Kickstarter project hit by consumer protection complaint for failure to deliver

[40hz]

I'm filing this one in my "I told you so!" folder.

From the good folks at Techdirt comes this:

Washington State Files First Consumer Protection Lawsuit Against Kickstarter Project That Failed To Deliver
from the don't-kickstart-if-you-don't-plan-to-deliver? dept


I've backed a few dozen Kickstarter projects over the years, and there have always been questions about possible fraudulent projects. While I've personally found that nearly every project delivers late (often very, very late), I don't think any of the projects I've backed has completely failed to deliver (there are a couple I'm still waiting on, though...). Still, the risk of such a "default" is always a possibility, and that's always been the case. Backing a product at an early stage always comes with the risk that it may never deliver. Kickstarter itself has tried to do a better job in making people aware of this upfront with its "Kickstarter is not a store" claims.

However, Washington State's Attorney General has decided to file a consumer protection lawsuit against one project that failed to deliver.

   The state’s top lawyer, Bob Ferguson, said Thursday his office has filed the first consumer-protection complaint in the U.S. to target a Kickstarter fraud.

   The lawsuit alleges Edward Polchlopek III and his company, Nashville, Tenn-based Altius Management, in 2012 raised more than $25,000 from 810 people in order to print a deck of “retro-horror”-themed cards designed by a Serbian artist.

   Among those backers were 31 living in Washington state, according to the suit, which was filed in King County Superior Court.

As the actual filing notes, two years later, nothing has been delivered and no money has been returned. Rather than just seeking the return of the $25,000, the lawsuit asks for $2,000 per each backer, meaning that Altius Management may be on the hook for a potential $1.6 million. <more>

Apparently, these guys:

• met their initial $15K goal and went on to get over $25K from 810 backers
• promised all rewards would be delivered to backers by December 2012 - but did not deliver anything
• stopped updating their campaign page in July 2013 and basically disappeared off the face of the earth, and...
• still had not communicated or delivered anything to their 810 supporters as of April 2014 when the state AG's office filed against them

I think it's unfortunate this happened. But I also think it was inevitable. (Truth is, I'm surprised it took this long.)

It's sad how many otherwise smart people think that the rules of business - and existing laws - no longer apply when doing things on the web.

[attach]

[wraith808]

I think some chill breezes are about to start being felt in Kickstarter's cosy little virtual world.

I think two issues are being conflated here.

The first is the responsibility for delivery and the suit.  These are totally in the way that things should be done, and I think it's telling that kickstarter itself as a platform is not a defendant in the suit.  If you collect money, even on a speculative venture like this, you open yourself up to a responsibility to deliver. 

But I think that has little to nothing to do with the platform in and of itself.

Kickstarter gives a platform for the offering, and for that platform, charges a fee, and dispenses funds.  To expect that they would have control over each individual offering is pretty ludicrous.  Even the payment platforms, i.e. MasterCard, Visa, Amazon, have limits to the claims on such.

The first paragraph of the quote follows my beliefs, i.e.:

I've backed a few dozen Kickstarter projects over the years, and there have always been questions about possible fraudulent projects. While I've personally found that nearly every project delivers late (often very, very late), I don't think any of the projects I've backed has completely failed to deliver (there are a couple I'm still waiting on, though...). Still, the risk of such a "default" is always a possibility, and that's always been the case. Backing a product at an early stage always comes with the risk that it may never deliver. Kickstarter itself has tried to do a better job in making people aware of this upfront with its "Kickstarter is not a store" claims.

A few hundred in my case... and a few have packed up shop, but that's how I determine what to back and how much, and as such, the 3-5% failure rate is acceptable to me.  But if it weren't, I'd be within my rights to sue the project creator over non-delivery.

TL;DR  - the suit is unfortunate and the situation for those backers.  They are well within their rights to have pursued action.  But to claim that Kickstarter has an obligation or any power over the backend situation is a pretty specious claim IMO.

[40hz]

I think some chill breezes are about to start being felt in Kickstarter's cosy little virtual world.

I think two issues are being conflated here.

The first is the responsibility for delivery and the suit.  These are totally in the way that things should be done, and I think it's telling that kickstarter itself as a platform is not a defendant in the suit.  If you collect money, even on a speculative venture like this, you open yourself up to a responsibility to deliver.  

But I think that has little to nothing to do with the platform in and of itself.

Kickstarter gives a platform for the offering, and for that platform, charges a fee, and dispenses funds.  To expect that they would have control over each individual offering is pretty ludicrous.  Even the payment platforms, i.e. MasterCard, Visa, Amazon, have limits to the claims on such.

The first paragraph of the quote follows my beliefs, i.e.:

I've backed a few dozen Kickstarter projects over the years, and there have always been questions about possible fraudulent projects. While I've personally found that nearly every project delivers late (often very, very late), I don't think any of the projects I've backed has completely failed to deliver (there are a couple I'm still waiting on, though...). Still, the risk of such a "default" is always a possibility, and that's always been the case. Backing a product at an early stage always comes with the risk that it may never deliver. Kickstarter itself has tried to do a better job in making people aware of this upfront with its "Kickstarter is not a store" claims.

A few hundred in my case... and a few have packed up shop, but that's how I determine what to back and how much, and as such, the 3-5% failure rate is acceptable to me.  But if it weren't, I'd be within my rights to sue the project creator over non-delivery.

TL;DR  - the suit is unfortunate and the situation for those backers.  They are well within their rights to have pursued action.  But to claim that Kickstarter has an obligation or any power over the backend situation is a pretty specious claim IMO.

I don't think it's entirely accurate to say the issues are being conflated. There's the alleged fraud surrounding the failure to deliver on a contractual obligation on the part of the campaign itself. And then there's the larger issue of whether or not Kickstarter's "don't ask, don't tell, not my problem" policies permit or encourage such fraud to take place under their roof. That's definitely not a discussion Kickstarter wants regulators or state attorneys to start having. Because there are rules and legal theories surrounding contributory negligence and "aiding and abetting." And just saying "we didn't know" or "we don't get involved with that stuff" doesn't change any of that. Especially if it's happened more than once or twice. Like the old saying goes: "Dupe me once - shame on you. Dupe me twice - shame on me."

Kickstarter uses a lot of language to completely excuse itself from culpability (or even the slightest hint of responsibility) for anything that goes down on it's website. This argument is much like the "safe harbor" concept of ISPs not being responsible for content posted on or through them. Which is fine when it comes to words. But it's pretty self-serving where money transfers (and their percentage takeoffs) are involved. And like it or not, there are some major regulatory and legal frameworks in place that govern conduct and responsibility in such matters. Kickstarter insisting things are "different" with them because...well..."just because" isn't going to hold much water if it starts to hit the fan.

I think Kickstarter has been given a pretty free ride (so far) considering the amount of money that passes through them. And that's largely because most in government and business saw that an open incubator arrangement might serve a valuable purpose and therefore gave them the benefit of the doubt and cut them a lot more slack than they have most investment matching services. (And yeah - I know it's for "projects" - not "investments." But Kickstarter doesn't get to make up it's own definitions or claim it's own interpretations of things because...well..just because.)

And that's unfortunate. Because if it continues, Kickstarter may soon discover it's well got poisoned by those people who went in without a clue, and tried to walk away without a word. Kickstarter needs to get more involved when complaints by supporters get made. Stonewalling and turning a blind eye isn't going to get Kickstarter off the hook if there's a problem. Life is never going to be that simple. Even when it's on the web.


Re: TL-DR

That's rather unfortunate. People really should make an effort to read some of this stuff. Because it's those persnickety details and legal theories that our business and financial world operates under. And sometimes, once you struggle through and actually read real court filings, you develop an appreciation for the logic behind it as well. (Hint: it's nothing as simple as the "big & mighty vs the small" conspiracy stuff a lot of self-taught economic types and "freethinkers" would like us to believe.)

[superboyac]

(Note: Being a playing and tarot card collector myself, I also think "collector's disappointment" is driving a lot of this. The concept for the deck was brilliant and highly original. And the artwork was drop-dead gorgeous. This deck could easily have become a much sought after "investment grade" collector's deck.)

they do look great.

[tomos]

It looks like all the artwork was (more or less) done, but none of the printing...

[rgdot]

On the issue of delivering a physical product we should be very careful if we are willing to let kickstarter (or anybody else) off the hook. Dangerous path here.

[wraith808]

On the issue of delivering a physical product we should be very careful if we are willing to let kickstarter (or anybody else) off the hook. Dangerous path here.

But kickstarter isn't delivering a physical product.  The campaign organizer is.  And should be held to some sort of accountability.  Especially if he just disappeared.

That's rather unfortunate. People really should make an effort to read some of this stuff. Because it's those persnickety details and legal theories that our business and financial world operates under. And sometimes, once you struggle through and actually read real court filings, you develop an appreciation for the logic behind it as well.

I understand the legalities behind it.  I still call it specious.  Just as the lawsuits following IPOs and the lawyers that specialize in them I find smarmy.  Sort of like ambulance chasers.

Kickstarter is not entering into a business agreement with the backers nor the project owners, other than to be a platform to organize, which is where their cut comes from.  I think if it was a flat fee then it would be a lot more obvious- the percentage is where it gets muddy.  But I think that the principle is still the same.

If a person advertises on a billboard, and people are dissatisfied with the outcome of their transaction regarding the product advertised, is the owner of the billboard responsible?

[rgdot]

On the issue of delivering a physical product we should be very careful if we are willing to let kickstarter (or anybody else) off the hook. Dangerous path here.

But kickstarter isn't delivering a physical product.  The campaign organizer is.  And should be held to some sort of accountability.  Especially if he just disappeared.

Ceding accountability anywhere in the supply chain is a slippery slope that will be exploited, if not by kickstarter then by another.

[wraith808]

On the issue of delivering a physical product we should be very careful if we are willing to let kickstarter (or anybody else) off the hook. Dangerous path here.

But kickstarter isn't delivering a physical product.  The campaign organizer is.  And should be held to some sort of accountability.  Especially if he just disappeared.

Ceding accountability anywhere in the supply chain is a slippery slope that will be exploited, if not by kickstarter then by another.

How is kickstarter part of the supply chain?

[rgdot]

On the issue of delivering a physical product we should be very careful if we are willing to let kickstarter (or anybody else) off the hook. Dangerous path here.

But kickstarter isn't delivering a physical product.  The campaign organizer is.  And should be held to some sort of accountability.  Especially if he just disappeared.

Ceding accountability anywhere in the supply chain is a slippery slope that will be exploited, if not by kickstarter then by another.

How is kickstarter part of the supply chain?

How do you not consider it? By that logic you can never complain to ebay

[40hz]

If a person advertises on a billboard, and people are dissatisfied with the outcome of their transaction regarding the product advertised, is the owner of the billboard responsible?

That depends.

If the person selling the billboard collects pledge money and holds it in escrow for the person who bought the advertising pending a goal being reached then the billboard company is entering into a fiduciary arrangement of some sort with the advertiser.

If Kickstarter just charged a declared fee up front to provide listing space and bandwidth, there would be no fiduciary.

If Kickstarter didn't set restrictions as to the type or scope of what was being listed (other than to make sure they weren't offering something illegal) there would likely be no question of any partnership.

But because they do collect and distribute funds received - and because they maintain controls on what can be listed and for what purposes - they're a bit more than a billboard or some grocery store's community bulletin board. Either of those actions creates an involvement on their part. Exactly how much of an involvement it is can get complicated because the relevant laws governing such things are pretty complex. And there are differing criteria to be addresser depending on whether it's considered an agency, a partnership, or a fiduciary relationship. It can also get into identifying the degree of "arm's length" at which matters are conducted, and the "at risk" element in the arrangement. And this needs to be determined on a case by case basis. One size does not fit all. And declaring something is "X" doesn’t automatically make it an "X." The reality of how something operates (both in fact and appearance) weighs into the determination as well.

So can Kickstarter itself get into trouble over any of this? It's a definite possibility although the state attorneys don't seem to be interested in pursuing that argument right now. And I'm guessing they won't in this particular case because it would seem a bit of a stretch for them to go after Kickstarter. And I think most people would see it that way too.

Still...stranger things have happened.

-----------------------------------------------------------------------------------

Note: the law doesn't deal in analogies. Things aren't "like" something when it comes to legal reasoning. Things "are" either A or B - they're not "like" A or B. That's an important distinction. Because the law is all about definition and legal theories. Very precise and often tortuously complex legal definitions and theories.

[wraith808]

On the issue of delivering a physical product we should be very careful if we are willing to let kickstarter (or anybody else) off the hook. Dangerous path here.

But kickstarter isn't delivering a physical product.  The campaign organizer is.  And should be held to some sort of accountability.  Especially if he just disappeared.

Ceding accountability anywhere in the supply chain is a slippery slope that will be exploited, if not by kickstarter then by another.

How is kickstarter part of the supply chain?

How do you not consider it? By that logic you can never complain to ebay

There are several kickstarters where there is nothing to be delivered.  Where is the supply chain?  A supply chain in general is when you order something for funds- the chain from the point of manufacture to the point of delivery is the supply chain.  Note that the point of sale is *not* included in a supply chain.  The primary function of SCM, then is to facilitate the most efficient manner of delivering product from the manufacturer to the end user.  No supply chain has been created until there is a product that is to be shipped.  Ergo, Kickstarter is not a part of that chain.

So can Kickstarter itself get into trouble over any of this? It's a definite possibility although the state attorneys don't seem to be interested in pursuing that argument right now. And I'm guessing they won't in this particular case because it would seem a bit of a stretch for them to go after Kickstarter. And I think most people would see it that way too.

You can be taken to court over anything or nothing, and what comes out is based in large part on the skill and connections of the lawyers involved and the particular judge that is assigned the case.  So yes, they could be taken to court.  But the interpretation of that particular case is still very much in the air.  Which is more the reason that I think that they are not in any crosshairs right now- to get the case against the actual perpetrator would be the first step even if they were going to pursue anything against Kickstarter- in order to build precedent and not overreach.

All of that said, I still find it a tenuous link.  And your statement about the fact that they filter content?  Billboards do the same.  In fact any advertisement channel does.

Note: the law doesn't deal in analogies. Things aren't "like" something when it comes to legal reasoning. Things "are" either A or B - they're not "like" A or B. That's an important distinction. Because the law is all about definition and legal theories.

This is not something that I don't know.  Perhaps we are looking at specious in a different light.  When I say specious, I mean something that on the surface appears to be fair, but isn't.  The legalities of the same don't enter into that equation.

[rgdot]

^ I did mention 'physical product' in my first post in this thread, whether or not physical product is the exception or the rule for kickstarter is not really relevant.
As far as supply chain goes I, personally, do want every point from manufacturer to the end platform provider/seller/etc to be somewhat responsible for the physical product delivered to me. I would expect that from third part sellers on Amazon, ebay ... the same way I would expect it from brick and mortar places. Example: The car dealer has nothing to do with creating the car (car dealerships are not owned by the car manufacturer anywhere I have lived...) but I am not taking back my car to Toyota HQ but to the dealer.

[40hz]

I think it may be a good idea to remind ourselves that no legal action has been taken - or is even being contemplated - against Kickstarter itself by the Washington AG's office.

The AG's filing has only named the person(s) responsible for the Asylum playing card campaign in the complaint.