How to Crowdfund an Invention without Losing Intellectual Property Rights

You have come up with a brilliant new, useful and inventive product, but commercializing an invention can be very expensive. Between production costs, marketing costs and the cost of securing intellectual property rights, many inventors simply do not have the funds to bring their inventions to market. Luckily, the Internet has made it possible to gauge the amount of market interest in a new product and amass capital from interested consumers through crowdfunding.

Crowdfunding refers to funding a project or venture by raising many small amounts of money from many people, typically via the Internet. Some notable examples of crowdfunding platforms are Kickstarter and Indiegogo.

Crowdfunding has several notable advantages over traditional fundraising methods. For one, it allows inventors to reach out to networks beyond their immediate family and friends, and often does not have the high barrier of entry that is involved in venture capital or angel investing. Further, money raised through crowdfunding is also an indicator of consumer interest, which helps the inventor form an initial consumer base and establish a target demographic.

Along with its many benefits, however, crowdfunding also comes with some risks. One of the most notable issues that can arise from using crowdfunding is the difficulty in protecting the inventor's intellectual property during the process. In order to obtain funds, the inventor is usually required to share the specifics of their idea and the novel premise behind it, which, absent a confidentiality or non-disclosure agreement, qualifies as public disclosure under patent law in most jurisdictions and may prevent the inventor from being granted a patent. Sharing the invention on a public forum can also result in competitors or other experts in the field replicating and exploiting the final product. It is therefore extremely important to protect your invention with a patent application before using crowdfunding to raise capital for your business.

A crowdfunding campaign may also disclose an industrial design, the protection of which, not unlike the protection of inventions, depends on novelty, such that public disclosure may present an obstacle to its registration. If your product involves an original design (meaning features of shape, configuration, pattern or ornament applied to a finished article), you may want to consider applying for an industrial design registration before disclosing the design in a public campaign to avoid having your design copied by competitors and rendered ineligible for registration.

While a crowdfunding campaign and associated product may also involve copyright or trademark rights, these rights are not reliant on there novelty and may exist without ever having been registered. Of course, there are benefits to registering either of these rights. Registering your copyright with the Canadian Intellectual Property Office (CIPO) entitles you to receipt of a registration certificate that constitutes official proof of ownership. This creates a rebuttable presumption that copyright exists in the copyrighted work and that the copyright registrant is the owner of said work. The presence of such a rebuttable presumption can be useful in litigation concerning copyrighted works. See our dedicated article for the benefits of trademark registration.

Protecting your invention before a crowdfunding campaign

Before disclosing any part of your invention publicly using an online crowdfunding platform, it is important to protect the intellectual property involved. For a new invention, this generally involves filing a provisional patent application in the United States with plans to proceed with patent applications in the countries where you plan to make sales. In order to secure a patent in Canada, the invention must be patentable subject matter, and must be new, useful and inventive (or not obvious). You can read our resource for more about Canadian patentability requirements.

If you have determined that your invention is likely to be patentable, then you must ensure that you are not disqualified from patent protection by disclosing it to the public prior to filing, or, in the United States and Canada, more than a year before filing due to the grace periods those countries provide. Grace periods aside, by disclosing the invention at any point before filing, you risk that a competitor could develop a similar product and file their own application for a patent before you. Since Canada and the United States operate on a first-to-file system, if your competitor files before you, you will not be able to obtain a patent even though you invented your product first. Furthermore, in some other countries any disclosure before filing will disqualify you from a patent altogether. For this reason, it is best to file a patent application before beginning the crowdfunding process.

Inventors operating on a tight initial budget or still making changes to their invention may wish to consider filing a provisional patent application in the United States (a preliminary, incomplete patent application) to secure a filing date which may later be relied upon in a priority claim in a regular patent application. Note that a provisional patent application has a pendency period of 12 months from the filing date of the provisional application. That means a corresponding nonprovisional application must be filed within that 12 months to obtain the benefit of the earlier filing date of the provisional application. The 12-month pendency period is non-extendable. Should the non-provisional application be filed more than 12 months after the filing of the provisional application, the applicant may still claim the earlier filing date benefit in the United States provided (i) the non provisional application was filed within 14 months after the filing of the provisional application and (ii) a grantable petition is filed and the requisite petition fee is paid. No similar restoration of priority in available in Canada. In the regular patent application, the description of how to make and use the invention may be expanded upon or modified from what was originally included in the provisional patent application, with all the subject matter described in the provisional patent application benefiting from the filing date of that submission through a priority claim. In Canada an initial incomplete patent application may be filed, however, whereas a United States provisional patent application has a reduced filing fee, a Canadian incomplete application is subject to the same filing fee as a regular Canadian patent application. Both Canada and the US also offer reduced fees to small entities (in Canada, a small entity is one that employs 50 or fewer employees or is a university). Qualifying applicants can save as much as 75% of the standard fees.

Filing an application before disclosing your invention will not only serve to protect the patent-eligibility of your invention but may also dissuade competitors from copying and selling your product. In the event that your invention is copied, and your patent is ultimately granted, you may be entitled to compensation. Without patent protection, you risk losing sales to competitors able to quickly replicate and market your product. An oft-cited example of this disaster is that of the Lunatik watch kit, a product that raised close to a million dollars on Kickstarter before being knocked-off by numerous competitors, the inventors having failed to secure their rights.

Protecting your brand before a crowdfunding campaign

If you are using a specific name in conjunction with your invention, it is wise to treat it as a trademark requiring protection from the get-go. Make sure to check whether there are any trademarks, domain names or corporate names in your jurisdiction(s) that are identical or confusingly similar to the product or brand name you plan to use as your trademark. If there are, then you risk being sued when you begin using your name, so you may want to consider an alternative.

Once you have established that your potential trademark is available, decide whether you want to disclose it during the crowdfunding process. While affiliating your invention with a catchy or memorable name may increase the success of your crowdfunding venture, as well as make marketing easier down the line, you risk that someone else will start using your chosen name, file for a trademark or buy related domain names before you. Thus, securing trademark rights to the name before crowdfunding is the most prudent course of action. Canada recently eliminated the use requirement for registration of a trademark, meaning that you do not actually have to have started using your trademark in association with the sale of goods or performance or advertising of services in Canada to register your trademark. It’s not unheard of for individuals to take advantage of this by filing for trademarks they expect they will later be able to sell to the businesses using them. Save yourself the trouble and make sure you’re the one filing for your mark.

Avoiding intellectual property disputes

As a final step before deciding on a crowdfunding platform and launching your campaign, consider the rights of others that may be relevant to your campaign. As already alluded to, if you haven’t obtained a trademark availability search and opinion, you may not be entitled to use the trademark with which you plan to associate your goods. To avoid running into a dispute with the owner of an identical or confusingly similar common-law or registered mark, consider obtaining a trademark search and opinion before using your proposed mark.

Another potential source of conflict arises when your invention is an improvement to an existing product or otherwise includes an invention other than your own. Where this is the case, and this other invention is protected by an active patent, you may be liable for patent infringement if you have not secured the necessary permissions.

Finally, most crowdfunding campaigns attract investment with photos and videos depicting the innovative new product and all of its features. Keep in mind that contractors hired to produce these materials generally retain their rights in the absence of an agreement to the contrary. Use of photos and videos provided by third parties may therefore be an infringement of copyright. Before putting these works to use in your campaign, make sure you’ve been assigned all rights therein and that moral rights in the works have been waived.

For assistance with intellectual property agreements, please contact us for a complimentary and confidential initial telephone appointment with a member of our team.

Evaluating crowdfunding platforms

The next step in the crowdfunding process is to select a platform that is best suited to your needs. While all crowdfunding platforms perform the same essential function, they differ in their jurisdictional reach and protections allotted to inventors' intellectual property. It is particularly important to investigate the intellectual property-related provisions of the contract that you will enter into with the crowdfunding platform you choose.

Some key issues include:

• In which jurisdictions does this platform operate? If these are your desired markets, does the platform permit an inventor from Canada to participate?
• Are there any intellectual property protections afforded by the platform to inventors?
• Who owns the commentary and suggestions made regarding your invention during your crowdfunding campaign? Do commentators forfeit their intellectual property rights to you, or do they retain ownership of any suggestions made?
• What policy does the crowdfunding platform have in place regarding potential (even accidental) intellectual property infringement? Some platforms may disable campaigns after receiving a single notice of infringement, whether substantiated or not.
• Are there any intellectual property rights associated with either your product or the marketing components that the crowdfunding platform can have a claim to because of your affiliation?

In the process of considering these questions, and any other intellectual property considerations that may arise, it may be helpful to consult a lawyer to help you review the contract and any other stipulations set out by the platform you are considering.

After the crowdfunding campaign

Your work is not done once you have protected your assets and selected the crowdfunding platform that best suits your needs. In an ideal scenario, your crowdfunding campaign will reach or exceed your target amount of capital, and you will be able to develop your product and bring it to market.

At that point you may need to file a regular patent application which is a formalized version of your provisional application and you should make sure to investigate if there are any rules governing the ownership of suggestions made by consumers or investors on the campaign platform. While someone who makes a suggestion for your product may not make any immediate claims, they may attempt to claim ownership later when your product becomes successful. Anyone who contributes to the inventive concept of an invention claimed in a patent may be considered to be a co-inventor and, absent any agreement to the contrary, a co-owner, and may thus be entitled to a share of the profits as well as have other options available to them to exploit the rights to the invention.

As your product gains market share, it is important to keep an eye out for infringement by competitors. The publicity of a successful campaign may attract those looking to exploit and profit off of the work you have put into research and development by replicating and offering your invention for sale.

Conclusion

Crowdfunding is a great way to connect with investors and potential customers to facilitate the commercialization of an early-stage invention. If done correctly, it can help you bring your product to market without accumulating significant debt and can act as a marketing tool in itself. Due to its complicated nature, however, crowdfunding is also rife with intellectual property pitfalls that inventors must take caution to avoid. By carefully examining your invention, filing applications where needed for all relevant forms of intellectual property rights beforehand, and understanding the terms of engagement with the crowdfunding platform you choose, you can derive benefits from the crowdfunding process while retaining ownership of your invention.

If you would like to discuss options for protecting your intellectual property, contact us for a complimentary and confidential telephone appointment with a member of our team.