Kickstarter Wins Legal Battle to Protect Crowdfunding From Patent Threats

Veronica Mars Kickstarter - P 2013

Veronica Mars Kickstarter - P 2013

Kickstarter has successfully defended the technological process by which it has built a popular crowdfunding platform. On Monday, a New York judge ruled in its favor in a four-year-long patent fight.

In 2011, upon threats, Kickstarter sued ArtistShare for declaratory relief that it wasn't infringing a patent titled "Method and Apparatuses for Financing and Marketing a Creative Work."

The companies are competitors. Kickstarter has raised more than $1.8 billion for some 88,000 projects including high-profile ones such as a Veronica Mars film, a hoverboard actualized from Back to the Future II and virtual-reality gaming headsets. Meanwhile, ArtistShare hasn't been quite as successful, but touting itself as the fan-friendly platform, it too has helped launch many good projects, particularly in the music realm.

ArtistShare was the one to assert a patent (#7,885,887), causing U.S District Judge Katherine Failla to apply a test known as the "two-step Alice framework" to determine the patent eligibility of the concept to which ArtistShare claimed entitlement. Ultimately, she rules that the patent falls short.

"A careful read of that patent, and of recent decisions on patent eligibility from the Supreme Court and the United States Court of Appeals for the Federal Circuit, makes plain that the '887 Patent claims only the abstract and time-honored concept of patronage, and even the addition of an element of computer use is insufficient to render it valid under Section 101 of the Patent Act," she writes in her opinion granting Kickstarter's summary judgment motion.

The dispute provided perhaps the perfect opportunity to review recent decisions that have made it tougher for patent owners to prevail in court. Given the expense of litigating, many times, patent cases never makes it to a verdict, but the Supreme Court in recent years has rejected the eligibility of patents claiming the concepts of risk-hedging and intermediated settlements.

Crowdfunding posed an interesting test under this framework. Kickstarter pointed to those who accomplished the funding of artistic projects before ArtistShare had, but ArtistShare responded that it successfully combined non-abstract systems for managing, marketing and financing a creative work.

Failla sides with Kickstarter.

First, she decides that whatever it's called — "crowd-funding," "crowd-based funding," "fan-funding," "incentive-based patronage" or "incentivized crowd-funding" — what's claimed to be under a patent is an abstract concept and one that is "beyond question of ancient lineage." She even nods to the way that PBS and NPR raises money.

Next, under the Alice framework, she decides that there's nothing about the patent in practice that amounts to significantly more than the ineligible concept.

"At best, the claims of the '887 Patent describe the use of the Internet or a computer network to make identifying and soliciting funds from potential patrons easier and more efficient," she writes. "But relying on a computer to perform routine tasks more quickly or more accurately is insufficient to render a claim patent eligible."

Quoting other prior decisions in the patent realm, she says that while the ubiquity of computers and the advent of widespread Internet access may have made fan-funding more of a realistic and fruitful endeavor, a patent can't simply cloak "an otherwise abstract idea in the guise of a computer-implemented claim."

ArtistShare's patent is ruled invalid. Here's the full decision. Kickstarter was represented by attorneys at Foley & Lardner.