Regardless of if he is indebted to fulfill the Kickstarter project itself, he's still required to send out the rewards. Furthermore, his lack of transparency on the issue (while continuing to give the media attention) is really what people are pissed off about. There's no excuse for that. He may very well be an incredibly passionate guy, but he's lost the trust of those who were willing to support him even if things hit the fan simply due to the lack of communication.
I think Kickstarter would be very well served by creating higher expectations in terms of project updates.
Set a standard. Say once a month for a minimum. If you don't have something to say to your backers once a month I have to wonder if you are placing the proper priority on the project.
If projects don't meet that standard, turn their page amber or something similar. A big visual sign that the project is not meeting the standard. If it goes 3 months with no update turn it red. Make it stand out. Make people feel some pressure to communicate.
In the end, it's best for Kickstarter to push projects to better relationships with the backers.
Perhaps Kickstarter needs a project liaison for projects over a certain dollar threshold; people who ask "How is it going? What are you doing?". Kiva does this for the people I lend money to (even though I lend without the expectation of the money ever coming back, I want to know how the borrow is doing regardless of the outcome).
This can be built into the cost of the Kickstarter project, and for projects $100K and above, believe it to be completely reasonable.
Kickstarter doesn't want this because it can bring possible liability. They want as little to do as possible with the actual projects success or failure while still seeming to be wanting them to win :)
This isn't copyright law, and turning their head isn't going to remove liability (a la Craigslist sex workers debacle). Good luck arguing financial safe harbor provisions ("we're just a marketplace! It's not our place to regulate!").
Craigslist was never actually found liable that i remember, they settled.
But yes, they are basically trying to present it as a marketplace they have no control over, to avoid liability and getting themselves regulated by the SEC/others.
Whether this is going to be effective, I actually tend to agree with you and think it won't, but it's almost certainly why they are doing it.
Totally agree. They state multiple times in the Accountability section of their FAQ that they understand that there are roadblocks and things that come up. Also that if the project can't be completed that it's in the owner's best interest to detail how the money was spent.
I think Kickstarter should require projects to "level up", proving themselves with smaller milestones with smaller funding levels. For example, a project might need to fund a $10K project before a $100K or $500K project.
So, if he is required to send out the rewards (even if the project failed, which it sounds like it must have, if people feel the funds were misused; to be clear, my understanding is that the Kickstarter was for a better game than the original Code Hero I said was possibly released), then Kickstarter is no longer a crowd-funded donation system for speculative investing and is a way to avoid collecting sales tax for purchases of physical goods (or custom software, such as "a special version with X", which is also often subject to sales tax).
I am unsure if rewards in this sense means the project itself or just the incentives. In any case, he's fulfilled neither. Here's the text from KS:
"Is a creator legally obligated to fulfill the promises of their project?
Yes. 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. We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don't. 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."
That's listed in the FAQ [1], but not the Terms of Service [2]. Also, the project guidelines shown to people starting a new project don't mention reward fulfillment [3].
That question in the FAQ is new. It wasn't present when this project was funded [4].
Interesting! I am thereby highly confused as to how Kickstarter is legal (in addition to how it satisfies the requirements of credit card companies, which state that you cannot capture funds until you ship the product someone ordered).
For one, a pledge to a Kickstarter project is absolutely not an "order" for a product. It is an investment in a future which may or may not come to fruition. What happens if you put down $60 at the local Gamestop on a game that later gets cancelled? You get your money back, yes, but in the meantime, Gamestop gets to keep your cash.
_BUT_… It's clear from this same situation playing out every week or so, that at least some project owners and certainly Kickstarter themselves are not doing nearly enough to make that clear up front. There are clearly _many_ people who, in spite of words like "Pledge" and "project" and "funding" and "reward", still have expectations that the transaction is a sale - and they then post using language like " I 'paid' for my 'order' and my 'product' hasnt arrived!"
I love the idea of "crowdfunding", but I think it needs to be much better understood as closer to a "donation" or "speculative investment" than a "sale".
Maybe its because the people involved are actual reading the Kickstarter terms of service -- unlike the project creators who are treating the funding like a donation -- which require the project creator to provide the promised rewards or a refund to every backer who doesn't get the reward, and, by doing so, make the transaction more like a sale than a donation or speculative investment.
The problem is with project creators who offer rewards that they aren't able to provide when the project funds, usually because they are promising rewards that include the output of the project when they are funding development rather than production.
Given KS's terms of service, creators risk substantial liability to backers when they do that; the better model would either be to offer rewards that don't depend on project success for development, or use Kickstarter to fund up-front production costs after development is complete and offer rewards that include the project output; there's no reason the same project couldn't do both, using two different Kickstarters, starting with one for development and followed -- once development is complete -- with one for production.
There are two issues here, and I believe you have comingled them.
1) legality with respect to sales tax law: If Kickstarter actually requires that a good is shipped when money is given (the statement I was responding to with this comment), then this difference is barely even academic: it is just a way to do an end run around sales tax law, and I don't think it is one that most places would tolerate well (although enforcement on that sort of thing is slow and spotty).
2) terms of service on credit cards regarding pre-ordering: No, if you are giving Gamestop $60 to hold on to until a product is shipped, and you do this with a credit card, this is in violation of their agreements with companies like Visa. These requirements (obviously) flow through if you use third-party payment networks that, themselves, are based on the usage of credit cards by the end customer.
In fact, this is sufficiently true, that your example is actually wrong to begin with... Gamestop doesn't even do that, because (as I said) if they did they would be in violation. They have a page in the help section of their website where they go over this topic in specific.
"""Your credit card will be charged only when your order is processed. In some cases, we will process your order and authorize your credit card up to 10 days before the release of the product. This allows us to get the product to you faster."""
In essence, they are taking your credit card number ahead of time, but they are not actually billing you; it is only when the product is actually pretty much available that they do the authorization on the card. Even then, I bet they are doing only an "authorization", and performing the "capture" when they ship: they do the authorization ahead of time to make certain there is time to deal with delays, mistakes, or simply a long queue, and then can do the capture quickly when they go to ship.
>No, if you are giving Gamestop $60 to hold on to until a product is shipped, and you do this with a credit card, this is in violation of their agreements with companies like Visa.
Then these agreements are utterly meaningless. Preordering via credit card is hardly a new concept.
Again: if you "preordered by a credit card", and were charged before the shipment (not just an authorization that your bank shows as "pending", but an honest-to-goodness capture), then you can and should report them. You will note that no large company is doing this, not even GameStop.
As another cool example: if you were lucky enough to go to Google I/O this year, they were taking "per-orders" of Google Glass; however, as they are not allowed to take money via credit cards in advance of shipment (and as you can't delay a capture for more than a month or something after the authorization), they were forced to just take name and email addresses down at the event.
Something stinks, then. I put down a preorder for Halo 4 at the local Gamestop and picked it up on launch day.
This cost me $60 about 3 months ago.
I've got the statement open, literally, right in front of me, and it shows a $60 charge from that store. I had to walk in and cough up the sales tax on launch day. I've got that charge right in front of me too.
So after a period, you're required to issue a refund.
The issue is that you cannot always issue a refund after $period, where $period ranges anywhere from 60-180+ days depending on dozens of different factors (three or four different banks, your payment gateway, various data retention policies, card expiration, and more).
Unlike raising a seed round, for example, it's rather impractical to give (remaining?) money back if you realize the project is not going anywhere after six months or a year.
Suffice to say, there's a reason that Kickstarter has started to clamp down on projects with a higher likelihood of failures and is outright blocking certain categories.
Maybe he's not ready to fulfill the rewards yet. I don't see that as a reason to file a lawsuit. I backed the kickstarter PID espresso machine project almost a year ago and have yet to see my reward. They reached their funding goal before this CodeHero fellow, so should we also file a lawsuit too?
The t-shirts in particular could have been made, or he could have apologized and tried to save face by offering a more tangible reward to hold people over. Having the rewards solely hinge on the release of the product seems counterintuitive on Kickstarter's behalf, but it's still bad etiquette to take people's money and literally give them nothing for it, even if you can't give them what they originally wanted.
People really want to support Alex and this endeavor. They're willing to make sacrifices. They just want clarity, and I don't think that's asking too much.
This is a great example of why Kickstarter should automate the production/fulfillment of these basic, common rewards. Too many organizers of Kickstarter projects list t-shirts, stickers, etc. in the rewards without even bothering to price the production out (or think about the amount of logistics required to fulfill hundreds to thousands of individual items).
Disclaimer: I work for Teespring, and pretty much all we do is automate this sort of thing (so I may be biased).
Most of the backers for the espresso machine project (http://www.kickstarter.com/projects/zpmespresso/pid-controll...) haven't received their rewards either, but we aren't up in arms ready to file a lawsuit either. I honestly don't see people making sacrifices -- the backers put in a few hundred dollars with the full knowledge that it takes a lot of work to make it happen.
Kickstarter is not a rewards preordering system. You're not giving money expecting to see your reward show up on your doorstep "soon".
He only has an obligation to refund if he decides to cancel the project. As far as we know, the project is still continuing so he has no obligation to fulfill the refunds.
In the faq you linked, here's a choice quote:
>It's not uncommon for things to take longer than expected. Sometimes the execution of the project proves more difficult than the creator had anticipated. If a creator is making a good faith effort to complete their project and is transparent about it, backers should do their best to be patient and understanding while demanding continued accountability from the creator.
"As far as we know, the project is still continuing so he has no obligation to fulfill the refunds."
While I agree with that completely, there's two different sorts of deliverables promised as rewards - the actual project output, which as you point out may only be delayed and not cancelled, but also the "trinkets". If he's really run out of money without having already paid for the tshirts and usb keys (and if it were me, probably also the "special packaging" promised for some rewards), then I think he's done something _very_ foolish.
It is incorrect to state that he is only obligated to refund if he DECIDES to cancel the project. By the terms of service, he is obligated to refund if he is either unable or unwilling to provide the rewards. Legally, unwilling loosely corresponds to deciding to cancel the project (or, at least, deciding not provide the rewards), but inability would be judged by looking at capacity, not intent.
That quote is relevant if he is still making progress on the project. But I haven't heard any evidence of that. Unless he at least announces that he's still working on it, I think it's reasonable to treat it as canceled.
Or backers should go ahead and threaten a lawsuit because that appears to be the only way to force the developer to meet the 'being transparent' requirement in the terms quoted above?
Each of the pledges has an "Estimated Delivery". While those have passed, I don't think there's anyone here who doesn't understand that there can be a sometimes tenuous relationship between "estimate" and "realistic" when dealing with a "prototype".
The communication issue is, agreed, his own worst enemy.
