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State court orders Kickstarted game creator to pay $54k for failing to deliver

156 points by Impossible 11y ago

gadrfgaesgysd 11y ago
If I fund a company and it fails, then I don't have any right to sue them for lost "revenue". Right? What is the difference in the case of Kickstarter. They are a crowdfunding platform are they not? I have seen this system abused many times. For many it is just a store. Kickstarter should have stricter rules, but why should they, the liability is on the creators and if they succeed, Kickstarter collects some percentage.
- minimaxir 11y ago
  You may want to read the original complaint: http://www.scribd.com/doc/221464947/State-of-Washington-vs-Asylum-5-1-2014 http://www.scribd.com/doc/221464947/State-of-Washington-vs-A... This is a bit more malicious than "things didn't work out."
  - gadrfgaesgysd 11y ago
    At a glance the problem seems to be they didn't deliver. If you read it, can you write a short summary of their malicious acts?
    - deleted 11y ago
      [deleted]
    - zyxley 11y ago
      The important bits: > 4.15 Defendants represented on the Asylum Playing Cards Campaign website that delivery of the rewards to all backers (e.g. the Asylum playing cards themselves, as well as the various add-on rewards) would take place in December 2012. > 4.16 Defendants have not posted an update to the Asylum Playing Cards Campaign website since July 13, 2013. ... > V. FIRST CAUSE OF ACTION - MISREPRESENTATIONS AND THE FAILURE TO DELIVER REWARDS ... > 5.2 In the context of operating the Asylum Playing Cards Kickstarter campaign, Defendants engaged in the following acts or practices constituting unfair or deceptive acts in trade or commerce: > a. Misrepresenting either directly or indirectly that Backers who paid for Rewards through the Kickstarter Campaign would receive those Rewards in approximately December 2012; > b. Failing to deliver the promised Rewards to Backers after the Backers paid money to Defendants via the Kickstarter Campaign. ... > VI. SECOND CAUSE OF ACTION - FAILURE TO REFUND ... > 6.2 In the context of operating the Asylum Playing Cards Kickstarter campaign, Defendants engaged in the following acts or practices constituting unfair or deceptive acts in trade or commerce: > a. Failing to provide refunds to Backers who requested one after they did not receive their Reward in a timely fashion from Defendants' Kickstarter Campaign; > b. Failing to offer refunds to any other Backer, whether a refund was requested or not, after Defendants were unable to deliver the Rewards to any backer within a reasonable timeframe.
      - gadrfgaesgysd 11y ago
        That seems fair. If you promise something and fail to deliver, i.e. treat Kickstarter as a store, then you should be liable.
        BryantD 11y ago
        And, in fact, the Kickstarter ToS acknowledges this obligation. Lengthy quote: When a project is successfully funded, the creator must complete the project and fulfill each reward. Once a creator has done so, they’ve satisfied their obligation to their backers. Throughout the process, creators owe their backers a high standard of effort, honest communication, and a dedication to bringing the project to life. At the same time, backers must understand that when they back a project, they’re helping to create something new — not ordering something that already exists. There may be changes or delays, and there’s a chance something could happen that prevents the creator from being able to finish the project as promised. If a creator is unable to complete their project and fulfill rewards, they’ve failed to live up to the basic obligations of this agreement. To right this, they must make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers. A creator in this position has only remedied the situation and met their obligations to backers if: they post an update that explains what work has been done, how funds were used, and what prevents them from finishing the project as planned; they work diligently and in good faith to bring the project to the best possible conclusion in a timeframe that’s communicated to backers; they’re able to demonstrate that they’ve used funds appropriately and made every reasonable effort to complete the project as promised; they’ve been honest, and have made no material misrepresentations in their communication to backers; and they offer to return any remaining funds to backers who have not received their reward (in proportion to the amounts pledged), or else explain how those funds will be used to complete the project in some alternate form. The creator is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by backers.
    - deleted 11y ago
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  - MBCook 11y ago
    I tried. Apparently I'm not allowed to look at more than 4 pages without using their app. So I gave up. I've never been a fan of Scribd but MAN that's hostle.
  - sologoub 11y ago
    DISCLAIMER: I don't think it's ok to promise and not deliver, and don't know all the merits of the case, but have so far read sections of the suit detailing facts of the case and causes for action. I'm sure there is more to it. Section 4 outlines the facts of the case with item 4.2 stating that backers "paid for" rewards. Sections 5 and 6 are all accusations based on the "paid for" premise and the basis for the action. This is where I have a problem with this - kickstarter is not a store. If I order from Amazon, I'm expecting that they will deliver. It's a sales transaction. If on the other hand I'm willing to help someone take a shot at doing something new, and, if successful, get some sort of reward back, that's not a store sales transaction. The premise of kickstarter has a lot more in common with angel or seed investing than with buying stuff. In reading through the facts section, I don't see any argument being made that the campaign was started in bad faith and the project creator is not being prosecuted for fraud. The basis of the case is essentially consumer paid for a good and that good never showed up and no refund was issued. But again, kickstarter is not a store...
    - rwallace 11y ago
      Looking at the discussion on the site, it's pretty clear that although there wasn't proof beyond reasonable doubt of the crime of fraud, the company refused to show their work - give any details about what happened to the money or why they weren't able to deliver - and the backers took this as an indication of deliberate fraud, and that was why they pressed for this lawsuit - they were retaliating against someone who as far as they could see had deliberately cheated them. As far as I know, kickstarter backers have a pretty good track record of being forgiving when the project creator shows good faith.
    - zyxley 11y ago
      I'm guessing the judge here decided that people repeating "Kickstarter is not a store" doesn't actually matter when somebody obviously uses Kickstarter as a store, in the same way that the police are unlikely to care you're actually driving a motorized couch if they pull you over for speeding.
      - sologoub 11y ago
- pyrrhotech 11y ago
  Kickstarter backers are not investors. They don't own any part of the business they are funding. They are essentially buying pre-orders. I would assume that genuine attempts to use the money to produce the pre-sold product should be protected from litigation, but if the Kickstarter owner goes out and parties with it instead, that is fraud. Not saying that happened in this case, but it's up to the plaintiff and defense to prove whether they used the funds appropriately or not.
  - lotharbot 11y ago
    kickstarter is neither "investment" not "pre-sales". It's patronage [0], as explained on a KS blog post the day before the site went live [1]. This means backers are funding a good-faith effort by the team to deliver the described result. They don't have any recourse if the team's good-faith effort fails (meaning, genuine attempts are protected from litigation), but they do have recourse if that effort is not made. [0] https://en.wikipedia.org/wiki/Patronage https://en.wikipedia.org/wiki/Patronage [1] https://www.kickstarter.com/blog/defining-patronage https://www.kickstarter.com/blog/defining-patronage
    - meddlepal 11y ago
      I think the fact nobody understands this means their objective has failed and they are by default relegated to being investment or pre-sales regardless of whether they claim to be or not.
    - deleted 11y ago
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    - Guvante 11y ago
      No effort was made in this case (from the stories) so it seems to line up well with their original goal.
    - deleted 11y ago
      [deleted]
    - rue 11y ago
      The language around ‘good faith’ and ‘best effort’ seems really dicey. Leaves a lot of room for legal trouble if someone wants to cause it.
- PirateDave 11y ago
  I think the difference is that you're only funding the company if it reaches the point where it won't fail due to lack of funding. They're supposed to have all costs associated with deliverables factored into the amount they request to be funded.
- dragonwriter 11y ago
  > If I fund a company and it fails, then I don't have any right to sue them for lost "revenue". Right? That really depends on how you fund the company, and what the company "fails" at. If you fund a company by providing debt (rather than equity) financing, and they fail to pay what the promised, yes, you can sue them. > What is the difference in the case of Kickstarter. They are a crowdfunding platform are they not? The difference between Kickstarter and debt financing is that, with a Kickstarter, the offered exchange for money now is a specified "backer reward" later, instead of a specified amount of money later.
- Agathos 11y ago
  If you fund a company by buying debt, you can certainly sue them if they don't pay what was promised. If they're already bankrupt I wouldn't expect more than pennies on the dollar, but the option is there. If you fund a company by buying equity, you have no recourse except possibly a share of whatever remains when the company is liquidated, after debtholders are paid. In exchange, you have an unlimited upside if the company does well. Kickstarter commitments are much closer to debt than to equity.
  - hueving 11y ago
    They are nothing close to debt. If they were, you would be getting back cash at the end. Heinz can't take a loan for a million dollars and send back a tank full of ketchup as repayment.
    - dragonwriter 11y ago
      > Heinz can't take a loan for a million dollars and send back a tank full of ketchup as repayment. Yeah, if you take money now for product later, that's an order rather than a bond. But, then, looked at that way, Kickstarters are more like stores than any form of financing.
  - fredkbloggs 11y ago
    The best analogue is really with preferred equity (of the kind issued by established corporations, not VC-backed startups). You don't get anything beyond what you subscribed for, no matter how well the company does. But you aren't entitled to anything at all, and have no recourse if you get nothing. This case is interesting because it's the first one holding that Kickstarter is anything but simply a gift. Preferred equity holders have certain rights that go along with their place in the capital structure; they can usually prevent the corporation from paying dividends to common shareholders unless they're also being paid, and sometimes they have debt-like rights as well if the company is not paying dividends as agreed. The analogue here would be that the preferred dividends are the goods plus rewards. Unfortunately, this case is much narrower than that, and the holding is very weak. You're still not entitled to anything as a Kickstarter backer. All this means is that the founders can't commit fraud: they must actually intend to deliver something and make some effort to do so. So really, you're still nothing like any kind of creditor or equity owner, and you're still entitled to nothing. Contributions are still gifts, but they have very small strings attached. They're nothing like an investment.
- s73v3r 11y ago
  "If I fund a company and it fails, then I don't have any right to sue them for lost "revenue". Right?" If you're an investor, and you believe that the company was not acting in your interest, then yes, you can sue. "What is the difference in the case of Kickstarter. They are a crowdfunding platform are they not?" Shouldn't matter; if you don't put forth a good faith effort to actually do what you set out to do, you should have the crap sued out of you.
- aikah 11y ago
  > They are a crowdfunding platform are they not? A "crowdfunding platform" doesn't mean anything to a judge. Crowdfunding doesn't mean anything legally. A donation to a charity has legal ramifications, but Kickstarter is no charity, equity an investor owns has a legal definition, but Kickstarter projects are no investments ... Kickstarter becomes a store as soon as a reward is promised. If you back something and you are promised a reward, you are entitled to that reward or a refund, and i'm sure many more cases will go in that direction, which is a good thing.
- detaro 11y ago
  Treating Kickstarter as a store involves the person running the campaign also treating it as a store (which admittedly in many cases is extremely helpful/necessary to get funded). Rewards are promises against pledges: Someone pledges, you owe them the reward. Now if you offer your product as a reward, then yes, you owe them the completed product. If you are not sure you can do that, then don't offer the project goal as a reward, but things you can do. Then it doesn't matter that much if you fail at completing your main project. And really, analogies don't go very far if the terms and contracts you agree to explicitly spell out something different.
- nemo44x 11y ago
  Publicly traded companies get sued all the time for misleading investors. Happens in biotech very often.
ghayes 11y ago
There are risks involved in a Kickstarter. I'm sure these are spelled out in the terms and conditions in funding a Kickstarter. While fraud should be protected, a good-hearted attempt that fails should be covered by that contract, in my opinion.
- mmanfrin 11y ago
  In this case, there appears to have been no good-hearted attempt -- the project was funded almost 3 years ago, and the fulfillment of creating was to be handled by the US Playing Card Company. This means that the only real work required was to get a batch printed, then mail them out. This was either malice or just plain stupidity on the part of the creator. People are starting to get their cards now, but I think that has more to do with this lawsuit and the media coverage Nash has gotten for this. But I wholeheartedly agree that if a backer makes a good faith attempt to fulfill promises, then not shipping is not a punishable offense.
  - TallGuyShort 11y ago
    I also agree - I've only backed a couple of Kickstarter's, but I'm quite certain I was explicitly told that there was no guarantee backing a project and the project being funded would result in me actually getting the rewards. On the other hand, there are many cases where people mutually agree to a contract, but that contract is not enforceable because it violates certain laws. Minimum wage, for instance. Effectively I'm not allowed to work for someone unless I'm worth a certain minimum threshold, because if that was allowed we would lose certain protections against exploitation (of course there's all sorts of room for opinions there). You can back a KickStarter, but certain governments may still hold the project to higher standards than KickStarter does.
  - x5n1 11y ago
    Not malice, fraud.
    - RickHull 11y ago
      Eh? Fraud is malicious.
javajosh 11y ago
I think it's great to keep people honest - if I spend real money on an idea, and the progenitor of that idea just uses the money for a trip to Hawaii (or whatever) then yeah, that's a wrong that needs correcting. But check this out: >Nash and Altius Management have been ordered to pay their 31 backers in Washington a total of $668 in restitution, as well as $23,183 in legal fees and $31,000 (a grand per backer burned) in civil penalties for violating the state Consumer Protection Act, but it's yet unclear whether they've actually done so. Gamasutra has reached out to the Washington state Attorney General's office for further details. So, the 31 Washington people actually harmed get $20 each; lawyers get $23,000, the state gets $31,000. Someone please tell me how this is justice. [Edit: it's actually much worse, because this is just for Washington state. Consumer protection lawyers in any state with a harmed investor could go after the wrong-doers, with similar payouts: 1K to people, 50k to the state and lawyers. A 50:1 ratio applied in all 50 states would yield a whopping 2500:1 ratio of punitive to actual damages. That's $50k in making things right, and $125M in punitive fees]
- saalweachter 11y ago
  Ignoring whether this particular judgement is fair, the (US) legal system isn't really focused on restitution. Most of the punishments it metes out are purely a deterrent; after all, if someone is sent to jail for ten years, its not like the victim is given an extra ten years of life.
  - dragonwriter 11y ago
    The criminal justice systems in the US are, obviously, not focused on compensation. But the civil justice systems are much more focused on compensation. Using an example drawn from the former to say that the "(US) legal system" is not focused on restitution in response to a discussion about the latter is not particularly useful.
  - deleted 11y ago
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- gadrfgaesgysd 11y ago
  The backers got their money back. And the defendant lost a lot more money than just the restitution. The penalty was harsh, but I don't see why it was unjust. Do you think the plaintiffs should get more money than they deserved?
seesomesense 11y ago
Asylum Playing Cards were a long running scam. Good to see that the Attorney General's office finally went after them.
swagv 11y ago
Just as state lotteries are a tax on people who can't do math, crowdfunding sites are a tax on people who don't understand business loans or venture investing.
smegel 11y ago
Who were the "consumers" and what did they "buy"?
equil 11y ago
ever since that hanfree story [0], Kickstarter has been a bit more explicit about creator obligations [1]. Creators are now told to "make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers" should the project fail or rewards not make it to backers. The terms of use also has an explicit warning about possible legal action at the bottom. [0] http://www.businessinsider.com/how-one-stupid-mistake-and-35000-from-kickstarter-made-an-average-guy-bankrupt-2013-1 http://www.businessinsider.com/how-one-stupid-mistake-and-35... [1] https://www.kickstarter.com/terms-of-use#backer-creator https://www.kickstarter.com/terms-of-use#backer-creator
- makomk 11y ago
  That's actually a watered-down version of what Kickstarter had before, with significantly less protection for backers. Previously the ToS said creators had to give either the rewards they'd promised or a refund. Kickstarter made a big deal about protecting backers a few years ago after ZionEyez took a quarter of a million in backer funds and then disappeared to a tropical beach never to be heard from again, then quietly removed those protections and more after the heat died down.
  - TazeTSchnitzel 11y ago
    Not requiring a refund does seem somewhat reasonable. It's not as good for the backers, but won't terrify the companies being funded with a super-massive liability.
bentrevor 11y ago
Does double jeopardy apply here? As in, can another state sue for the same thing?
- tedunangst 11y ago
  It would appear this ruling and the accompanying restitution is only for the backers in Washington state. Each state could in theory pursue its own lawsuit for its own residents.
- ams6110 11y ago
  Double jeopardy protection is for criminal charges, not civil.
  - Flammy 11y ago
    Apparently double jeopardy doesn't apply in two different states, regardless of the type of charges. Which fits my limited expectations around it - it prevents a single court system from attempting multiple times on the same case... A second US State would have no restrictions against them. http://criminal.findlaw.com/criminal-rights/charged-twice-in-different-states.html http://criminal.findlaw.com/criminal-rights/charged-twice-in...
    - glesica 11y ago
      Yeah, but wouldn't it really be a different crime anyway? I mean, state A would charge you for ripping off people in state A, state B would charge you for ripping people off in state B. Two, presumably disjoint, sets of people.
      - DrStalker 11y ago
        This ruling is only for backers in Washington so that appears to be exactly the case; other states and countries can still file their own lawsuits if motivated to do so.
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Cacti 11y ago
Restitution due to the actual people involved: $668 Money due in "penalties" and "fees" to the state: $54,000 Yay, graft!
- pdabbadabba 11y ago
  Huh? The penalties are to make sure that people are deterred from defrauding customers even in relatively low dollar amount cases like this one, and the rest was to pay the backers' legal fees. They only paid $668 in restitution because only 31 backers sued. What's the problem?
  - deleted 11y ago
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  - makomk 11y ago
    The problem is that they have something like $25,000 in other backers who haven't been refunded, and those penalties and fees mean the creator almost certainly won't be able to refund them.
    - pdabbadabba 11y ago
      I'm not sure why you were down-voted. You make a decent point--though I'm not sure what the solution to this problem is short of abolishing civil penalties altogether. (Though I suppose it would be possible to set up some rather complex system where future plaintiffs can recover from the previously collected civil penalties held by the state,) And certainly the issue you point out doesn't justify the "Yay, graft!" comment above.
- seivan 11y ago
  Hehe, though you have to agree no better enforcer to make you ship than a SWAT team kicking in your door. Or ehm just regular cops paying you a visit. I'd ship with those conditions ;-)
fapjacks 11y ago
AWESOME. Awesome! That's all I can say. I'm SO glad to see this happen. It will go a long way to reassure nervous backers to back interesting projects and to stop thieves and scammers like the hilariously-fake Bleen[0]. [0]: https://www.indiegogo.com/projects/bleen-3d-without-glasses https://www.indiegogo.com/projects/bleen-3d-without-glasses
hathym 11y ago
All they need is another kickstarter compain to pay for the legal fees :D
746F7475 11y ago
It was only a matter of time something like this happened. In best case there will be less bad Kickstarters and scams, in worst case kickstarting will become a thing of the past. Unless you are 100% sure you can deliver the product you risk having to pay back everything.
- nsajko 11y ago
  The KS terms and conditions have changed, refunds are no longer obligatory (since Oct 2014?).
joesmo 11y ago
Always set up an LLC or Corporation before doing any kind of business that could involve such liabilities. The $500-$1000 it costs to do that is obviously well spent money, but most people don't realize that till they're facing bankruptcy. Think of it like health insurance for your business: if you don't have it and something goes wrong, you're fucked. Then again, lots of people who could afford to pay skimp on health insurance and put themselves at risk of bankruptcy every single day, so it does take a little bit of awareness of reality.

156 points by Impossible 11y ago

If I fund a company and it fails, then I don't have any right to sue them for lost "revenue". Right? What is the difference in the case of Kickstarter. They are a crowdfunding platform are they not? I have seen this system abused many times. For many it is just a store. Kickstarter should have stricter rules, but why should they, the liability is on the creators and if they succeed, Kickstarter collects some percentage.

minimaxir 11y ago
You may want to read the original complaint: http://www.scribd.com/doc/221464947/State-of-Washington-vs-Asylum-5-1-2014 http://www.scribd.com/doc/221464947/State-of-Washington-vs-A... This is a bit more malicious than "things didn't work out."
- gadrfgaesgysd 11y ago
  At a glance the problem seems to be they didn't deliver. If you read it, can you write a short summary of their malicious acts?
  - deleted 11y ago
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  - zyxley 11y ago
    The important bits: > 4.15 Defendants represented on the Asylum Playing Cards Campaign website that delivery of the rewards to all backers (e.g. the Asylum playing cards themselves, as well as the various add-on rewards) would take place in December 2012. > 4.16 Defendants have not posted an update to the Asylum Playing Cards Campaign website since July 13, 2013. ... > V. FIRST CAUSE OF ACTION - MISREPRESENTATIONS AND THE FAILURE TO DELIVER REWARDS ... > 5.2 In the context of operating the Asylum Playing Cards Kickstarter campaign, Defendants engaged in the following acts or practices constituting unfair or deceptive acts in trade or commerce: > a. Misrepresenting either directly or indirectly that Backers who paid for Rewards through the Kickstarter Campaign would receive those Rewards in approximately December 2012; > b. Failing to deliver the promised Rewards to Backers after the Backers paid money to Defendants via the Kickstarter Campaign. ... > VI. SECOND CAUSE OF ACTION - FAILURE TO REFUND ... > 6.2 In the context of operating the Asylum Playing Cards Kickstarter campaign, Defendants engaged in the following acts or practices constituting unfair or deceptive acts in trade or commerce: > a. Failing to provide refunds to Backers who requested one after they did not receive their Reward in a timely fashion from Defendants' Kickstarter Campaign; > b. Failing to offer refunds to any other Backer, whether a refund was requested or not, after Defendants were unable to deliver the Rewards to any backer within a reasonable timeframe.
    - gadrfgaesgysd 11y ago
      That seems fair. If you promise something and fail to deliver, i.e. treat Kickstarter as a store, then you should be liable.
      - BryantD 11y ago
        And, in fact, the Kickstarter ToS acknowledges this obligation. Lengthy quote: When a project is successfully funded, the creator must complete the project and fulfill each reward. Once a creator has done so, they’ve satisfied their obligation to their backers. Throughout the process, creators owe their backers a high standard of effort, honest communication, and a dedication to bringing the project to life. At the same time, backers must understand that when they back a project, they’re helping to create something new — not ordering something that already exists. There may be changes or delays, and there’s a chance something could happen that prevents the creator from being able to finish the project as promised. If a creator is unable to complete their project and fulfill rewards, they’ve failed to live up to the basic obligations of this agreement. To right this, they must make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers. A creator in this position has only remedied the situation and met their obligations to backers if: they post an update that explains what work has been done, how funds were used, and what prevents them from finishing the project as planned; they work diligently and in good faith to bring the project to the best possible conclusion in a timeframe that’s communicated to backers; they’re able to demonstrate that they’ve used funds appropriately and made every reasonable effort to complete the project as promised; they’ve been honest, and have made no material misrepresentations in their communication to backers; and they offer to return any remaining funds to backers who have not received their reward (in proportion to the amounts pledged), or else explain how those funds will be used to complete the project in some alternate form. The creator is solely responsible for fulfilling the promises made in their project. If they’re unable to satisfy the terms of this agreement, they may be subject to legal action by backers.
  - deleted 11y ago
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- MBCook 11y ago
  I tried. Apparently I'm not allowed to look at more than 4 pages without using their app. So I gave up. I've never been a fan of Scribd but MAN that's hostle.
- sologoub 11y ago
  DISCLAIMER: I don't think it's ok to promise and not deliver, and don't know all the merits of the case, but have so far read sections of the suit detailing facts of the case and causes for action. I'm sure there is more to it. Section 4 outlines the facts of the case with item 4.2 stating that backers "paid for" rewards. Sections 5 and 6 are all accusations based on the "paid for" premise and the basis for the action. This is where I have a problem with this - kickstarter is not a store. If I order from Amazon, I'm expecting that they will deliver. It's a sales transaction. If on the other hand I'm willing to help someone take a shot at doing something new, and, if successful, get some sort of reward back, that's not a store sales transaction. The premise of kickstarter has a lot more in common with angel or seed investing than with buying stuff. In reading through the facts section, I don't see any argument being made that the campaign was started in bad faith and the project creator is not being prosecuted for fraud. The basis of the case is essentially consumer paid for a good and that good never showed up and no refund was issued. But again, kickstarter is not a store...
  - rwallace 11y ago
    Looking at the discussion on the site, it's pretty clear that although there wasn't proof beyond reasonable doubt of the crime of fraud, the company refused to show their work - give any details about what happened to the money or why they weren't able to deliver - and the backers took this as an indication of deliberate fraud, and that was why they pressed for this lawsuit - they were retaliating against someone who as far as they could see had deliberately cheated them. As far as I know, kickstarter backers have a pretty good track record of being forgiving when the project creator shows good faith.
  - zyxley 11y ago
    I'm guessing the judge here decided that people repeating "Kickstarter is not a store" doesn't actually matter when somebody obviously uses Kickstarter as a store, in the same way that the police are unlikely to care you're actually driving a motorized couch if they pull you over for speeding.
    - sologoub 11y ago
pyrrhotech 11y ago
Kickstarter backers are not investors. They don't own any part of the business they are funding. They are essentially buying pre-orders. I would assume that genuine attempts to use the money to produce the pre-sold product should be protected from litigation, but if the Kickstarter owner goes out and parties with it instead, that is fraud. Not saying that happened in this case, but it's up to the plaintiff and defense to prove whether they used the funds appropriately or not.
- lotharbot 11y ago
  kickstarter is neither "investment" not "pre-sales". It's patronage [0], as explained on a KS blog post the day before the site went live [1]. This means backers are funding a good-faith effort by the team to deliver the described result. They don't have any recourse if the team's good-faith effort fails (meaning, genuine attempts are protected from litigation), but they do have recourse if that effort is not made. [0] https://en.wikipedia.org/wiki/Patronage https://en.wikipedia.org/wiki/Patronage [1] https://www.kickstarter.com/blog/defining-patronage https://www.kickstarter.com/blog/defining-patronage
  - meddlepal 11y ago
    I think the fact nobody understands this means their objective has failed and they are by default relegated to being investment or pre-sales regardless of whether they claim to be or not.
  - deleted 11y ago
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  - Guvante 11y ago
    No effort was made in this case (from the stories) so it seems to line up well with their original goal.
  - deleted 11y ago
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  - rue 11y ago
    The language around ‘good faith’ and ‘best effort’ seems really dicey. Leaves a lot of room for legal trouble if someone wants to cause it.
PirateDave 11y ago
I think the difference is that you're only funding the company if it reaches the point where it won't fail due to lack of funding. They're supposed to have all costs associated with deliverables factored into the amount they request to be funded.
dragonwriter 11y ago
> If I fund a company and it fails, then I don't have any right to sue them for lost "revenue". Right? That really depends on how you fund the company, and what the company "fails" at. If you fund a company by providing debt (rather than equity) financing, and they fail to pay what the promised, yes, you can sue them. > What is the difference in the case of Kickstarter. They are a crowdfunding platform are they not? The difference between Kickstarter and debt financing is that, with a Kickstarter, the offered exchange for money now is a specified "backer reward" later, instead of a specified amount of money later.
Agathos 11y ago
If you fund a company by buying debt, you can certainly sue them if they don't pay what was promised. If they're already bankrupt I wouldn't expect more than pennies on the dollar, but the option is there. If you fund a company by buying equity, you have no recourse except possibly a share of whatever remains when the company is liquidated, after debtholders are paid. In exchange, you have an unlimited upside if the company does well. Kickstarter commitments are much closer to debt than to equity.
- hueving 11y ago
  They are nothing close to debt. If they were, you would be getting back cash at the end. Heinz can't take a loan for a million dollars and send back a tank full of ketchup as repayment.
  - dragonwriter 11y ago
    > Heinz can't take a loan for a million dollars and send back a tank full of ketchup as repayment. Yeah, if you take money now for product later, that's an order rather than a bond. But, then, looked at that way, Kickstarters are more like stores than any form of financing.
- fredkbloggs 11y ago
  The best analogue is really with preferred equity (of the kind issued by established corporations, not VC-backed startups). You don't get anything beyond what you subscribed for, no matter how well the company does. But you aren't entitled to anything at all, and have no recourse if you get nothing. This case is interesting because it's the first one holding that Kickstarter is anything but simply a gift. Preferred equity holders have certain rights that go along with their place in the capital structure; they can usually prevent the corporation from paying dividends to common shareholders unless they're also being paid, and sometimes they have debt-like rights as well if the company is not paying dividends as agreed. The analogue here would be that the preferred dividends are the goods plus rewards. Unfortunately, this case is much narrower than that, and the holding is very weak. You're still not entitled to anything as a Kickstarter backer. All this means is that the founders can't commit fraud: they must actually intend to deliver something and make some effort to do so. So really, you're still nothing like any kind of creditor or equity owner, and you're still entitled to nothing. Contributions are still gifts, but they have very small strings attached. They're nothing like an investment.
s73v3r 11y ago
"If I fund a company and it fails, then I don't have any right to sue them for lost "revenue". Right?" If you're an investor, and you believe that the company was not acting in your interest, then yes, you can sue. "What is the difference in the case of Kickstarter. They are a crowdfunding platform are they not?" Shouldn't matter; if you don't put forth a good faith effort to actually do what you set out to do, you should have the crap sued out of you.
aikah 11y ago
> They are a crowdfunding platform are they not? A "crowdfunding platform" doesn't mean anything to a judge. Crowdfunding doesn't mean anything legally. A donation to a charity has legal ramifications, but Kickstarter is no charity, equity an investor owns has a legal definition, but Kickstarter projects are no investments ... Kickstarter becomes a store as soon as a reward is promised. If you back something and you are promised a reward, you are entitled to that reward or a refund, and i'm sure many more cases will go in that direction, which is a good thing.
detaro 11y ago
Treating Kickstarter as a store involves the person running the campaign also treating it as a store (which admittedly in many cases is extremely helpful/necessary to get funded). Rewards are promises against pledges: Someone pledges, you owe them the reward. Now if you offer your product as a reward, then yes, you owe them the completed product. If you are not sure you can do that, then don't offer the project goal as a reward, but things you can do. Then it doesn't matter that much if you fail at completing your main project. And really, analogies don't go very far if the terms and contracts you agree to explicitly spell out something different.
nemo44x 11y ago
Publicly traded companies get sued all the time for misleading investors. Happens in biotech very often.

ghayes 11y ago

There are risks involved in a Kickstarter. I'm sure these are spelled out in the terms and conditions in funding a Kickstarter. While fraud should be protected, a good-hearted attempt that fails should be covered by that contract, in my opinion.

mmanfrin 11y ago
In this case, there appears to have been no good-hearted attempt -- the project was funded almost 3 years ago, and the fulfillment of creating was to be handled by the US Playing Card Company. This means that the only real work required was to get a batch printed, then mail them out. This was either malice or just plain stupidity on the part of the creator. People are starting to get their cards now, but I think that has more to do with this lawsuit and the media coverage Nash has gotten for this. But I wholeheartedly agree that if a backer makes a good faith attempt to fulfill promises, then not shipping is not a punishable offense.
- TallGuyShort 11y ago
  I also agree - I've only backed a couple of Kickstarter's, but I'm quite certain I was explicitly told that there was no guarantee backing a project and the project being funded would result in me actually getting the rewards. On the other hand, there are many cases where people mutually agree to a contract, but that contract is not enforceable because it violates certain laws. Minimum wage, for instance. Effectively I'm not allowed to work for someone unless I'm worth a certain minimum threshold, because if that was allowed we would lose certain protections against exploitation (of course there's all sorts of room for opinions there). You can back a KickStarter, but certain governments may still hold the project to higher standards than KickStarter does.
- x5n1 11y ago
  Not malice, fraud.
  - RickHull 11y ago
    Eh? Fraud is malicious.

javajosh 11y ago

I think it's great to keep people honest - if I spend real money on an idea, and the progenitor of that idea just uses the money for a trip to Hawaii (or whatever) then yeah, that's a wrong that needs correcting. But check this out: >Nash and Altius Management have been ordered to pay their 31 backers in Washington a total of $668 in restitution, as well as $23,183 in legal fees and $31,000 (a grand per backer burned) in civil penalties for violating the state Consumer Protection Act, but it's yet unclear whether they've actually done so. Gamasutra has reached out to the Washington state Attorney General's office for further details. So, the 31 Washington people actually harmed get $20 each; lawyers get $23,000, the state gets $31,000. Someone please tell me how this is justice. [Edit: it's actually much worse, because this is just for Washington state. Consumer protection lawyers in any state with a harmed investor could go after the wrong-doers, with similar payouts: 1K to people, 50k to the state and lawyers. A 50:1 ratio applied in all 50 states would yield a whopping 2500:1 ratio of punitive to actual damages. That's $50k in making things right, and $125M in punitive fees]

saalweachter 11y ago
Ignoring whether this particular judgement is fair, the (US) legal system isn't really focused on restitution. Most of the punishments it metes out are purely a deterrent; after all, if someone is sent to jail for ten years, its not like the victim is given an extra ten years of life.
- dragonwriter 11y ago
  The criminal justice systems in the US are, obviously, not focused on compensation. But the civil justice systems are much more focused on compensation. Using an example drawn from the former to say that the "(US) legal system" is not focused on restitution in response to a discussion about the latter is not particularly useful.
- deleted 11y ago
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gadrfgaesgysd 11y ago
The backers got their money back. And the defendant lost a lot more money than just the restitution. The penalty was harsh, but I don't see why it was unjust. Do you think the plaintiffs should get more money than they deserved?

seesomesense 11y ago

Asylum Playing Cards were a long running scam. Good to see that the Attorney General's office finally went after them.

swagv 11y ago

Just as state lotteries are a tax on people who can't do math, crowdfunding sites are a tax on people who don't understand business loans or venture investing.

smegel 11y ago

Who were the "consumers" and what did they "buy"?

equil 11y ago

ever since that hanfree story [0], Kickstarter has been a bit more explicit about creator obligations [1]. Creators are now told to "make every reasonable effort to find another way of bringing the project to the best possible conclusion for backers" should the project fail or rewards not make it to backers. The terms of use also has an explicit warning about possible legal action at the bottom. [0] http://www.businessinsider.com/how-one-stupid-mistake-and-35000-from-kickstarter-made-an-average-guy-bankrupt-2013-1 http://www.businessinsider.com/how-one-stupid-mistake-and-35... [1] https://www.kickstarter.com/terms-of-use#backer-creator https://www.kickstarter.com/terms-of-use#backer-creator

makomk 11y ago
That's actually a watered-down version of what Kickstarter had before, with significantly less protection for backers. Previously the ToS said creators had to give either the rewards they'd promised or a refund. Kickstarter made a big deal about protecting backers a few years ago after ZionEyez took a quarter of a million in backer funds and then disappeared to a tropical beach never to be heard from again, then quietly removed those protections and more after the heat died down.
- TazeTSchnitzel 11y ago
  Not requiring a refund does seem somewhat reasonable. It's not as good for the backers, but won't terrify the companies being funded with a super-massive liability.

bentrevor 11y ago

Does double jeopardy apply here? As in, can another state sue for the same thing?

tedunangst 11y ago
It would appear this ruling and the accompanying restitution is only for the backers in Washington state. Each state could in theory pursue its own lawsuit for its own residents.
ams6110 11y ago
Double jeopardy protection is for criminal charges, not civil.
- Flammy 11y ago
  Apparently double jeopardy doesn't apply in two different states, regardless of the type of charges. Which fits my limited expectations around it - it prevents a single court system from attempting multiple times on the same case... A second US State would have no restrictions against them. http://criminal.findlaw.com/criminal-rights/charged-twice-in-different-states.html http://criminal.findlaw.com/criminal-rights/charged-twice-in...
  - glesica 11y ago
    Yeah, but wouldn't it really be a different crime anyway? I mean, state A would charge you for ripping off people in state A, state B would charge you for ripping people off in state B. Two, presumably disjoint, sets of people.
    - DrStalker 11y ago
      This ruling is only for backers in Washington so that appears to be exactly the case; other states and countries can still file their own lawsuits if motivated to do so.

deleted 11y ago

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Cacti 11y ago

Restitution due to the actual people involved: $668 Money due in "penalties" and "fees" to the state: $54,000 Yay, graft!

pdabbadabba 11y ago
Huh? The penalties are to make sure that people are deterred from defrauding customers even in relatively low dollar amount cases like this one, and the rest was to pay the backers' legal fees. They only paid $668 in restitution because only 31 backers sued. What's the problem?
- deleted 11y ago
  [deleted]
- makomk 11y ago
  The problem is that they have something like $25,000 in other backers who haven't been refunded, and those penalties and fees mean the creator almost certainly won't be able to refund them.
  - pdabbadabba 11y ago
    I'm not sure why you were down-voted. You make a decent point--though I'm not sure what the solution to this problem is short of abolishing civil penalties altogether. (Though I suppose it would be possible to set up some rather complex system where future plaintiffs can recover from the previously collected civil penalties held by the state,) And certainly the issue you point out doesn't justify the "Yay, graft!" comment above.
seivan 11y ago
Hehe, though you have to agree no better enforcer to make you ship than a SWAT team kicking in your door. Or ehm just regular cops paying you a visit. I'd ship with those conditions ;-)

fapjacks 11y ago

AWESOME. Awesome! That's all I can say. I'm SO glad to see this happen. It will go a long way to reassure nervous backers to back interesting projects and to stop thieves and scammers like the hilariously-fake Bleen[0]. [0]: https://www.indiegogo.com/projects/bleen-3d-without-glasses https://www.indiegogo.com/projects/bleen-3d-without-glasses

hathym 11y ago

All they need is another kickstarter compain to pay for the legal fees :D

746F7475 11y ago

It was only a matter of time something like this happened. In best case there will be less bad Kickstarters and scams, in worst case kickstarting will become a thing of the past. Unless you are 100% sure you can deliver the product you risk having to pay back everything.

nsajko 11y ago
The KS terms and conditions have changed, refunds are no longer obligatory (since Oct 2014?).

joesmo 11y ago

Always set up an LLC or Corporation before doing any kind of business that could involve such liabilities. The $500-$1000 it costs to do that is obviously well spent money, but most people don't realize that till they're facing bankruptcy. Think of it like health insurance for your business: if you don't have it and something goes wrong, you're fucked. Then again, lots of people who could afford to pay skimp on health insurance and put themselves at risk of bankruptcy every single day, so it does take a little bit of awareness of reality.