Crowdfunding ?

2015-07-23

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CROWDFUNDING?

S
TEVENBENTO*
ROBIC,
LLP
L
AWYERS,PATENTANDTRADE-MARKAGENTS

In2013alone,theInternetphenomenonknownas”collectivefinancing”,”social
fundraising”or”crowdfunding”generatedover5billiondollarsindonationsworldwide.

TheKickstarterplatformaloneraisedover24milliondollarsinCanada
[http://www.theglobeandmail.com/report-on-business/small-business/sb-
money/business-funding/high-tech-bike-is-kickstarter-canadas-most-funded-project-
of-the-year/article20510125/]].Thedatafor2014hasnotyetbeencompiled,but
judgingfromthesuccessoflargescaleprojectssuchasCoolestCoolerandOculus
VR,aswellasmediacoverageofthephenomenon,crowdfundingdoesnotseemto
havesloweddownyet[https://www.kickstarter.com/projects/ryangrepper/coolest-
cooler-21st-century-cooler-thats-actually;https://www.oculus.com/company/].

ThisarticleisoneinaseriesofthreethatwillfocusonCrowdfundingwhichis
increasingatanexponentialrate.
TheBeginnings

Whatstartedasatooltofinanceinnovativeprojectshasitsrootsinthetraditional
modelofartisticphilanthropy,whereartistsappealeddirectlytotheirtargetaudience
tofinancetheir
work
[[http://www.theatlantic.com/technology/archive/2013/06/kickstarters-of-yore-
mozart-lady-liberty-alexander-pope/277389/].Previouslylimitedtoartisticorsocially
mindedprojects,crowdfundinghasbecomesimplyanothertypeoffundraisingfor
projectsofallkinds.Thisnewsystemisverypromising,asitallowsmoredemocratic
accesstoequity,andwillbenefitfromregulationsproposedbyvariousprovincial
organizationsthatgovernfinancialmarkets.TheUnitedStatessharesCanada’s
enthusiasmforcrowdfunding.Thevariousmeasurestakenoverthelastfewyears
throughthe“JumpstartOurBusinessStartupsAct”bearwitnesstothepopularityof
thisconcept
[4JumpstartOurBusinessStartupsAct15U.S.C.§78a].

©CIPS,2015.*FromROBIC,LLP,amultidisciplinaryfirmofLawyers,andPatentandTrade-markAgents.Publishedin
theWinter2015(Vol.18,no.3)Newsletterofthefirm.Publication068.186E.

2
WhatisCrowdfunding?
Crowdfundingconsistsofcollectingsmallamountsofmoneyfromalargenumberof
onlineinvestors[http://www.theglobeandmail.com/report-on-business/small-
business/sb-money/business-funding/high-tech-bike-is-kickstarter-canadas-most-
funded-project-of-the-year/article20510125/]Itisdifferentfromtraditionalfundraising
methodsinthatitinvolvesaweb-basedportal.Itthereforetakesadvantageofthe
Internet’sbroadreach,andresultsinmanysmallfinancialtransactions.Theinvestor
profileisyoungerthanbefore(20-35yearsold,ratherthan48-59),anddiffersfrom
thatoftraditionalinvestors.Assuch,crowdfundingisofparticularinterestfor
businessesthatarejuststartingout,whichoftenfacedifficultieswhenapproaching
traditionalinvestors.
TypesofCrowdfunding

Therearethreetypesofcrowdfunding.“Pledge”crowdfunding(i.e.donation)is
generallypermittedinQuébecifcurrentlegalandfiscalregulationsarefollowed.
“Donationandreward”crowdfunding(i.e.donationinreturnforaproduct)isalso
permitted,withsimilarrestrictions.Finally,“equity”crowdfundingallowstheexchange
ofstockusingshareholderequityorothersecuritieswithanRSIorROI.Thislasttype
offinancingisabouttobecomeregulatedbyseveralorganizations,suchasdraft
regulation45-108respectingcrowdfundinginQuébec.

LegalAspects

CanadianlawisnotasuptodateasU.S.lawwithrespecttocrowdfunding.The
Canadianlawsthatrelatetofundraisingweredraftedbeforethecrowdfunding
phenomenoncameintobeing.Thereisthereforenocentralizedorganization,suchas
theSecurityExchangesCommissionintheUS,authorizedtolegislateinthismatterin
Canada.CrowdfundingfacestwomajorchallengesinCanada:thedivisionofpower
betweenthefederalandprovisionalgovernments,andthedualobjectivesofcurrent
legislationwithregardtobusinessfinancing(theConsumerProtectionlawandlaws
facilitatingeconomicexchanges).InQuebec,draftregulation45-108respecting
crowdfunding,notyetinforce,proposestoidentifyrightsandobligationswithregard
tocrowdfunding,andappearstoproposesimilarobligationsasthosecurrently
proposedinOntario
[http://www.lautorite.qc.ca/files//pdf/reglementation/valeurs-
mobilieres/45-108/2014-03-20/2014mars20-45-108-cons-
fr.pdf;http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20140320_45-106_rfc-
prospectus-exemptions.].
WhereDoesIntellectualPropertyFitintoAllThis?

3
Sincemostprojectsarepostedonpubliccrowdfundingplatformsbeforea“proofof
concept”hasbeencarriedout,itisrarethatintellectualpropertyisprotectedatthat
point.Apublicdisclosureoftheinventionmadebyaninventormorethanoneyear
priortothefilingofapatentapplicationinCanadawouldalsohavetheadverseeffect
ofeliminatingthepatentabilityoftheinventioninCanada.Bysharingtheirideas,
projectsandconceptsonline,oftenataveryearlystageofdevelopment,thosewho
turntocrowdfundingruntheriskofhavingacompetitorstealtheirmostimportant
resourceatthatstage:theirintellectualproperty.

Thisissueaswellastheoneabouttheupcominglegislationwillbothbethetopicsof
distinctarticlesinthecomingeditionsoftheROBICnewsletter.

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agroupoflawyersandofpatentandtrademarkagentsdedicatedsince1892to
theprotectionandthevalorizationofallfieldsofintellectualproperty:patents,
industrialdesignsandutilitypatents;trademarks,certificationmarksand
indicationsoforigin;copyrightandentertainmentlaw,artistsandperformers,
neighbouringrights;computer,softwareandintegratedcircuits;
biotechnologies,pharmaceuticalsandplantbreeders;tradesecrets,know-
how,competitionandanti-trust;licensing,franchisingandtechnology
transfers;e-commerce,distributionandbusinesslaw;marketing,publicityand
labelling;prosecutionlitigationandarbitration;duediligence.
®/MD

COPYRIGHTER
TM/MC

IDEASLIVEHERE
®/MD

ILATOUTDEMÊMEFALLUL’INVENTER!
®/MD

LAMAÎTRISEDESINTANGIBLES
®/MD

LEGERROBICRICHARD
®/MD

NOSFENÊTRESGRANDESOUVERTESSURLEMONDEDESAFFAIRES
®/MD

PATENTER
®/MD

orstylizedR
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ROBIC®/
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