When you take money from people that they give you in response to your solicitation representing that, if they give you a specified amount of money, you will provide specified tangible things in the future, reciting as a mantra that the venue through which you made this solicitation and received the funds "is not a store" isn't, as it turns out, a legally dispositive way of disimissing liability.
> The premise of kickstarter has a lot more in common with angel or seed investing than with buying stuff.
Angel or seed investors get well-defined things in exchange for the money they provide, but the things that they tend to be offered (which tend to be in individually, actively negotiated term sheets, which is rather completely unlike the situation in Kickstarter) tend not to be future goods.
Kickstarter might not be a store, but the legal context of many kickstarter is a lot more like store than it is like angel or seed funding.
> and the project creator is not being prosecuted for fraud.
Well, that's true in two senses:
(1) The project creator is not really "being prosecuted" at all, as default judgement was entered in July; the prosecution part is pretty much done.
(2) The specific legal language was "unfair and deceptive acts in trade or commerce" rather than "fraud", though one might consider that the common use of the latter term certainly encompasses the former. And, further, that while the specific operative language in the relevant Washington State law might be different, the usual legal definition of fraud encompasses the specific things at issue in at least the First Cause of Action in the case -- to wit, soliciting and receiving money on a false representation that certain goods will be provided in the future.
People who want to try a project in good faith will now think twice because they may end up being sued if the project fails.
These guys might have deserved this, but the overall effect on kickstarter community will be negative.
In law, "fraud" is the name of both a civil wrong (tort) and a crime. The same is true of lots of things -- assault, for instance, is likewise the name of both a tort and a crime -- and, while related, the two offenses have different elements (as well as different sanctions, different legal processes, and different parties who can bring actions.)
See, e.g., https://en.wikipedia.org/wiki/Fraud#As_a_civil_wrong
It certainly seems to me to be worse for kickstarter and that model of crowdfunding in general if backers are denied recourse that is otherwise available both through direct action on government action on behalf of impacted parties through the civil justice system and restricted only to public prosecution through the criminal justice system for wrongs inflicted by firms seeking funding through crowdfunding mechanisms.
Having both civil and criminal remedies available in the same manner as they are for other commercial transactions avoids crowdfunding becoming a specially-protected haven for fraudsters, which would drive out backers, which would be bad for legitimate projects seeking to use the mechanism to fund themselves.
That said, the evidence is that this case sets the following precedents: - Failing a project could lead to substantial liability, even exceeding the amounts collected. (Previously, failing a project led to reputation damage and likely inability to raise more funding.) - Backer funding is being treated as pre-paid goods/services and is essentially a loan. (I'd call it interest-free loan, but there are fees involved in payment processing and refunds.) - Rewards are considered merchandise or goods sold. (Does this open the door for sales/use taxing? There could be other implications here, such as need to register to collect/remit these taxes.)
Crowdfunding started as a way to give ideas and less formal ventures a shot at becoming something. The amount of money now involved is definitely sizable and the fraudster comment you made speaks to that. Unfortunately, the formalization and the precedents here will likely change the spirit of crowdfunding very rapidly and make it a lot less appealing to legitimate projects. Fraudsters will likely find ways to skirt these precedents by establishing corp structures or what not that will shield their personal assets from much of the civil liability.
To me, this is a sad day.
Section 4 outlines the facts of the case with item 4.2 stating that backers "paid for" rewards. Sections 5 and 6 are all accusations based on the "paid for" premise and the basis for the action.
This is where I have a problem with this - kickstarter is not a store. If I order from Amazon, I'm expecting that they will deliver. It's a sales transaction. If on the other hand I'm willing to help someone take a shot at doing something new, and, if successful, get some sort of reward back, that's not a store sales transaction.
The premise of kickstarter has a lot more in common with angel or seed investing than with buying stuff.
In reading through the facts section, I don't see any argument being made that the campaign was started in bad faith and the project creator is not being prosecuted for fraud. The basis of the case is essentially consumer paid for a good and that good never showed up and no refund was issued.
But again, kickstarter is not a store...