As is often discussed, the Jumpstart Our Business Startups Act (JOBS Act) has created a lot of positive buzz with innovators and creators looking to equity crowdfund their ideas to avoid traditional forms of funding. There is no question that the government mandated crowdfunding process will save entrepreneurs the hassle of dealing with complex SEC regulations and paying thousands in legal fees but still allow them to garner publicity and funding for projects that may otherwise have never found willing investors. While formally registered SEC crowdfunding platforms are still quite a ways away, there are some entrepreneurs and attorneys, who have serious concerns regarding the potential ramifications of crowdfunding, especially when it comes to protecting Intellectual Property:
Many entrepreneurs concerned about the lack of intellectual property (IP) protections, however, are still wary of crowdfunding their ideas. Their apprehension is understandable. Crowdfunding is typically a way to finance early-stage projects and products that may not yet have the appropriate IP safeguards in place. Many innovative and interesting projects are left off crowdfunding sites, which hurts entrepreneurs and platforms alike.1
A common concern for many entrepreneurs is whether the ideas posted on crowdfunding portals (prior to filing a patent application) can be stolen and replicated or will allow another business to file a patent application before the original creator has had a chance.2
Luckily the America Invents Act (AIA) could not have come at a better time. While the AIA is not a full proof stopgap for patent or IP protection, it does at least provide those seeking to use crowdfunding with some coverage. The AIA, which went into effect on March 16, 2013, changes the U.S. patent law from a “first-to-invent” to a “first-to-file” system.3) At first shot, this may seem like it could harm those seeking to use crowdfunding, as patent trolls could simply steal an idea off a crowdfunding portal and file a patent application prior to the original inventor–fortunately, this is not the case. The new “first-to-file” system in the U.S. is a bit of misnomer and may be better considered “first-to-disclose.”4 While the AIA technically creates a “first-to-file” system, an inventor can publicly disclose their invention, such as on a blog post or through a crowdfunding portal, and still file a successful patent application within one year of that public disclosure. Essentially, the AIA provides a one year grace period for inventors to file patent applications, thereby incentivizing them to disclose their invention publicly and test the market to see if there is actual support for the product. If the inventor finds support, theoretically, they will still have time to file their application before the one year grace period expires.
Section 102(b) of the America Invents Act, states the following,
(b) EXCEPTIONS.—
(1) DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.—A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if—
(A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or
(B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor5
Here is an example of how §102(b) works:
- January 1, 2014: Inventor A invents a new product, but does not yet file a patent application
- February 1, 2014: Inventor B invents the same product
- February 7, 2014: Inventor A seeks crowdfunding for the product and discloses the product publicly on a crowdfunding portal or blog post
- February 15, 2014: Inventor B files a patent application with the USPTO claiming the same product
- June 1, 2014: Inventor A files a patent application claiming the product.6
In the scenario described above, Inventor A would be entitled to the patent and would have until February 2015 to file his patent application. This is true even though Inventor B filed his patent application first, since Inventor A disclosed the invention before Inventor B filed his initial application.7
The AIA is certainly not a foolproof patent protection program for those seeking to use crowdfunding to get their idea off the ground. There are still many questions left to be answered on what IP protections entrepreneurs using crowdfunding portals will have and what steps they can take to further protect their products. Crowdfunders, however, should not be too concerned about disclosing their idea, as the AIA does provide protection for up to a year, which should hopefully be enough time to determine whether filing a patent application is a worthwhile endeavor in the first place.
Anton Root, Address Intellectual Property Protection Issues Around Crowdfunding, Crowdsourcing.org (Mar. 1, 2013, 8:24 PM), http://www.crowdsourcing.org/editorial/addressing-intellectual-property-protection-issues-around-crowdfunding/24287. ↩
See Jean Murray, Crowdfunding – Legal Issues for Small Businesses, Equity Funding and Intellectual Property Issues, About.com US Business Law/Taxes (2013), http://biztaxlaw.about.com/od/financingsources/a/Crowdfunding-Legal-Issues-For-Small-Businesses.htm. ↩
See Leonid Kravets, First-To-File Patent Law Is Imminent, But What Will It Mean?, TechCrunch.org (Feb. 16, 2013), http://techcrunch.com/2013/02/16/first-to-file-a-primer/ (hereinafter “Kravets” ↩
Id. ↩
35 U.S.C. § 102(b) (2011). ↩
See Kravets, supra note 3. ↩
See id. ↩