Patents as Signals of Quality in Crowdfunding

Patents and crowdfunding both attempt to foster early stage innovations. In theory, patents signal quality and value to attract investment and buyers and ultimately facilitate commercialization. Crowdfunding allows multiple individuals to make small contributions to finance start-up ventures. This Article reports on two related studies investigating the interaction between these two innovation tools by determining the impact of a crowdfunding campaign’s patent status on the campaign’s success and delivery. The first study examines 9,184 Kickstarter campaigns in patent-eligible categories to determine whether patented or patent-pending labeled projects are more likely to reach their funding goal and in turn achieve actual, on-time delivery when compared to non-patented projects. This study finds, perhaps surprisingly, that patented projects are not more likely to obtain funding compared to non-patented ones. In contrast, patent-pending projects are more successful in getting funded. The second study confirms this preference for patent-pending projects but not patented ones through a series of laboratory experiments on Amazon Mechanical Turk (“MTurk”). The MTurk results also indicate that patent-pending status, as compared to patented status, is more likely to be noticed by potential backers and an identified reason for such backers to invest and buy crowdfunded products. These results provide insight into whether patents (1) act as signals to attract funding and buyers, and (2) assist in commercialization in the crowdfunding context. These results also inform the proper focus of patent marking statutes.

a Dennis I. Belcher Professor of Law & Director, Intellectual Property Institute, University of Richmond School of Law. Thanks to Jim Gibson, Mark Lemley, Jack Pries, Kyle Rozema, David Schwartz, and Neel Sukhatme for comments on an earlier draft.

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