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Will Washington state crowdfunding lawsuit open the legal floodgates?

Last week, the Washington State Attorney General filed a suit under the provisions of the consumer protection act against the makers of a card playing game named Asylum. The reason for the suit is the maker of the card game, Ed Nash, has yet to deliver any of the goods to backers of his successful Kickstarter campaign, for which he raised over $25 thousand, nearly a year and a half past the promised ship date.

The case of Asylum and Nash clearly a little extreme. Nash has effectively gone missing, not posting an update for nearly a year despite thousands of comments on the project’s Kickstarter page asking about the status of the project, requesting refunds and, in general, wondering what happened to the project.

That said, the move by a state attorney general to invoke the consumer protection act against a creator has to make both the crowdfunding platforms as well as creators using those platforms for the thousands of crowdfunded projects a little nervous.  After all, just taking a quick tour through either Kickstarter or Indiegogo or reading tech blogs will show you numerous examples of campaigns where the rewards for the goods have yet to be delivered.

Granted, the vast majority of these campaigns missed deadlines are not due to fraud or ill intentions, but simply because the creator didn’t correctly anticipate various hurdles or the magnitude of what delivering their promised campaign rewards entailed.  In hardware and physical goods in particular, where there is some manufacturing component, I have found there are a high degree hurdles that are particularly difficult for project creators to anticipate and get over as they look to ship.

But even if the creator doesn’t have bad intentions, what’s to stop an aggressive attorney general from Washington or some other state from bringing suit against a creator who fails to deliver?  Kickstarter, for its part, absolves itself from liability in its terms of service and puts the burden for delivery on the creator, and tells creators that failure to deliver the promised rewards can result in legal action on the behalf of the backers.

Perhaps the most surprising thing about Washington state’s AG bringing suit is that while individuals have sued creators before for failure to deliver, this is the first time a state has taken legal action on behalf of consumers.  And while the suit is based on the belief that the creator, Nash, had intention to defraud its backers, the crowdfunding legal floodgates being opened could, in all likelihood, mean a rising tide of lawsuits that could surround those creators who simply fail to deliver.