Crowdfunding's Impact on Start-Up IP Strategy

25 Pages Posted: 14 Dec 2013 Last revised: 2 Jul 2014

Sean M. O'Connor

University of Washington - School of Law

Date Written: December 12, 2013

Abstract

“Crowdfunding” — the use of the Internet to raise significant aggregated funding from a large number of persons each contributing a small amount — includes both “project crowdfunding” (donations for a specific project that are not considered investment securities) and “enterprise crowdfunding” (sale of investment securities to raise general operating and growth capital). The former is lightly regulated and exemplified by sites such as Kickstarter and IndieGoGo. The latter has been effectively prohibited under traditional securities laws. The JOBS Act of 2012 required the SEC to promulgate rules providing a legal pathway for enterprise crowdfunding. Under the proposed rules, enterprise crowdfunding firms will become essentially “junior” reporting companies with significant public disclosure requirements. This Essay argues that such disclosures will negatively impact start-ups’ intellectual property (“IP”) portfolios. For example, firms may accidentally disclose patentable inventions or developing proprietary business or technology innovations. Experienced IP and securities counsel can mitigate these risks, but start-ups looking to use enterprise crowdfunding may not be able to afford such counsel. The crowdfunding disclosure regime may also force firms to accelerate or otherwise change their plans to procure IP rights. Meanwhile, the JOBS Act relaxed disclosure and general solicitation rules for the kinds of unregistered stock offerings currently used by start-ups. This means that there may be less practical value for start-ups to explore crowdfunding. The Essay concludes with suggestions for how start-ups can best manage their IP portfolios in light of the new kinds of unsophisticated investors and disclosure regimes entailed under crowdfunding.

This article is part of a symposium edition on “The Commercial Function of Patents in Today's Innovation Economy” published by the George Mason Law Review. It was delivered at a conference sponsored by the Law Review and the Center for Protection of IP at George Mason in September 2013.

Keywords: crowdfunding, securities regulation, public disclosure, entrepreneurship, start-ups, intellectual property, patents

Suggested Citation

O'Connor, Sean M., Crowdfunding's Impact on Start-Up IP Strategy (December 12, 2013). George Mason Law Review, Forthcoming; University of Washington School of Law Research Paper No. 2013-34. Available at SSRN: https://ssrn.com/abstract=2366937

Sean M. O'Connor (Contact Author)

University of Washington - School of Law ( email )

William H. Gates Hall
Box 353020
Seattle, WA 98105-3020
United States
206-543-7491 (Phone)

HOME PAGE: http://www.law.washington.edu/faculty/oconnor

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