First Consumer Protection Lawsuit Involving Crowdfunding Filed in Washington State
In an unprecedented move, Washington State’s Attorney General has filed suit against Altius Management, the company behind the Asylum Playing Cards Kickstarter campaign, which purportedly collected over $25,000 backer dollars and delivered nothing… I’ve gotta say, between the Oculus’ landmark sale to Facebook and this latest development, 2014 is shaping up to be a red letter year in the history of crowdfunding.
I’m sure that anyone who’s backed more than a handful of projects has had the experience of being underwhelmed by the returns on their backer dollars, or has backed a project that is woefully over due, frustratingly incommunicative, or is otherwise handling their business in questionable ways. It seems that whenever a project goes off the rails (and often times, well before), there is somebody in the comment thread talking about lawyering up. The threat of legal action used to be big talk from Internet tough guys. Now, there is a precedent. I hate to say things like “game changer,” but there it is.
So, what’s at stake in all of this? Well, according to the Seattle Times, “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.” Just let that sink in for a second. Up to a $1.6 million in fines, restitution, and court costs for failing to deliver on a $25,000 Kickstarter. If that isn’t the definition of a scumbag deterrent, I don’t what is. The Asylum Playing Cards does seem like a textbook case of scumbaggery: severely over-promising on elaborate add-ons and failing to deliver on the core product, offering practically no communication throughout, so a judgement against them is likely well deserved. What’s bothers me is the precedent this sets.
This development is awful for people who make mistakes, underestimate costs, suffer setbacks, or otherwise screw up in the most well meaning way possible. Crowdfunding is not without risks. At its core, crowdfunding is still about well-meaning people pursuing passion projects; however, passion and a few dollars isn’t always enough to get past the curveballs that life throws at all of us. For individuals pursuing their dreams through Kickstarter, this lawsuit turns the prospect of failure into something very scary indeed–and it was bad enough when it was “just” reputation and self-worth on the line. In a worst case scenario, this Asylum situation becomes the first case in a trend of pursuing relatively small potatoes projects that fail to deliver for big judgements or big settlements. All things are equal under the law: yeah, the Asylum crew seems like scumbags, but what if the next guys did their best and failed? Any precedent this sets will necessarily overlook the human aspect at the core of crowd funding, and reduce the whole institution to a simple transaction between buyers and sellers, and that’s basically that.
David and I are gearing up to relaunch the Wardenclyffe Horror by the end of the year, but frankly this whole situation gives me pause. The thought of exposing ourselves to litigation in the event that something terrible happens (which we’re no strangers to, thanks to our last Kickstarter), is making me question if crowdfunding is the way to go. I know that I’m interested in seeing how this plays out a bit before I jump back in.
Caffeineforge 
There is a BIG difference between delays, even loooong delays, and completely stopping communication. I feel the vast majority of backers are understanding as long as there is good communication.
I have projects that are over a year late and I’m totally fine with it because the creator has been with us every step of the way. On the other hand I’ve had creators fall of the map to point where people in the comments were looking through obituaries to see if they were dead!
There have been blatant thefts via Kickstarter and it’s inexcusable. We’re not talking “I’ve had sudden medical issues, cut me some slack”, we’re talking “I’ve grown bored of this project so I’m gonna just burn everything, screw you all.”
The KS honeymoon is over. I’ve seen a sharp decline in backing and excitement. More folks have become wary due to the wild west environment. Holding creators liable in certain cases is a very very good thing.
At the very least, this news has caused a mysterious increase in updates in previously silent projects. =)
I completely agree that there is a big difference between a malfeasant Kickstarter and one that is experiencing delays–even long or terminal delays. Likewise, I agree that Grand Theft Kickstarter is completely inexcusable. That said, from a legal perspective, it’s hard to see a difference between, “I underestimated costs, spent all your money moving things forward, but I have completely run out and have no recourse but to cancel,” and “…” complete radio silence. IANAL, but I do know that good intentions don’t count for much when it comes to consumer protections and allegations of fraud.
The honeymoon is over, that’s for sure. I’d like to see one of the biggies, e.g. Indiegogo or Kickstarter (especially Kickstarter) be a little more proactive in supporting backers with grievances. Of course, it’s hard to motivate action when they get their piece of the pie up front. It would behoove them to be a bit more structured moving forward, or they may find themselves wrestling with rules imposed on them by… shudder… lawyers.
The difference between “I underestimated costs…and have no recourse but to cancel” and complete radio silence is mostly the good will of the backers, and the level of desire on the part of the project creator to make things right. And that is as it should be.
As disappointed as I was that the “Wardenclyffe Horror” project fell apart, it was a textbook example on how to fail. There was regular communication, honest contrition, and the backers weren’t left holding the bag.
By and large, backers want to help when things go wrong. Most of them are extremely understanding, as long as they know what to be understanding about. Honestly, if you take my money and disappear, I don’t care why. You may have a very good reason, but if you don’t TELL ME WHAT IT IS, then I have to assume malicious intent.
Will this have a chilling effect? Probably. But I think the people who get scared off by enforced personal responsibility probably shouldn’t be crowdfunding in the first place.
Indiegogo, btw, should simply be nuked from orbit. It’s the only way to be sure.
(Oh, and on a usability note, the grey text on black background is difficult enough to read, but part of your post is DARK grey on black, which I had to highlight to read.)
I do think we failed well, and I attribute that all to David’s hard work. Because of his efforts, I think a lot of our backers–even those who didn’t want their money back and weren’t refunded–will/would back us again. I also agree with you that communication is paramount. I’m just not convinced that communication is sufficient to deter one or two prickish backers from getting indignant and filing papers, or for an AG or DA from finding cause to file suit if they think there is a case there.
And yes, Indiegogo needs to be nuked from orbit. It is the only way to be sure.
Also, I fixed the grey text issue. I work in usability and had a meltdown when I noticed that. 🙂
I’m sure you’re right about there being a backer or two who might decide to file suit even in the best of circumstances. However, there is a certain amount of due diligence involved before a case goes into active litigation. I think that if they look at a project and see a stream of communication from the project owner, and a lot of supportive comments from the majority of backers, they’re not going to let it go through. I’m not saying it’s impossible, but I think it’s unlikely.
As a backer of the Asylum Cads campaign, I can say that it unraveled petty quickly and became apparent that we wee never getting the product. Lame excuses for the first few months, then little contact, then “oh well”, then no contact. Very different from other projects I’ve been involved with who have gotten of track.
My fear is how this will play out for the artist, who by all accounts is a very separate entity from Altius Management, and was taken advantage of as well.
Pingback: Cracking Down on Crowdfunding | Caffeineforge