Crowdfunding: In the Gun Sights of Patent Plaintiffs

a30A company founded in 2001, Alphacap Ventures, has filed a patent infringement lawsuit against the operators of several crowdfunding platforms, including Kickstarter. The complaints, click here, all allege that Alphacap holds three relevant patents.

Crowdfunding has long been seen as a way of democratizing investment choices on the one hand, and of “jumpstarting” businesses that need access to capital but that are too small to go the traditional IPO route, on the other. Now it seems this financing innovation has come into the gun sights of patent trolls.

A patent issued by the U.S. on December 7, 2010, referenced as the 976 patent in the complaints, describes a “computer-implemented method of collecting and managing information related to financing.” Its features include “input regions within a user interface” and the use of input to “define a data collection template of fields for a semi-homogenous profile of desired resource consumer information.”

This was at a time when the crowdfunding exemption movement was making a fair amount of noise on Capitol Hill, but when it had not yet had tangible success. One might suspect already that the applicants were betting on the success of that bill and getting into trolling position.

Second and Third Patents

Another patent referenced in Alphacap’s complaint, issued in March 2011, known as the ‘208 patent, describes “a computer-implemented method of collecting and managing information related to equity and debt financing.” This involves some of the same features as the 976 patent, as well as the definition of portfolio categories and the storage of “web links that, if selected, cause the creation of portfolio records for each portfolio category.” This filing came soon after a petition began circulating to “have the SEC create a $1M exemption for Crowd Fund Investing.”

In March 2012 the JOBS Act, with the key titles II and III supporting the goals of the crowdfunding movement, passed both Senate and House. The following month, President Obama signed them both into law. Title II was scheduled to go into effect in September 2013.

Finally, a third patent is involved, one filed five months before that title went into effect, the ‘630 patent, which “claims a computer-implemented method of data collection templates to facilitate the collection of information related to equity and debt financing.”

The complaint alleges that Kickstarter does all of these things, thus that the company offering the Kickstarter online crowd funding platform [unsurprisingly called Kickstarter Inc.] has infringed and continued to infringe all of these patents.

Does plaintiff have a case?

Now: does Alphacap have a case? If it does, the consequences may be significant for the crowdfunding market. It won’t close that market down, but the platforms will presumably have to make payments to the patent holders, and those payments will come out of someone’s hide, so they will make use of the platform less of a free-range than at present.

The patent sounds like a claim to own a method of doing business, and that has been controversial for a long time. The U.S. Supreme Court, in Alice v. CLS Bank, in a unanimous decision, held against an effort to patent something similar, a computer-implemented scheme for the mitigation of counter-party risk. The court found then that the claims were “drawn to the abstract idea of intermediated settlement,” which is not patentable subject matter, and which does not become patentable subject matter by virtue of the assertion that it can be applied by a computer.

The Alphacap patents seem to claim the equally abstract (business method) idea of collecting and pigeon holing data on financing, and to add to that the notion that this collating will be accomplished by computer. That will likely fail.

But of course it may not be designed to succeed. It may only be designed to be sufficiently plausible to justify settlement talks, and a quick pay-off.

 

 

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