• Skip to primary navigation
  • Skip to content
  • Skip to primary sidebar

McCarter & English Logo

  • People
  • Services
  • Insights
  • Our Firm
    • Leadership Team
    • Social Justice
    • Diversity, Equity & Inclusion
    • Pro Bono
    • Client Service Values
    • Alumni
  • Join Us
    • Lawyers
    • Summer Associates
    • Patent Professionals
    • Professional Staff
    • Job Openings
  • Locations
    • Boston
    • Philadelphia
    • East Brunswick
    • Indianapolis
    • Stamford
    • Hartford
    • Trenton
    • Miami
    • Washington, DC
    • New York
    • Wilmington
    • Newark
  • Share

Share

Browse Alphabetically:

  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • J
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • U
  • V
  • W
  • X
  • Y
  • Z
  • All
Bankruptcy, Restructuring & Litigation
Blockchain, Smart Contracts & Digital Currencies
Business Litigation
Cannabis
Coronavirus Resource Center
Corporate
Crisis Management
Cybersecurity & Data Privacy
Delaware Corporate, LLC & Partnership Law
Design, Fashion & Luxury
E-Discovery & Records Management
Energy & Utilities
Environment & Energy
Financial Institutions
Food & Beverage
Government Affairs
Government Contracts & Global Trade
Government Investigations & White Collar Defense
Healthcare
Hospitality
Immigration
Impact Investing
Insurance Recovery, Litigation & Counseling
Intellectual Property
Labor & Employment
Life Sciences
Manufacturing
Products Liability, Mass Torts & Consumer Class Actions
Public Finance
Real Estate
Renewable Energy
Sports & Entertainment
Tax & Employee Benefits
Technology Transactions
Transportation, Logistics & Supply Chain Management
Trusts, Estates & Private Clients
Venture Capital & Emerging Growth Companies
  • Broadcasts
  • Events
  • News
  • Publications
  • View All Insights
Search By:
Insights Publication Magazine Open Stack
Main image for FTC Eyes Kickstarter Campaigns for Consumer Protection
Publications|Alert

FTC Eyes Kickstarter Campaigns for Consumer Protection

Intellectual Property Alert

7.7.2015

Most Kickstarter projects never reach the funding threshold, so funders never pay anything into the venture. However, as shown by recent enforcement action, agencies such as the FTC (Federal Trade Commission) have become interested in the 37% that do receive funding. Those using crowdfunding platforms should take note and renew their attention to the FTC’s rules on deceptive trade practices.

Sometimes fraud is obvious. On June 10, 2015, the FTC settled a claim against a company and its CEO, requiring the return of over $122,000 of funders’ money. Money that was intended to fund development of a board game titled “The Doom That Came to Atlantic City” went instead to the CEO’s personal expenses and to costs of another project. Unfortunately, there is still no happy ending for the funders; the judgment is currently suspended due to an inability to pay.

While this may have been a clear case of misuse of funds, other misrepresentations in a campaign, while not outright fraud, may still rise to the level of an unfair or deceptive trade practice. The FTC does not have data on how common such practices are on crowdfunding sites, but thinks it is a matter of concern.

Sponsors are eager to sell their campaigns, to get people interested and to generate excitement, among other reasons. But when the description does not openly discuss risks, it can lead to unmet expectations and, worse, a potentially deceptive campaign.

It’s one thing when the CEO puts money in his or her own pocket, and quite another when the project experiences commercial failure. Unhappy funders have been promised a “special party,” which turned out to be a low-attendance event. Others have been promised products that are delivered after long delays, or are of a much lower quality than expected. Is this deceptive, or merely one of the many businesses that never get off the ground?  

In any event, claims should be expected to arise from crowdfunding gone bad.

How to deal with it? When launching a campaign, sponsors should be as open and honest as possible about the risks associated with the project. For example, if a company’s founders are first-time entrepreneurs without experience in the particular space, perhaps that should be disclosed. If success relies on external factors, those should be identified and discussed. The clearer and more open a company is about the risks of the campaign, the safer it will be from allegations or claims like the one recently brought by the FTC.

Kickstarter and other crowdfunding sites have been clear that they do not and cannot guarantee creators’ work. Earlier this year, Kickstarter responded to one funder, “Kickstarter itself cannot force the creator to fulfill rewards, offer refunds, or communicate with backers (though we encourage them to do so). In this case, we cannot force the creator to fulfill the reward that the backer has specified.”

As Jessica Rich, director of the FTC’s Bureau of Consumer Protection, put it, “Many consumers enjoy the opportunity to take part in the development of a product or service through crowdfunding, and they generally know there’s some uncertainty involved in helping start something new. But consumers should be able to trust their money will actually be spent on the project they funded.”

Lawyers at McCarter & English, LLP routinely advise clients on the law of marketing, the law of crowdfunding, and other issues of interest to start-ups and emerging growth companies, and continue to monitor the space for updates in this rapidly evolving area of the law. We give our thanks to summer associate Cristián Ossa for his assistance with this client alert.

sidebar

pdfemail

Related People

Media item: Susan Okin Goldsmith
Susan Okin Goldsmith

Partner

Related Services

Intellectual Property
Subscribe to our Insights
McCarter & English, LLP
Copyright © 2023 McCarter & English, LLP. All Rights Reserved.
  • Login
  • Attorney Advertising
  • Privacy
  • Awards Methodology
  • Contact
  • Subscribe
  • Sitemap

The McCarter & English, LLP website is for informational purposes only. We do not provide legal advice on this website. We can provide legal advice only to our clients in specific inquiries that they address to us. If you are interested in becoming a client, please contact us, but do not send any information about your specific legal question. We cannot serve as your lawyers until we establish an attorney-client relationship, which can occur only after we follow procedures within our firm and after we agree to the terms of the representation.

Accept Cancel