Can I Sue When Kickstarter Fails to Deliver?

How the Consumer Protection Act covers crowdfunding in Washington

Crowdfunding has become an increasingly popular way for business startups to finance the development of new products. Basically, a crowdfunding platform like Kickstarter or GoFundMe enables individuals to make small contributions to an overall fundraising goal. In exchange, the donors typically receive “rewards,” including the product itself.

So, in a sense, crowdfunding allows consumers to purchase a product in advance. But what happens if the project meets its fundraising goal but never ends up shipping the actual product? In recent years, many states, including Washington, have pursued legal action on behalf of jilted crowdfunding backers.

Washington AG Obtains Settlement, Fine

For example, in July 2015, Washington Attorney General Bob Ferguson obtained a settlement with a man accused of “crowdfunding theft.” Ed Nash and his company, Altius Management, raised more than $25,000 through a Kickstarter campaign to finance a playing card game. Nash initially promised delivery of the finished game and other “rewards” to more than 800 donors by the end of 2012. But when nearly two years elapsed without delivery, the Attorney General's office took action.

Under the settlement, Nash and Altius Management paid restitution to 31 of the Kickstarter backers who lived in Washington, plus another $31,000 in civil penalties and more than $23,000 in legal costs.

The Attorney General based his lawsuit on the Washington Consumer Protection Act. This is a broad-based statute that prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.” It mirrors language used in the Federal Trade Commission Act. The FTC itself has also adopted the “Mail, Internet, or Telephone Order Merchandise” rule, which among other things requires all seller—including crowdfunding campaigns—to obtain the buyer's consent if it “solicits” payment for goods that will not be delivered within 30 days. The FTC also requires internet sellers to promptly provide refunds and refund notices for any undelivered goods.

Are Crowdfunding Platforms Liable to Consumers?

Crowdfunding platforms have also cracked down on campaigns that fail to deliver on their promises to donors. Kickstarter amended its terms of service to explicitly state that any creator who posts a product with its service is “inviting other people to form a contract with them.” This means that if the project reaches its fundraising goal, it must “complete the project and fulfill each reward.”

Yet Kickstarter itself continues to disclaim any personal liability for failed campaigns. Like many crowdfunding platforms, Kickstarter views itself as a neutral third-party platform that is not a party to any contract formed between a campaign and donor. And, at least up to this point, Washington State and federal regulators have not moved to hold crowdfunding platforms directly liable for campaigns that fail to deliver promised goods.

If you have donated to a crowdfunding campaign and failed to receive any promised “rewards” or products, you should speak with a qualified Washington State consumer protection attorney to learn more about your legal options.

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