The passage of the Jumpstart Our Business Startups Act (the JOBS Act) into law in April 2012 and the recent successes of the online funding site Kickstarter have raised crowdfundings profile in the public consciousness. Crowdfunding is a way of raising capital from a large number of small donors. Currently, Kickstarter and a handful of other donation-based crowdfunding portals are operating in the United States.
The number of crowdfunding portals is expected to grow rapidly after the Securities and Exchange Commission implements the JOBS Act in early 2013, which will legalize equity-based crowdfunding investment, allowing companies to sell up to $1 million of securities annually. Crowdfunding presents an exciting opportunity to raise money or to pre-sell a product while building product buzz and an engaged customer base. For example, Pebble Technology raised over $10.2 million from 68,000 donorsto fund the creation of a smartphone-connected wristwatchin just 37 days using Kickstarter.
In order to engage the crowd, a large quantity of information about the project is shared with the public, either voluntarily in the case of donation-based portals or, as will be required by law, in the case of portals offering crowdfunded securities. If this information sharing includes previously confidential technological details, it could be considered a public disclosure under U.S. patent laws, which could trigger patent filing deadlines.
Those using crowdfunding (either donation-based or equity-based) must be mindful of these filing deadlines to ensure that they do not jeopardize their intellectual property rights. This is particularly true for crowdfund issuers that have used government funding or resources while developing their ideas, as they may be subject to the Bayh-Dole Act (BDA). The BDA allows government contractors to elect to retain title to an invention that was created with the aid of government funding, but only if they follow specific steps, described below, in a timely fashion. Crowdfund issuers who have used government funding must ensure that their crowdfund offerings comply with the requirements of the BDA, particularly in light of the recent amendments to the BDA and patent laws effected by the America Invents Act (AIA) patent reforms.
Crowdfunding Disclosures May Trigger BDA Provisions
A public crowdfunding disclosure may have an impact on the timing of two BDA requirements: 202(c)(2), the written election to retain title, and 202(c)(3), the agreement to file patent applications covering the subject invention before statutory bars. The deadline for electing to retain title to an invention under the BDA is two years after disclosing the invention to the government. However, this deadline may be moved up significantly by a public disclosure of the invention, including, in many cases, the disclosures associated with a crowdfund offering.
The AIA-amended BDA provides that if the AIAs one-year grace period for filing a patent application would end before the BDAs two-year grace period for electing to retain invention rights, the time for written election to maintain invention rights may be shortened by up to 60 days before the end of the AIAs one-year grace period. Failure to act within the allotted time period could lead to forfeiture of rights to retain title to the invention.
Crowdfund issuers also should be wary of the AIAs one-year grace period for filing patent applications. In March 2013, the AIA will change the United States patent laws to a first-to-file system. This change will broaden the scope of prior art, and inventors will no longer be able to swear behind art developed between an inventors date of invention and patent application filing date. Moreover, if another party files for the same invention first they may get rights to the invention. Thus, to avoid this potentially invalidating art, crowdfund issuers should file applications and elect rights to an invention as soon as possible and not rely on the one-year grace period for filing a patent application.
