Kickstarter Campaign Financing

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Crowdfunding platforms like Kickstarter and Indiegogo can be useful in bringing ideas to life.  Whether it’s video games or clothing, inventions or events, crowdfunding can help make dreams a reality.  However, when looking at what some campaigns have budgeted for legal, the answers can range from “Not nearly enough” to “Budget for what, now?”

So, this raises the question: what *is* the proper amount to budget for legal on a crowdfunding campaign?  And while we hate to give the “It depends” answer…well, it depends.  It depends on a number of things.

There will be a small number of fairly standard costs, such as trademark clearance for the name of the product or service.  However, even standard costs may vary depending on the circumstances.  For example, is there a company set up yet?  What agreements, if any, exist among the core members of the project team?  What sort of things can the core team do (coding, music, marketing, etc.) and what will have to be contracted out?  Setting these things up takes time and money.

And it’s not always just a matter of getting something, anything in place.  Sometimes, a bad agreement (especially one pulled from the Internet without attorney review) is worse than having no agreement at all.  Depending on how big the mess is, it can be far more intensive and expensive to fix a messy, half-baked contract than to start from scratch.

Costs will also vary depending on the type of project.  Manufacturing technological gadgets may require patent protections that aren’t warranted when selling T-shirts.  Anything with computer code can be covered by copyright, as can music and books.  Planning to hold a convention for cat lovers?  Not only will there be negotiations with the venue, but liability waivers and codes of conduct for the attendees.

Also important: what kinds of rewards are being offered?  “A copy of the movie and maybe a digital download of the soundtrack” will require far less legal attention than “design a boss monster and a secret dungeon in our video game.”  Not to mention things like “VIP access to the opening night gala in Honolulu.”  The more exotic the reward tier, the more essential the fine print.

The point is, these things need to be figured out beforehand.  An ounce of prevention is worth a pound of litigation.  Having these crucial discussions beforehand will give everyone an idea of what things will cost, and might even bring unexpected issues to light.  Sitting down and creating a proper legal budget not only sets realistic expectations, but helps to show potential backers and investors that you have thoughtfulness and foresight to see things through to the end. 

The Most Boringly Important Case of the Year

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Some copyright infringement cases involve multi-billion dollar entertainment companies, iconic literary heroes, or Hollywood superstars. Fourth Estate Public Benefit Corp. v. Wall-Street.com was not such a case. It involved a news company in a run-of-the-mill licensing agreement with a separate news website. However, the effects of the Supreme Court’s recent ruling will be significant and far-reaching. 

Copyright protection covers works of artistic expression, ranging from music and sound recordings, to books and blog posts, to photographs, and even websites and computer code. A copyright exists as soon as a work is “fixed in a tangible medium of expression” (e.g. written down, saved to a hard drive, painted on a canvas, etc.). As soon as a work is “fixed,” the creator has a copyright – a bundle of intellectual property rights that can be exploited, licensed, sold, or whatever else the creator wants to do. However, there is one thing that the copyright holder may not do. With certain limited exceptions, a copyright holder may not bring a lawsuit for copyright infringement until “registration of the copyright claim has been made.” 17 U.S.C. § 411(a). Fourth Estate turned on the very prosaic but strikingly important question of what it means for registration to be made. 

Conflicting decisions had been made by different appellate courts. In one view, a copyright application had to be fully processed by the Copyright Office and a certificate of registration (or, in some cases, a denial of registration) issued before a lawsuit could be initiated. In another view, merely submitting the application was acceptable. The plaintiff in Fourth Estate had filed its copyright application when it filed suit, but had not yet heard back from the Copyright Office. The Supreme Court held that this was improper. The copyright registration certificate is now, definitively, a plaintiff’s ticket into the courthouse for a copyright infringement suit. 

Now, more than ever, it is important to file for copyright registration as soon as possible. Even before this decision, timely registration allowed for the possibility of benefits like statutory damages and an award of costs and legal fees. But now, a plaintiff is not entitled to any relief at all (including injunctive relief ordering an infringer to stop his infringing activity) without registration. It can take around 6 – 9 months for the Copyright Office to process an application, and the only alternative is to pay an $800 “special handling” fee to expedite the process. The better practice is to register all copyrightable works immediately after, or even before, they are released to the public. And although an application must normally be limited to a single work, various options exist to file multiple works at once, including groups of photographs, serials like magazines or newspapers, and a collection of up to 10 unpublished works of any type or types.

Time To Brush Up On Your Fingerprinting?

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It’s much harder to get a new retina pattern or new fingerprints than a new Social Security Number. This was the principle behind the Illinois General Assembly’s enactment of the Biometric Information Privacy Act (BIPA) in 2008. As the General Assembly put it, “Biometrics […] are biologically unique to the individual; therefore, once compromised, the individual has no recourse, is at heightened risk for identity theft, and is likely to withdraw from biometric-facilitated transactions.” 740 ILCS 14/5(c). BIPA, therefore, regulates the way in which private entities collect, use, store, and dispose of biometric information.

BIPA applies to any individual, corporation, or other non-governmental entity that collects or otherwise comes into possession of biometric information about an individual. BIPA specifically covers “retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry” as well as certain information based on those identifiers. 740 ILCS 14/10.

When collecting biometrics, a private entity must inform a person in writing of the purpose of the collection and the length of time that the biometrics will be retained, as well as receive written permission therefor from the subject. 740 ILCS 14/15(b). Once obtained, biometrics may not be disclosed without the subject’s permission, and must be protected from disclosure. 740 ILCS 14/15(d)-(e).

In recent years, BIPA lawsuits have been filed across the country, including in New York and California (although all of these suits involve activity that took place in Illinois or involved Illinois residents). Defendants include videogame publisher Take-Two Interactive, for mapping a player’s facial features (Vigil v. Take-Two Interactive Software, Inc., 235 F. Supp. 3d 499 (S.D.N.Y., 2017)); Facebook, for scanning facial features in uploaded photos (In re Facebook Biometric Info. Privacy Litigation 185 F.Supp.3d 1155 (N.D. Cal., 2016)); and amusement park Six Flags, for taking fingerprints of season pass holders (Rosenbach v. Six Flags Entertainment Corp., 2019 IL 123186 (Ill., 2019)).

In that last case, decided in January 2019, the Illinois Supreme Court held that a failure to adhere to the statutory procedures, without any further allegation of likely injury or data breach, is sufficient to subject an entity to liability. And that liability can be severe – a merely negligent violation gives rise to a minimum $1,000 in damages, while damages for a reckless or intentional violation start at $5,000. 740 ILCS 14/20(1)-(2). Either way, a prevailing party may also recover legal fees and costs of suit, as well as obtaining injunctive relief. 740 ILCS 14/20(3)-(4).

Anyone who handles, or regularly comes into contact with, biometric information should tread cautiously and be prepared. It is important to have a retention and disposal policy in place, as well as the appropriate notices and waivers. As the importance of data privacy laws grow, businesses need to be increasingly aware of what they are collecting and why.

The Birth of Your Business: Naming the Baby.

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Potential Trademark Issues Associated when Creating a Name for Your Business

In the development of a business plan, critical features include choosing a name for a business entity, developing a marketing plan, promoting the name and business and eventually establishing a domain name and web presence. While it is tempting to name the business in the early stages to establish an identity for the new venture, this is a risk-filled endeavor as few businesses have properly secured trademark rights and registrations for the new name.
Frequently, the first attempt of naming the new business venture is the establishment of a domain name; for example www.mynewbusinessname.com. Many new businesses rush, enthusiastically, to secure this domain name at the very early planning stages and before the venture has launched to ensure that the domain name will be available for future use. While this may seem a prudent step, the very first task in naming this new venture should be to secure the Federal trademark clearance and registration of the business name and trademark. Far too often, new ventures invest significant resources in securing a domain name prior to clearing and securing the Federal trademark registration. Many issues often arise if these critical steps are not taken to clear and register the Federal trademark.

Establishing First Use of the Trademark in Commerce

The new entity may be staking its claim and starting to accrue common law rights in its name by use of the name in commerce even if a United States trademark application is not filed. Common law rights have limitations and cannot replace the benefits gained by filing a United States trademark application. Further, a new entity may be staking its claim and starting to garner rights to the name over competitors with its first date of actual use of the trademark in conjunction with the goods or services in interstate commerce but again, this actual use cannot replace the benefits gained by filing a United States trademark application.[1]

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A Rose by Any Other Name – May or May NOT be a Rose:

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A Rose by Any Other Name – May or May NOT be a Rose:
The Distinguishing Characteristics of Federal Marks.

The need for a thorough understanding of the nuances of law surrounding federal marks can arise at unexpected times.   During the practice of any facet of legal procedure, clients’ needs can include establishment and protection of property or rights, including federal trademarks, service marks, collective trademarks and collective service marks, collective membership marks, and certification marks.  While the ‘titles’ of these marks seem quite similar, or perhaps even overlapping, their functions each are unique.  Differentiating between them requires understanding of the intrinsic characteristics of various federal marks.

The laws governing federal marks can be found in the United States Code and the Code of Federal Regulations.  Chapter 15 of the United States Code encompasses the Lanham Act which is the federal trademark statute.  Also, since trademarks are not provided for in the United States Constitution, the federal government controls their registration and use through the Interstate Commerce Clause.

Federal Trademarks

Federal trademarks are used on tangible goods or products to identify the source or origin of goods and are registered and protected by federal statute [i].  A federal trademark is used to identify the origin of shoes, fruit, sporting equipment, or any other tangible goods.  A federal trademark which is placed upon or is part of said items is “any word, name, symbol, device, or any combination of these options”[ii].  This definition encompasses groupings of words or logos.

Case law has also allowed for a single color or a multitude of colors to function as a trademark.  The Federal Circuit held that Owens-Corning could use the color pink to distinguish and identify its residential fibrous glass insulation from competitors in the marketplace [iii].  The Supreme Court also held that a single color may serve as a trademark[iv].  Both the Federal Circuit and the Supreme Court noted that it was important that the trademarked color serve no utilitarian purpose but merely distinguish the goods from those of competitors[v]

The United States also recognizes that a distinctive sound may be trademarked.  The National Broadcasting Corporation (“NBC”) was able to trademark the sound of its chimes preceding a broadcast[vi].  Also, Metro Goldwyn Mayer Lion Corporation (“MGM”) has a trademarked its lion’s roar which is heard at the beginning of many MGM movies[vii].

Regardless of what trademark the owner chooses, it must be used in association with goods in interstate commerce.  A federal trademark is owned by an individual, company, or other entity and used to distinguish its goods and services from competitors in the market.  Only the owner of the federal trademark is allowed to use that mark on its products and can prevent others from using the same or similar mark on similar goods.  However, the owner of a trademark may grant other entities permission to use its mark on the grantee’s products.

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