in Kickstarter's TOS. I believe it underpins the entire legal action, because if backers reasonably understand the project could fail and they would get neither reward NOR a refund, then the burden of proof on the state increases enormously.
I just talked with the assistant AG in charge of this case. He seems pretty with it, and they're not trying to do anything crazy here - they see it as a pretty straightforward breach of contract sort of thing. They chose this case because it seemed "very clean" and likely to have a solid outcome that would be a good deterrent for bad actors and encourage backers who get shafted.
The important bit here is not the non-delivery, but the fact that the creator failed to keep up communication about the project.
The suit states that Kickstarter rules state that the creator is legally bound to fulfill, but may delay as much as need, but also must communicate regularly.
The project in question stopped communicating in July 2013, so the accusation is demonstrated intent to not deliver, thus breaking the legally binding contract.
> The suit states that Kickstarter rules state that the creator is legally bound to fulfill, but may delay as much as need, but also must communicate regularly.
The suit does not state anything about creators being allowed to "delay as much as need".
> so the accusation is demonstrated intent to not deliver
No, the accusations are, in the first cause of action, representing that rewards would be delivered in approximately December of 2012 and not delivering them and, in the second cause of action, failure to provide refunds to those who requested them, and failure to offer refunds to those who had not requested them, given the failure to deliver.
Or he could be, say, nipping a problem in the bud. There have been a few big but dubious crowdfunded projects recently. If scam artists think they can raise a bunch of money and then say, "oopsie," and have it all be a free pass, there could be a flood of bad projects.
He was a pioneering American con man. Many of the scams he pulled weren't illegal at the time, so they had to come up with new laws to prevent him and imitators from fleecing more people.
Whether or not this AG knows and cares about limiting criminal innovation, you can be sure some of them do.
It's easy to make an attack on a politician and dismiss things, but I think it's much more likely that someone (Bob Ferguson) is trying to set a precedent on crowdfunding and their obligations to the funders.
Yes, but it isn't about going after $25K. It is about protecting everyone else who lives in WA and wants to participant in Kickstarter. The AG is hoping to set a precedent with this case.
Kickstarter's a known internet site so it is probably worth it for the publicity. Its the AG version of a committee meeting calling CEOs for some "wrong doing"[1].
1) note the quotes and yes, I think there is an element besides "guardian of the voters" here.
I feel like perhaps if the creator can't deliver, he should make public all work produced by the deadline. That way, at least if an interested party among the backers wanted to pick up where the creator left off, they'd be able to do so.
This seems like something Kickstarter could fairly easily work into their TOS.
Is there a precedent for this in traditional investing, such as a case where an angel invests in a company and the founders take the money and run, or blow it without making a real attempt at the company?
I don't live in Washington, but if this were happening in CA I'd have no problem with it; it isn't so much about recouping that money as it is setting a precedent.
If there are no repercussions to collecting a bunch of crowdfunding money and disappearing, doing that will become a lot more common (likely with amounts a lot higher than $25k) which will eventually just serve to kill the entire crowdfunding model since nobody wants to be a sucker twice.
(Shrug) That's a legitimate function of government. Do you want to live in the THX-1138 world, where the cops stop chasing you as soon as you make them spend enough money?
Spreading out over millions of state taxpayers the cost of the necessary legal procedures to make whole the few dozen Washington State residents who invested and got burned, so that each person's individual contribution is epsilon while still sufficing to redress the wrong? Seems sensible to me, too.
If you beat me up and I incur $10k in ER bills, chances are prosecuting you is going to cost more than that. The point is not to recoup the costs, but to make it risky for others to do the same thing.
Well, you can run that argument for a lot of things. Sometimes it is more important to protect the system which will bring good in the future. Costs go before the earnings (no pain, no gain). If you let these things go off, next thing you know it becomes the new ebay/PayPal where Nigeria will takeover and scam it to dead.
I hope they use this case to set an example. No easy scamming on this platform, walk along.
> So Washington's taxpayers will spend hundreds of thousands on legal fees to collect the ($25,146 / 50) = $502.92.
First, where does the "/ 50" come from?
Second, while the suit calls for restitution to be made part of the courts orders, it also seeks civil penalties of $2,000 per violation of the applicable consumer protection law, and for costs including legal fees.
They're consumers, what websites like kickstarter call crowd funding is not very different to good old pre-ordering legally speaking. And if you pre-order a product you have a right to delivery or getting your money back.
[+] [-] waterlesscloud|12 years ago|reply
"Is a creator legally obligated to fulfill the promises of their project?
Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. (This is what creators see before they launch.) This information can serve as a basis for legal recourse if a creator doesn't fulfill their promises. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill."
https://www.kickstarter.com/help/faq/kickstarter+basics?ref=...
[+] [-] arrrg|12 years ago|reply
I understand that Kickstarter wants to draw a clear and unambiguous line, but I also think that one of things that makes Kickstarter great is the potential for failure. It’s not just a boring pre-order service – or at least I don’t want it to be, at least not exclusively.
The potential for failure is already the current reality of Kickstarter but I always feel as though they try to absolve themselves from it. I think they should instead communicate it offensively.
Kickstarter can remain a place for boring pre-orders (those projects can be awesome, too, e.g. Smut Peddler).
However, Kickstarter could also create a clearly marked higher risk type of project. The product doesn’t exist at the start of the funding period (either completely or nearly completely). Kickstarter could require creators to be more transparent with their budget. Maybe there could also be a, say, $2,500 ceiling for each individual backer or something like that. But Kickstarter could also allow for failure without refunds.
I think all of this is doable. People who don’t like risk can still back low-risk pre-order Kickstarters, people who enjoy backing something that could fail can do just that.
(That being said, the linked project appears to have been fraudulent and no good faith effort appears to have been made, so it’s certainly appropriate to get the courts involved.)
[+] [-] iandanforth|12 years ago|reply
[+] [-] zaroth|12 years ago|reply
[+] [-] crazy1van|12 years ago|reply
[+] [-] devindotcom|12 years ago|reply
[+] [-] rasz_pl|12 years ago|reply
There are multiple better cases where its clear they were started as scams. For example:
https://www.indiegogo.com/projects/healbe-gobe-the-only-way-...
https://www.indiegogo.com/projects/mu-thermal-camera-a-great...
[+] [-] dredmorbius|12 years ago|reply
[+] [-] Mithaldu|12 years ago|reply
The suit states that Kickstarter rules state that the creator is legally bound to fulfill, but may delay as much as need, but also must communicate regularly.
The project in question stopped communicating in July 2013, so the accusation is demonstrated intent to not deliver, thus breaking the legally binding contract.
[+] [-] dragonwriter|12 years ago|reply
The suit does not state anything about creators being allowed to "delay as much as need".
> so the accusation is demonstrated intent to not deliver
No, the accusations are, in the first cause of action, representing that rewards would be delivered in approximately December of 2012 and not delivering them and, in the second cause of action, failure to provide refunds to those who requested them, and failure to offer refunds to those who had not requested them, given the failure to deliver.
http://www.scribd.com/doc/221464947/State-of-Washington-vs-A...
[+] [-] nostromo|12 years ago|reply
It's hard to imagine a person can even mount a defense against a state AG for less than $25k...
Yes, they f'ed up. But unless it was malicious, this seems like an excessive response. I suspect an AG is trying to make a name for him or herself.
[+] [-] wpietri|12 years ago|reply
Those interested in reading a history should pick up Joseph "Yellow Kid" Weil's bio: http://www.amazon.com/dp/0767917375/
He was a pioneering American con man. Many of the scams he pulled weren't illegal at the time, so they had to come up with new laws to prevent him and imitators from fleecing more people.
Whether or not this AG knows and cares about limiting criminal innovation, you can be sure some of them do.
[+] [-] orik|12 years ago|reply
[+] [-] chrismcb|12 years ago|reply
[+] [-] protomyth|12 years ago|reply
1) note the quotes and yes, I think there is an element besides "guardian of the voters" here.
[+] [-] steven2012|12 years ago|reply
[+] [-] itsameta4|12 years ago|reply
This seems like something Kickstarter could fairly easily work into their TOS.
[+] [-] anigbrowl|12 years ago|reply
[+] [-] rasz_pl|12 years ago|reply
http://pando.com/2014/04/03/after-pando-shows-clear-evidence...
[+] [-] etler|12 years ago|reply
[+] [-] unknown|12 years ago|reply
[deleted]
[+] [-] georgemcbay|12 years ago|reply
If there are no repercussions to collecting a bunch of crowdfunding money and disappearing, doing that will become a lot more common (likely with amounts a lot higher than $25k) which will eventually just serve to kill the entire crowdfunding model since nobody wants to be a sucker twice.
[+] [-] CamperBob2|12 years ago|reply
[+] [-] aaronem|12 years ago|reply
[+] [-] ceejayoz|12 years ago|reply
If you beat me up and I incur $10k in ER bills, chances are prosecuting you is going to cost more than that. The point is not to recoup the costs, but to make it risky for others to do the same thing.
[+] [-] bastijn|12 years ago|reply
I hope they use this case to set an example. No easy scamming on this platform, walk along.
[+] [-] dragonwriter|12 years ago|reply
First, where does the "/ 50" come from?
Second, while the suit calls for restitution to be made part of the courts orders, it also seeks civil penalties of $2,000 per violation of the applicable consumer protection law, and for costs including legal fees.
[+] [-] larvaetron|12 years ago|reply
[+] [-] nolok|12 years ago|reply
[+] [-] morgante|12 years ago|reply
[+] [-] larvaetron|12 years ago|reply