Trusting Strangers: Dispute Resolution in the Crowd

Anjanette Raymond & Abbey Stemler, Trusting Strangers: Dispute Resolution in the Crowd, 16 CARDOZO J. CONFLICT RES. 357 (2015).

Kelley School of Business Research Paper No. 2014-11

Posted: 22 Jul 2014 Last revised: 23 Feb 2020

See all articles by Anjanette Raymond

Anjanette Raymond

Indiana University - Kelley School of Business - Department of Business Law; Queen Mary University of London, School of Law; Indiana University Maurer School of Law

Abbey Stemler

Indiana University - Kelley School of Business - Department of Business Law; Harvard University - Berkman Klein Center for Internet & Society

Date Written: July 21, 2014

Abstract

Hoping to be the next Pebble, entrepreneurs and businesses have flocked to various crowdfunding platforms to contribute dollars to fund initial launches of products and other investments. As readers are undoubtedly aware, Kickstarter was the first and best known crowdfunding website, having helped to launch more than 95,000 projects to date. On March 3, 2014, Kickstarter reported that it passed $1 BILLION in pledges with over 5.7 million people donating to creative projects. There are currently over 800 crowdfunding platforms, with the bulk of dollars contributed going to social campaigns. Of course, as donations grew and the number of backers surged, poorly constructed items, delayed launch dates and failed projects began to be reported. Donating money for a cause is a good thing, until the project or items never come to fruition and then some donors are left wondering the protections in such occurrences. While Kickstarter’s Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill, and Amazon payment is used to facilitate payment, neither have created a mechanism to initiate an action against failed project creators. Thus, backers are left with the need to pursue action in brick and mortar courthouses, sometimes in the creator’s home state.

This all changed in April of 2014, when the state of Washington became the first to pursue a project creator for a failed project delivery through consumer protection laws. The suit against Altius Management, the Tennessee based company behind the Asylum Playing Cards Kickstarter campaign, alleges that Altius collected over $25,000 backer dollars and delivered nothing. And while one might assume the damages under consumer protection laws would be minimal, they are in fact more significant with the Seattle Times highlighting: “The suit seeks restitution of the cash, as well as fines up to $2,000 per backer for violations of the Consumer Protection Act, meaning the total could top $1.6 million.” And Asylum Cards are not the only failed project, for example Seth Quest failed at creating an iPad stand known as the Hanfree, and entrepreneurs Evan Lindquist and Brent Burroff failed to deliver a prototype of sunglasses that would record HD video. Yet, Kickstarter hides the number of failed projects and does not facilitate any recourse procedures when campaigns fail. Individual backers are left with no other remedy besides suing for breach of contract in local courts.

How can a technology based company expect donors to continue to grow when no recourse mechanism has been put in place should their trust be misplaced? Most shocking for such a robust technology savvy company, that takes five percent of the funding, is the intentionally blind ignorance of the well-supported series of commentaries which demonstrate that low value disputes in the online world are rarely pursued as the cost of pursuing an action in a brick and mortar court far outweighs the loss suffered. From a consumer protection standpoint, should the government allow entrepreneurs to use and potentially abuse crowdfunding without any real consequence? Certainly not. However, with such low value claims, helping consumers pursue remedies against negligent or fraudulent entrepreneurs can be costly and time consuming in brick and mortar courts.

This paper will examine the growth of crowdfunding and the various crowdfunding portals currently in existence. The paper will survey any and all dispute resolution mechanisms in place and will consider the effectiveness of each. Most importantly, this paper will suggest that the growth of successful online dispute resolution platforms, often designed specifically to manage low value claims in an online environment, can and should be used by crowdfunding platforms to assist in the recovery of donor loss.

Suggested Citation

Raymond, Anjanette and Stemler, Abbey, Trusting Strangers: Dispute Resolution in the Crowd (July 21, 2014). Anjanette Raymond & Abbey Stemler, Trusting Strangers: Dispute Resolution in the Crowd, 16 CARDOZO J. CONFLICT RES. 357 (2015). , Kelley School of Business Research Paper No. 2014-11, Available at SSRN: https://ssrn.com/abstract=2469290

Anjanette Raymond (Contact Author)

Indiana University - Kelley School of Business - Department of Business Law ( email )

Bloomington, IN 47405
United States

Queen Mary University of London, School of Law ( email )

67-69 Lincoln’s Inn Fields
London, WC2A 3JB
United Kingdom

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

Abbey Stemler

Indiana University - Kelley School of Business - Department of Business Law ( email )

Bloomington, IN 47405
United States

Harvard University - Berkman Klein Center for Internet & Society ( email )

Harvard Law School
23 Everett, 2nd Floor
Cambridge, MA 02138
United States

HOME PAGE: http://https://cyber.harvard.edu/people/abbey-stemler

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