Managing Third-Party Platform Litigation Risk in Crowdfunding: Terms, Pricing, and Reputation

26 Pages Posted: 20 Jul 2016 Last revised: 14 Sep 2016

Date Written: July 18, 2016

Abstract

Third-party platforms, intermediaries in the financing proposition offered by crowdfunding, assume various risks in undertaking that intermediation role, including the risk that legal actions may be brought against them by those seeking funding and the funders they attract. This litigation risk undoubtedly affects the terms of the services provided by third-party platforms, including platform terms of use and the pricing of platform services. Moreover, the reputation of a platform may impact and be impacted by litigation risk.

Untangling these factors and assessing their interaction will involve multiple studies over an extended period of time. This paper begins that process by identifying platform litigation risks (using U.S. law as a key reference point) and specific nonfinancial terms of platform hosting arrangements relating to litigation risk. Preliminary, anecdotal observations are made about the effects of litigation risk on the pricing of platform services and platform reputation. In later work, it is anticipated that empirical observations also could be made about certain elements of the relative cost of platform services and platform reputation.

Keywords: crowdfunding, platform, terms of use, financial terms of service, fees, reputation

JEL Classification: G30, K12, K22, L14

Suggested Citation

Heminway, Joan MacLeod, Managing Third-Party Platform Litigation Risk in Crowdfunding: Terms, Pricing, and Reputation (July 18, 2016). University of Tennessee Legal Studies Research Paper No. 299. Available at SSRN: https://ssrn.com/abstract=2811489 or http://dx.doi.org/10.2139/ssrn.2811489

Joan MacLeod Heminway (Contact Author)

University of Tennessee College of Law ( email )

1505 West Cumberland Avenue
Knoxville, TN 37996
United States
865-974-3813 (Phone)
865-974-0681 (Fax)

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