Kickstarter Lawsuits

A couple of you have asked for my opinion on the recent successful lawsuit against a Kickstarter campaign. I think we’re finally seeing what should have already been a well-established precedent for crowdfunding. Kickstarter campaign organizers should be accountable for their actions, and when those actions lead to fraudulent activity they need to be held responsible.

We see a lot of Kickstarters in the gaming industry fail to produce anything even after being successfully funded. This alone is not grounds for litigation, but rather why or how they failed. Did they fail because the guy behind the Kickstarter made horrible business decisions? Was the entire campaign a front for funding something else, or preparing to be acquired and work on another projects? Was the money used in ways other than specified? There are many reasons why I believe Kickstarter campaign organizers should be made to pay. Simply failing, however, is not one of them.

I’m glad to see that the consumer is being protected.

Are Kickstarter Backers Investors or Consumers?

Yes. In some ways they are both.  Personally, I lean on the side of Kickstarters being more consumer-based spending rather than investing. Depending on the Kickstarter, I think there’s an argument to be made for not only consumer spending, but investing or even donating to support a cause. Going back to games, in most cases you are paying a tier where you are buying a copy of the game. You’re paying now, rather than later, to obtain that copy of the game in the future and support the game’s development.

Kickstarter campaigns walk a fine line. Yes, people backing a Kickstarter campaign need to realize they are not guaranteed something. But campaign organizers need to realize that their tiers and their campaigns are often presented in such a way that the backers are customers creating direct business transactions.

Fear of Failure

Will this precedent lead to fear of failure? Yes. Should it? No, unless you are planning something shady. If a campaign is successfully funded, and you go about everything above board and deliver what was promised then you’re fine. If you promised more than you can deliver, or falsified information in the Kickstarters, or (again) were fraudulent in any way then you should be afraid and you should be financially responsible.

Whether or not this leads to a bunch of litigious nonsense isn’t for any of us to really care about. Let’s leave that up to the courts.

Do Games Belong on Kickstarter?

I go back and forth on this. We can look to the successes and say that if not for those campaigns we would never have great games like Divinity Original Sin. We can look at the atrocious failures and say that developing games is simply too risky a business to take people’s money, or for people to be willing to put their money at risk. What we honestly need is a little more responsibility from both parties. Should you give your money to some random guy in a basement promising to make you a AAA MMO? No. Should “developers” be making grand promises without proof of their ability to perform or follow through on those claims? No.

Most games do not belong on Kickstarter. Generally speaking, MMOs do not belong there. I say that having backed Camelot Unchained, but looking at the financial facts alone we know that CU would not have been successful or anywhere near the game it’s going to be now without other sources of funding and Mark Jacobs himself being a good leader. In many cases, neither the additional funding nor the experience are present. On Kickstarter alone that would have been a million dollars of people’s money gone.

Call me old school, but there’s something to be said for games being made the old fashion way where you start a real company, hire real employees, obtain funding without asking for it all up front from the consumer, market your product, and deliver something. At that point, the market judges your efforts and you are rewarded with sales or not. It’s simple, but it has worked for a really long time without us having to worry about whether or not that game we backed is actually going to release.

  • On “paper” Kickstarter is advertised as an investment tool – you support someone financially without a guarantee for a return but with some sort of expected return. In reality, especially if we get into video or boardgames, it seems much more like consumer based spending…often it is used as a preorder program. There usually is an expectation of a return.

    If I think of investing…I think of supporting a company financially and if the company is financially successful, i get a certain return based on their success and my contribution. Whether I buy shares of a publically traded company or i get some sort of ownership % in the company…to me…that is “investing.” What we see on Kickstarter is nothing like that – whatever “return” I get is very very specific…and not based on degree of success…but rather based on if or if not successful…if I “invest” in a boardgame and the game is super successful, i dont get 5 extra boardgames…I get what I “ordered”…

  • That’s where I get hung up too. Kickstarter has almost become closer to gambling than investing. Kickstarters act more like transactions with order fulfillment. If the actions of the Kickstarter are such that your transaction had no chance of being fulfilled, then the Kickstarter did not act in good faith. The consumer is then, in my opinion, due a refund.

  • It’s a contract. The terms of which can be found here: https://www.kickstarter.com/terms-of-use , under paragraph 4. If a project is funded and the promised content/product is not delivered then there is a breach. Although the contract specifies potential remedies for when a company cannot fulfill its promises, a company that fails to fulfill successfully funded projects will be potentially liable to all of their backers for damages, regardless of whether there is any fraud or not.

    The issue is that because these are mostly small donations you are only seeing these consumer protections group, like an AG’s office, doing the suing. Usually, it doesn’t make much sense to sue someone for ~$50.

  • Kickstarter SHOULD be held responsible as well to the donors if a successfully funded project doesn’t get made. Why? Because they take a percentage of the money. If something doesn’t get made like promised, well they should be on the hook too.

    I’ve never liked Kickstarter. It’s a donation website that tries to disguise itself as an investment website. If you are an investor, yes you’re gambling, but the intent is to see at minimum a return on your investment – you don’t get that in kickstarter if you pledge money. It’s a sham, and I hope some donors sue Kickstarter as well.

  • I find this fascinating. Somehow I missed that these kick starters were being sued. Given enough time, like a month, I could develop a PowerPoint that let me get funded on kickstarter. Is that illegal? Cause if not I know what I’m doing this weekend.

  • But I disagree that these are gambling. There is no monetary payoff possible. It’s still like prepaying for a movie, yet to be made.

  • When you invest your dividend is the game. Or if you feel nice you can donate to a project for NO rewards,b ut the rewards incentivize higher donations. The donations are NOT EQUAL in cost to the stuff you’re getting, and are simply there to incentivize goodwill. If you feel you like a game enough then you value these tiny gifts and your desire for the game enough to invest a higher amount.

    You didn’t “order” anything, you gave money as an investment to get the game itself funded because you like the concept and as a reward for your investment you got a gift in return as well as the satisfaction of funding it. This is similar to say, when a donation drive offers you a gift for your donation, with sometimes variations (donate at least 50 dollars and you get a book of coupons, 200 dollars and you get an invitation to a dinner) or go to a silent auction where the whole point is to bid more than the value of the items because part of it is charity.

    Crowdfunding is seen as an “investor” platform by some who don’t understand what “investment” means, investment does not mean you own part of the company. If you are doing venture capital or debt or other kinds of investment yes, you own a portion of the company, kickstarter is NOT that. It’s also alot HARDER to get that kind of investment due to a requirement of risk and payout and all kinds of stuff. It’s a platform to invest in ideas you like but without significant reward but also WITHOUT SIGNIFICANT INVESTMENT. Actual investors invest tens or hundreds of thousands of dollars or more, wheras on kickstarter you have MANY MANY small investors for 5-500 dollars and a few “big tier” rewards that are never worth the cost, but are there for those with lots of money who absolutely want to throw money at a project because they love either the project or the people.

    Kickstarter can only be sued if someone lies about how they used the funds or a failure to deliver gifts which are not dependant on completion of the project. The gifts for a reward are a binding contract, wheras completion of the game is not, but there is an expectation that funds raised will be used for the project and if not they are violating their contract. Poor business decisions however are not something you can sue over.

  • Sorry. Giving money to my dumbass brother to try to invent something cool just because I might like it is…still not an investment. Not really sure where you guys are missing this point but have at it.

  • @Danath: In many cases, the “gift” for completion is a copy of the game (or product). In fact, almost every Kickstarter has a tier where you get the game (or the product). If the Kickstarter funds, and the game (or product) is never made and delivered, they have breached that contract right?

    There’s a loophole right now that I think Pathfinder Online is exploiting. They delivered a partially and then laid off everyone and are “continuing to work on it” with a skeleton crew. Uh huh.

  • for the consumers kickstarter is just a place where to buy betas.
    for the company is just a place where you get extra money for a game that you are going to release anyways.

  • @Keen
    I actually answered that already. I said rewards which are not dependant on completion of the product. A copy of the game or ost requires the game to be finished, a personalized drawing, shirt, concept art book etc does not. This is why some kickstarters with extravagant reward at certain tiers failed, the gift was far too expensive for what they received.

    Another mistake people make regarding investment is they go ” I don’t get the rewards if they suceed!” while conveniently ignoring that they don’t have to take part in the horrible consequences of failure either. People don’t realize equity investment also involves putting money in even if the company is losing cash.