The FTC Finally Intervenes With a Kickstarter Campaign Gone Awry [e197]

June 15, 2015

Nasir and Matt discuss the FTC’s precedent decision to go after a Kickstarter campaign that is alleged to have taken backers’ money.

Full Podcast Transcript

NASIR: All right. Welcome to our podcast where we cover business in the news and add our legal twist. My name is Nasir Pasha.

MATT: And I’m Matt Staub.

NASIR: Matthew Staub joining us once again with nice covered facial hair, I would like to add for the record.

MATT: Actually, the last time you said that – or I think probably the only other time you said that – we recorded and then I just hated it afterwards and immediately shaved. It’s not going to happen today but I just remembered that happened last time because you made that comment and then I don’t know if the episodes were even uploaded yet.

NASIR: Probably not. So, what are we covering today? It seems like, I mean, this is a common issue of ours – crowdfunding – but at least some good news coming from this issue. I mean, usually, we’re pretty critical of what’s going on. So, what happened this week?

MATT: Well, it’s good in one sense and it’s not necessarily bad. I guess it’s kind of bad as well so we’ll get to that. But it’s really the first of its kind as far as I’ve seen. The FTC is stepping in over one of these crowdfunding projects and I believe this one was done on Kickstarter. It is a board game that combines Monopoly and the science-fiction of H.P. Lovecraft – which I’m not familiar with that, I don’t know if you are.

NASIR: I have no idea what you just said. I just heard Monopoly.

MATT: Yeah, I think everyone knows what Monopoly is.

NASIR: It just seems like a version of Monopoly which frankly is not that original. It seems you can pretty much buy any kind of Monopoly version and I also noticed that, by the way, it doesn’t look like they got permission to use the Monopoly trademark or anything. I don’t know. I mean, I’m looking at the game now – the board game – it just looks like a Monopoly board game with different names.

MATT: Oh, I’ll get to that, but let me finish off the back story here. So, he puts his project up on Kickstarter and it actually was really, really successful. I think it raised 350 percent of its goal – a little under $123,000 for this project which, back in 2012, that’s pretty serious raise for a Kickstarter project.

NASIR: Let’s see. 1,246 backers, that’s not too shabby.

MATT: So, yeah, very successful. But what happened, of course, was no one got the actual game and you said the thing about Monopoly – the trademark infringement – and that was one of his excuses, saying he ran into legal problems.

NASIR: Oh, really? Interesting.

MATT: One of which if the company owns the rights to Monopoly and things like that. but what was found out after the fact was he was actually – I say “he,” I think it was all one guy who was doing this even though there might be other people.

NASIR: The back story does refer to other people that were helping but they deny any knowledge of what happened so they may have just been kind of on the side of things – maybe some designers here and there.

MATT: Yeah. And so, it looks like some things might have been used to develop the game – who knows? But he also was found that he was essentially taking the money from the Kickstarter campaign and using it on personal expenses. I think it talked about paying his rent.

NASIR: Did they actually find out that’s the case? Because I’m seeing some comments that people are actually saying that but I don’t know if they approved it yet, did they? But $100,000 is not that much money to create an entire board game. Take away the legal issues for a moment, right? Just $100,000 itself, that can go pretty quick in starting any business, let alone it’s looks like they have pieces that are pretty detailed and so you have to create the moulds and get that done and mass produce and then you have to ship and let’s say you have 1,000 or so backers, they paid about $100 each and so, you know, if someone paid you $100 for a game, you would think that you would have no problem fulfilling that order, but you’re starting from scratch so I wouldn’t even be surprised if he tried his best to spend the money just failed.

MATT: Yeah, it’s definitely a possibility. Like you were saying, $100,000 could seem like a lot of money but, when you break down all the costs that have to go into producing this from scratch, it’s going to add up pretty quick.

NASIR: I used to be a professional Monopoly board game maker so, with my experience in this, I can definitely attest to $100,000 is just not enough. What’s interesting here is the FTC got involved, right? I think they had some allegations but, at the end, they just came to a settlement, right?

MATT: Came to a settlement amount and then they’re trying to collect on the amount that’s owed but the problem is – like I said – there’s no money there to collect and we’ve discussed this before. It’s one of the underlying problems with these Kickstarter campaigns – or not even Kickstarter but any of these crowdfunding things – people give money and then, you know, what are your options really if you want to go after the person or the company that put this up if you’re not getting the product? It’s going to be tough because, most likely, it’s going to be an instance like this where there’s nothing – at least at the current time – to get back.

NASIR: And I think we even mentioned before, right? It’s going to take an attorney general in FTC to actually enforce this because there’s no incentive to do so. We covered this issue before but I think the main reason we’re covering this is maybe just to brag a little bit because everything we’ve said would happen came into fruition. The FTC got involved – big deal because now he has to pay the money back but he doesn’t have any money to pay back. They’re not going to put him in jail for it because they would have to have proven fraud or something really agreed just like that and that’s hard to prove. All he has to show that he’d made some good faith effort and then that’s it and now what? The gamers or the backers didn’t get their board game which didn’t seem that interesting in the first place – no offense – and number two is they’re out their money.

MATT: Yeah, and the specifics of it on the legal side. The judgment that was put in place against him has been suspended because, like we were saying, there’s no money to give the refunds to these people. But, if the FTC discovers that he has money, he’s concealing, the judgment will be unsuspended and all the entire amount to the Kickstarter backers which makes sense. But, like you were saying, it’s a tough break for these backers because they gave the money, but what are you going to do if the money’s gone and there’s no other funds from this company or this guy to collect from?

NASIR: And so, we first found this on, of course, Consumerist – a great resource – consumerist.com – and they mentioned this other company that actually resurrected the game somehow. Let’s see. The company that later put out the game after the Kickstarter-funded scheme collapsed and their rights reverted to the people who originally designed it, they sold the copies of the game – which is great – but they also offered free copies to people who backed the original version on Kickstarter. So, actually, it’s kind of a nice little positive twist at the end there, just like our legal twist.

MATT: Yeah, selling it for $75.00.

NASIR: Yeah.

MATT: You know what would be funny is if the company that had created this then sued this other company for infringing.

NASIR: For stealing.

MATT: For just, you know, and then they won then they had their money and then they could pay the backers.

NASIR: Exactly, because in the Consumerist article, it says the company that later put out the game after the Kickstarter-funded scheme collapsed and the rights reverted to the people who originally designed it – that’s interesting. How did that happen, you know? When something fails, is it automatic? Not necessarily, right? So, that is an interesting prospect, for sure.

MATT: Because that was the released date of the resurrected version of the game was in April of 2014 so it’s been over a year since that was out. Maybe that then failed at that point. If someone wants to order the game, they can I guess look it up online and see if it’s still available. Part of the settlement or the terms of the settlement was he was prohibited from conducting anymore misleading crowdfunding campaigns or employing anyone to run a misleading crowdfunding campaign in the future. So, not even he’s banned from using Kickstarter; he just can’t lead misleading crowdfunding campaigns.

NASIR: I don’t know. That’s such a joke, right? I mean, at the least, Kickstarter should – and maybe they have, I mean, I don’t know if have or not but at least they should – ban them, unilaterally. I mean, that has to be a little frustrating. I’m looking here, you know, regarding the whole Monopoly, getting the rights to that, obviously, there are so many Monopoly versions. How hard could it be to get the rights to it? It looks like, from the FTC’s perspective, they say that that was not an issue. As far as getting the rights, like you said, it was an issue that the project creator actually had to use the funds for things other than printing up board games and casting figurines and all that. And so, this legal issue seems to be just a red herring or a distraction to all this because, I mean, you don’t need to be a lawyer. You know, Hasbro has pretty much licensed every single stupid little Monopoly version. I remember even growing up, my older brother and sister’s alma mater, Miami University, had a Monopoly version so that’s been happening for a while.

MATT: Yeah, I think a lot of schools have that.

NASIR: Yeah.

MATT: It’s not a terrible excuse.

NASIR: It’s not a terrible excuse but, yeah, it’s like, “Man, you have $100,000.” He should have gotten close, right? He should have gotten close. With that kind of money, he should have gotten close to producing.

MATT: Yeah, I would think. I would be interested to see how far he actually… well, if he didn’t spend any on the game itself then he didn’t get very far at all.

NASIR: Unless he paid himself a salary for $100K a year then that money would probably only last a year if I’m doing my math right.

MATT: Yeah, and, you know, it looks like it was only a monetary settlement so he doesn’t have to worry about having one of those “Get out of Jail Free” cards in his back pocket.

NASIR: Ooh, that was a good one. It wasn’t funny but it was just, like, so clever.

MATT: Yeah.

NASIR: I wish I said it.

MATT: I just thought of that, too. It wasn’t even planned.

NASIR: I know. Hopefully, he’ll get “Free Parking” too.

MATT: Well, McDonald’s probably has the biggest Monopoly-based thing of any…

NASIR: Oh, yeah, they haven’t done that in a while but they definitely pay, you know, they pay for that license and I don’t know what their deal is. I assume Monopoly would get some kind of royalty deal with products that are being sold. I mean, why wouldn’t they do some deal like that? That would make sense. I don’t think they would do a flat fee.

MATT: Yeah.

NASIR: Anyway, I’m sure the Parks Brothers are doing pretty well now.

MATT: Parks Brothers? Hasbro?

NASIR: Didn’t they create it? I don’t know. Hasbro probably owns it now.

MATT: I think they do.

NASIR: All right. Well, thanks for listening everyone. If you got to this point, please collect your $200.

MATT: Now you’re just trying to come up with one better than what mine was.

NASIR: And don’t forget to leave a good review at our properties on Park Place Avenue and Balboa Park or something.

MATT: Balboa’s in San Diego. Park Place was the first one that came to mind for me, too. It must be the go-to that’s in everyone’s…

NASIR: Yeah, that’s the go-to. All right.

MATT: Keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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