How to Crowdfund an Invention without Losing Intellectual Property Rights
Crowdfunding refers to funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet. Some notable examples of crowdfunding platforms are Kickstarter and Indiegogo.
Crowdfunding has several notable advantages over traditional fundraising methods: it allows inventors to reach out to networks beyond their immediate family and friends, and often does not have as high of a barrier of entry as venture capital or angel investing requires. 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. 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.
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 future plans to proceed with patent applications in the countries where you plan to make sufficient 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 more about Canadian patentability requirements here.
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 allow. 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, then 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. Therefore, 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. 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.
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. In Canada you can file a trademark application on the basis of proposed use, 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 upon filing, although you must start using it before registration.
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 for inventors' intellectual property. It is particularly important to look into the intellectual property-related provisions of the contract that you will enter into with the crowdfunding platform you choose.
Some key considerations include:
- Which jurisdictions does this platform operate in? 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 answering 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 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 for easy profits through replicating your invention without the work you have devoted to research and development.
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, please do not hesitate to contact us for a complimentary and confidential telephone appointment.