The state of Washington has filed the first-ever lawsuit against a Kickstarter campaign that was successfully funded but failed to deliver the promised goods to backers.
Back in October 2012, a Kickstarter campaign for Asylum Playing Cards wrapped up very successfully, bringing in more than $25,000 on a $15,000 goal. Things appeared to be going swimmingly, until July 2013, when the company behind the Kickstarter, Altius Management, fell off the face of the Earth. Updates stopped, and more importantly, nobody received their cards; by all appearances, Altius founder Edward J. Polchlepek, AKA Ed Nash, took the money and ran.
This isn’t the first time a Kickstarter has gone south after surpassing its goal – Code Hero, anyone? – but it is the first time that the failure to deliver has resulted in legal consequences: The Attorney General of Washington State announced yesterday that he has filed a consumer protection lawsuit against Atlius Management and Polchlepek, the first of its kind in the country.
“Consumers need to be aware that crowdfunding is not without risk,” Washington State Attorney General Bob Ferguson said. “This lawsuit sends a clear message to people seeking the public’s money: Washington state will not tolerate crowdfunding theft. The Attorney General’s Office will hold those accountable who don’t play by the rules.”
The lawsuit seeks restitution for backers, fines of up to $2000 per violation of the Consumer Protection act (which if we assume one violation for each backer could total more than $1.6 million) and all of the costs and attorney’s fees associated with bringing the suit.
There appears to be no question that Polchlepek has put the screws to his supporters – if he’d been laid low by some misadventure they’d have surely heard about it by now – and in principle, I suppose most people would support the idea of Kickstarter creators being obligated to deliver on their promises. But that’s already a requirement; the Kickstarter terms of service state that creators of successful projects “are required to fulfill all rewards or refund any backer whose reward you do not or cannot fulfill. A failure to do so could result in damage to your reputation or even legal action by your backers.”
At the same time, those terms of service may also provide an element of defense, as they note that estimated delivery dates are “not a promise to fulfill by that date” and further requiring only that people who launch Kickstarters “agree to make a good faith attempt to fulfill each reward by its Estimated Delivery Date.” It’s one thing if Polchlepek just made off with the money but if he can claim, and demonstrate, that he did in fact make a legitimate effort to create and distribute the cards, he may have a valid defense.
It’s also valid to wonder if this lawsuit could have a chilling effect on crowdfunding in the long term, especially if it succeeds. Crowdfunding is often necessary precisely because projects are viewed by conventional sources of funding as too risky or too niche to succeed, and if creators are faced with the possibility of legal action over failed efforts, some of them may opt not to pursue interesting but challenging ideas. That’s not necessarily a bad thing, and it’s arguable that legal action will only be brought against the most egregious of offenders, but relying on discretion in the hands of authority can be a dicey proposition.
A copy of the full complaint against Polchlepek and Altius Management is available from the Washington State Attorney General website.