An interesting point to this..

People keep saying "creators have no legal responsibility" with KS. That's not entirely true, they may not sign a physical contract, but they do put their 'digital signature' on one, agreeing that (paraphrasing) they won't dick around with the money and squander it on booze and whores, instead they will make every effort to come through with the promised products and rewards for backing.

From the KS FAQ The 'this': https://ksr-assets.s3.amazonaws.com/creator-responsibility.png
The aforementioned guidelines: http://www.kickstarter.com/help/guidelines (make not of the tech and design requirements)
And KS' Terms of Use: http://www.kickstarter.com/terms-of-use?ref=footer

Noteworthy parts: Yes, there's a the whole argument as to whether or not EULA are 'legally binding'.. but in an instance like this, I am pretty sure that no judge in their right mind would say "No one ever reads those." they'd be more likely to say "you're asking people to give you thousands of dollars for your business venture, you bloody well better know all the ins and outs of the system you used, ya fuckwad."(.. OK, so that last part would probably only be an obnoxious TV judge, but ya know)

Most EULA are binding provided that the statments within them are legally correct and not considered abusive or infringing on basic rights (its more complex so sign away certain rights and some you can't sign away are all depending on the country you're in).
Just because "most people don't read them" does not make signing a document any less binding, it just means that many people sign without realising what they are agreeing to. Barring extreme situations most courts will simply say "You were given the document, given the option to read it and didn't - lesson learnt".


Games have a bit of leeway because many of the people "signing" EULA can't legally sign anything (underage); the document can't be seen/read before the transaction (though I notice many are making these visible online now); and some of the EULA contents have been questioned or challenged legally. (many legal documents contain "perfect" clauses for the client presenting the document, most don't expect to get away with them during negotiation and they'll be parts challenged or dropped - games are again an area where this never really happens).

I think the KS FAQ just wants to make sure that nobody blames KS if a project fails. They don't mean to imply that Backers have any rights. Legally the project creator can do whatever he wants with the money, and that of course also includes booze.

There is a moral commitment but moral is seen so different across the world it cannot be a base of a financial transaction.

I just avoid smaller projects or projects in very early phases on KS. From the project page it should be clear how the final product will look like and how much they have already done. A good repuation (DoubleFine) helps alot.

This might be bad for small, unknown projects, but that's how it is and until the legal framework changes, this will probably not change for me.

Uhm sorry, but.. re-read my post.
KS makes it clear that the creator can have legal action taken against them for failure to deliver on the promised rewards for backing, as well that project creators are required to provide refunds in the event that they are requested or that they are unable to provide the reward for the backer level.

Pledging to a KS project affords you, the backer, just as much/little legal protection as making any other business investment does. In fact, it offers you more.. If you invest in a company, and it fails, your money is usually gone. if you invest in a KS and it fails.. you can demand your money back, and have legal grounds to do so.

If I start a KS to release a music album, and you back it.. we are basically both signing something that says the money you gave me is to go towards the production of my music album, and upon completion you will receive whatever rewards I have promised you.

KS had already covered their asses by having (paraphrasing) "we don't check these schmucks out before they put their project up, we're not responsible for their projects in any way shape or form." in their ToS.

It definitely does not offer you more protection than a business investment. Best case, it offers you equal protection.

I assume the bankruptcy process will be handled in much the same way as if, say, the money came from a single investor rather than through many "investors" on Kickstarter.

For a $10.000 backer it might be worth looking into filing to have a say in how whatever assets remain are distributed, but for most of the backers who are in for $15-$50, the money is, for all practical purposes, lost.

You also have to take into consideration that this specific scenario of a Kickstarter going bust has not been tried in a court (to my knowledge). There are more than subtle differences here between what you would see in a business investment scenario and what you are getting through Kickstarter.

So no, I don't agree that their agreement offers you any tangible legal protection, in practice, at the moment.
This would be true. Any legal action taken upon the loss of a Kickstarter "investment" (I will continue to put investment in quotes here, because we all know it's not really an investment) would have to be between you as an individual and the people / person behind the Kickstarter. Which muffles up the possibility of seeing refunds for failed projects, even blatantly fraudulent projects, rather a lot.

The "Investment" (which as I've previously expressed falls somewhere in the middle of ionvestment, donation and pre-order), does offer limited tangible legal protection. Limited. Disagree all you want, but it's there, and if you follow some of the comments on the KS linked.. it's being used.

The protection it offers you is just the same as the protection offered you from a failed or fraudulent business investment:
You can take legal action to attempt to reclaim your money (plus court costs).

The creator is making a commitment to the backers, he is essentially signing a contract with each of them. Over all, this contract might not be legally binding with some slick lawyers finding loop holes, but.. it's probably going to hold up- it has at least once so far!

There is no guarantee you'll get your money back in the event of a failed project, even in the event of taking legal action... yet there is also no guarantee that you will get your money back in the event that a business investment fails, if you even have any legal recourse (depending on the contract and reason for failing, I would guess).

You are, however, very much right in that the amount of money that most KS backers back for will not even be worth the time and effort of pursuing legal action. IIRC the overall average pledge to a KS project is around $27, that's not worth much more time and hassle than sending a few emails to the creator saying "Gimme my money back."

I do suspect, however, that there will be instances in the future of essentially class action lawsuits against fraudulent projects or bogus business practices. The creator of the 'Hanfree' may well end up facing such a thing if his financials reveal the fraudulent use of KS backer's money.

Will people see their money back? Only time will tell.
Hopefully though, it proves to be educational for both backers and creators:

For backers: Projects do sometimes fail, this is something you need to be prepared for. Never pledge money you can't afford to lose.
For creators: Make absolutely certain you can deliver on what you promise, and that you can take good care of your backers money.

I would add:

For creators: treat your pledges like your investors not your customers.


I've a feeling that will be something many (esp those who are already a larger scaled company rather than start-ups) will have trouble realising at times due to the almost pre-sale like method that KS works with. That said its something that I hope many of them do realise and get on board with fast - esp since the release dates are only estimations and not set in stone release dates.
Projects will go over their deadlines and some will go overbudget - how a company deals with those problems and how well they communicate with their investor base will be very important. I can well see that a company who retains strong communication, keeps their investors on board and who generally does not show signs of miss-management would have the ability to take a deadline or even budget problem without it negatively affecting them to a great degree

Indeed just like in normal investment I'm very sure that, at some point, some projects will have to approach their original investors with the proposal for re-investment to account for unexpected costs to see the project through to completion. Where you've good communication and a steady stream of contact I can well see many feeling that - Yes they will pay a little more to see the project finished or to see the product brought to a more full/featured state of completion.

Whereas any company that closes doors and treats people like a customer will likely find that if they hit problems their investors will drop ship fast. And unlike regular investors its not something you can break to them over a good meal and a quite meeting or three - its a big public announcement so it can have further ramifications if your fan base (and your investor base) rejects you.