Crowdfunding is an increasingly popular method for a company to raise funds to get a new product off the ground. This is particularly prevalent for small businesses and start-ups within the lifestyle and wellness sectors. Successful crowdfunding has been seen in diverse areas such as tabletop gaming, comic books and virtual reality headsets. The potential for a company with its roots in crowdfunding can be extremely high, with the company Oculus starting from searching for a $250,000 investment on Kickstarter to eventually being bought out by Facebook for a figure in the billions.
Whilst the benefits of crowdfunding are clear, there is also a risk that companies entering this market may not also consider the potential drawbacks. This is particularly true when it comes to the consideration of intellectual property matters, as crowdfunding at the wrong time may hamper a company’s potential to obtain intellectual property rights. Having registered intellectual property can often be very attractive to future investors and so to potentially give up these rights in order to crowdfund prematurely can ultimately be detrimental to a company.
Keltie have therefore compiled a Top 5 list of intellectual property considerations for companies considering crowdfunding as a source of investment.
Crowdfunding can be very beneficial for new technological developments in traditionally niche markets, where proof of interest for a potential investor may be otherwise difficult to obtain. Such developments may also give rise to the right to a patent for that particular development. A granted patent is a powerful intellectual property right which can be used to prevent rivals from producing, importing and selling the development the patent is directed toward. As such, investors can view granted patents very favourably.
However, whether a patent is granted is dependent upon what is known to the public at the time a patent application is filed. What is known to the public includes any publicly available disclosure, including the content of any crowdfunding campaign. Therefore, before any crowdfunding content is made available companies should be careful to consider what information is being made available regarding how a product functions, as this could be used during the examination of a patent application and ultimately prevent a patent from being granted. Keltie would suggest considering whether pursuing a patent is of interest before any crowdfunding campaign goes live, since once an application is filed any future disclosure of information generally cannot be used against the success of the patent.
A successful crowdfunding campaign can often be linked to the strength of a company’s branding of either the product or the company itself. A distinctive name or logo can quickly gain brand recognition and lead to a stronger campaign performance. Such names or logos can be eligible for trademark protection. Trademarks can be used to prevent other businesses from benefitting from the brand recognition of your own product to enhance their commercial success.
The downside of this is that the same principle can also be used against a crowdfunder. When a crowdfunding campaign goes live, competitors may notice that the branding used is similar to their own existing trademark rights and prevent such branding from being used. This can lead to the need for an expensive rebrand, whilst simultaneously reducing the name recognition garnered from the early days of a campaign.
As such Keltie recommends at the very least that a thorough search of existing brands and trademarks be performed prior to the launch of a campaign to prevent such an outcome. Consideration should also be given as to whether pursuing trademark protection for your own brand is of interest prior to a campaign launch.
The launch of a crowdfunding campaign will likely require significant description of the benefits and features of the product being offered. This will (hopefully) generate a lot of interest from potential public investors. However, it is also likely to attract the interest of potential competitors who may decide to market a similar product, particularly if the project is gaining a lot of interest. If the competitor is particularly well placed, they may even be able to get such a product to market before the end of your campaign.
A good intellectual property portfolio can be used to mitigate against the risk of competitors attempting to market such products. Sometimes even indicating that you are pursuing intellectual property rights can act as a deterrent to these competitors. That makes it all the more important that you should consider your intellectual property rights prior to launching a crowdfunding campaign to strengthen your position with respect to your competitors.
Whilst patents may be used for technological developments, registered intellectual property is also available for protecting how a product looks. This is found in the form of registered designs. Registered designs are directed towards non-functional aspects of a particular product and relate solely to the aesthetic of that product, so just because a product may not be technological in nature does not mean that there is no intellectual property associated with that product. Indeed, a distinctive look of a product may be its key USP and so preventing others from using that design can be very useful.
As with patents, a registered design can be used to prevent rivals from using your distinctive design as part of their own products. In addition, designs can be obtained in a relatively short time and are also reasonably inexpensive. Whilst the requirements regarding self-publication are not always as stringent for designs as they are for patents, it is still worth considering whether it is worth pursuing design rights prior to crowdfunding.
Whilst crowdfunding can be beneficial, it is not always the most reliable form of investment. There is an inherent uncertainty regarding the amount of investment that will be received and requires you to publicly disclose the details of your product before it goes to market. In the worst case scenario, you could obtain minimal investment and inform competitors of your intentions.
As a result, we would advise first considering whether external investment may be a more beneficial route. Whilst this can be more daunting, the more confidential nature of this route can avoid premature disclosure of your product to the market, as well as providing a more defined amount of investment. In addition, investors may be willing to additionally pay for the costs of pursuing any intellectual property, which can sometimes be quite expensive. However, please be also be aware that investors may also specify that as part of any investment that they become at least part owners of your intellectual property (which may impede any further product ambitions).
If you are considering a crowdfunding campaign and have any queries regarding intellectual property matters, please do get in contact with Keltie and we will be happy to provide you with a free initial consultation.
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