Who is liable when a Kickstarter campaign goes wrong?

[dropcap size=small]K[/dropcap]ickstarter has seemingly taken the gaming world by storm. With the help of a crowd of backers, creators can now publish games that otherwise wouldn’t see the light of day due to lack of investment.

However, there have been several high-profile failures that beg the question: Who is liable when a Kickstarter campaign goes wrong? In this post, we will examine the main parties in the Kickstarter process and discuss their liabilities and rights in turn.

Kickstarter:

Kickstarter’s Terms of Use specifically disclaim any liability for things that happen between users, namely the Project Creators and Backers. Here’s the relevant quote:

“Kickstarter is not liable for any damages or loss incurred related to rewards or any other use of the Service. Kickstarter is under no obligation to become involved in disputes between any Users, or between Users and any third party arising in connection with the use of the Service. This includes, but is not limited to, delivery of goods and services, and any other terms, conditions, warranties, or representations associated with campaigns on the Site. Kickstarter does not oversee the performance or punctuality of projects.”

By using Kickstarter either as a Creator or a Backer, you are basically agreeing to leave Kickstarter out of the equation, liability-wise.

The Project Creator:

Under standard contract law concepts, a valid and enforceable contract requires three things: Offer, Acceptance and Consideration.

The offer is obviously the project page, which clearly identifies the terms of the offer and invites acceptance. The acceptance occurs when the Backer clicks the button to back the project. Those are pretty clear cut.

Consideration is a legal term that means there was some sort of exchange of value meant to induce the parties into entering the contract. Without consideration, there isn’t a valid and enforceable contract. Whether consideration is present depends on what kind of reward tier the backer is accepting.

Rewards-based Backers are pledging their money in exchange for some reward, whether a desktop wallpaper, a copy of the game or lunch with the creator. Consideration is present in these reward tiers.

Donation-based Backers, however, are making a gratuitous promise. They are giving money to the Creator in exchange for…nothing, really. The knowledge that they helped make the game happen is not enough. Therefore, these particular donative transfers don’t form an enforceable contract.

So, essentially, the Project Creator is liable to the Backers who have pledged money in exchange for a reward. They are not, at least under a contract law theory, liable to those who have simply donated money to the cause.

The reality of the situation:

Anyone who has interest in a Kickstarter project should know that there is some amount of risk in the process. In fact, Kickstarter has made changes in recent years to make clear that there are risks to backing.

When a project fails at its goals, is mismanaged or fails to deliver a final product, even when Backers have a strong legal footing, it isn’t cut-and-dry whether it is worth taking legal action. A cost-benefit analysis is important in this regard.

A lawsuit can cost thousands upon thousands of dollars in filing and attorneys’ fees, and potentially take years to get to a resolution. Even filing a case in small claims court can cost over a hundred dollars and take months to get a decision, not to mention the cost of missing work, preparing documentation and serving the other party with court papers. Additionally, a successful plaintiff may have to spend money collecting the judgment if the Project Creator isn’t willing to pay.

Why not file a class action lawsuit? Well, anyone who has received one of those miniscule class action settlement checks in the mail knows that most of the money goes to the attorneys in such a lawsuit. Additionally, you are still talking years of litigation, from class certification through the inevitable settlement process.

Where would the money even come from? Most people and businesses that start Kickstarter projects are not exactly large corporations flush with cash. If they were, they probably wouldn’t be using Kickstarter in the first place. If the project creator is a business entity with limited liability, their capitalization is probably limited to whatever was raised in the Kickstarter. After they blow through that, there most likely isn’t anything left to sue for. A person or business could also just declare bankruptcy to avoid liability for the debts.

Kickstarter’s Terms of Use also state that the Project Creator is required to fulfill these promised rewards. Here’s the relevant quote:

“Kickstarter’s Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. […] This information can serve as a basis for legal recourse if a creator doesn’t fulfill their promises. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill.”

The point is, when donating to a Kickstarter campaign, it is best to go in with a mindset that appreciates the risk and is okay with not seeing the fruits of that donation. Think of it like going to a casino: the best way to go about it is to not put in any more money than you would be willing to lose.

Zachary Strebeck
Attorney at Law

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