Terms of Use Agreements for Crowdfunding Portals

By Eric Misterovich

 

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Photo Credit: Rocio Lara

The rise of the sharing economy and websites like Kickstarter, Indiegogo, and GoFundMe have led to the expansion of crowdfunding portals across the internet. Oftentimes, these businesses are centered around a niche area or serve to advance a social cause. Even if these businesses are serving altruistic goals, many times the entities are for-profit businesses. In their business models they typically take a small percentage of the funds raised for certain projects as profit.

If you are thinking about starting a crowdfunding portal, or if you already run one, it’s essential that you have a valid and enforceable terms of use agreement for crowdfunding portals in place to protect your business interests. Here are a few tips to include in those agreements.

Tell supporters when their credit cards will be charged

Crowdfunding portals offer a wide range of services. Some websites allow for any dollar submitted to a project to be ultimately transferred to the project owner, typically upon expiration of the fundraising period. On the other hand, some websites require that a funding goal be fully met before any money is released to the project owner.

Each method is acceptable from a legal perspective. However, website owners should take measures to clearly and accurately describe to donors when their cards will be charged. More importantly, they should be notified if there are any conditions that must be satisfied before their cards will be charged. By explaining these processes in a terms of use agreement, you’re informing the donors about the decisions they make, and if you can do it clearly and concisely, you’re providing confidence to donors that your website will see this through and that their money will end up in the project creator’s hands.

Limit your liability regarding actual completion of the project.

Your website and crowdfunding portal serves a very specific goal: raising money for specific projects or causes. Your website or portal is not designed to see these projects through to actual completion, and issues can arise when people donate money expecting for a project to be completed that is ultimately abandoned.

It’s important that your terms of use agreement address this situation and clearly disclaim any guarantees about whether these projects will be completed. Simply put, the completion of the project is out of your control and you should not be held liable if that project fails to be completed.

Your terms of use agreement can also contain provisions that require the project creator to guarantee he or she will use the money for the intended purpose, and that he or she will indemnify or protect you the portal from any claims arising out of the donations of money.

Your users need to understand that when they’re giving money to projects, they are taking a risk. If the project is not completed in the manner which was intended, that you the portal will not be held liable for that. It’s a matter of trust and explaining the risks that are associated with these projects to allow your users to make informed decisions about supporting these causes.

Include a Copyright Policy

Large copyright sign made of colorful jigsaw puzzle pieces, isolated on a white background in landscape mode and with plenty of white space on the right side.
Photo credit: Horia Varlan

Let’s imagine this scenario. A project is posted to your crowdfunding portal to raise money to launch a new donut shop. In association with the project, the donut shop posts a video showing the owners making donuts, people eating these donuts, and explaining more about their business. In the background of this video there’s a catchy song. The project’s posted, money is being raised, and all of a sudden you receive an email from a band. That band says, “Hey, the song in that donut shop’s video is our copyrighted work. We did not give the donut shop owners permission to use that song. Because you are also using it, we plan to sue you for copyright infringement.” How do you respond?

If you have a proper copyright policy in place, you can be confident that you would avoid any and all liability in this situation. The Digital Millennium Copyright Act, or DMCA, is a federal law that addresses this situation. The law provides copyright owners with a notice and takedown procedure to allow for the speedy removal of infringing content online.

As a website owner, it’s important that your crowdfunding terms of use agreement contain a copyright policy consistent with the DMCA. Specifically, the copyright policy should do a few things. First, it should explain the requirements that must be included in a DMCA takedown request. Second, it should include the requirements that must be included in a DMCA counternotification. Finally, it should contain information about the DMCA agent.

Now the designated DMCA agent is an extremely important part of protecting yourself from copyright infringement liability. The DMCA provides immunity to service providers, including crowdfunding portals, for copyright infringement, provided a few simple steps are followed. The first step to receiving this immunity is to formally file with the federal government a notice of a DMCA agent. The filing fee for this document’s $105, and the registration form can be found here.

By submitting this information to the government and by including this contact information within your copyright policy, you’re on your way to receiving the safe harbor provisions of the DMCA, which ultimately grant you immunity from copyright infringement. This is an often overlooked step in creating a terms of use agreement, but it’s vitally important for crowdfunding portals or any website that allows the posting of user-generated content.

Read about privacy policies for crowdfunding portals here.

To protect yourself from copyright infringement, or for help drafting a custom terms of use agreement for your crowdfunding portal, please contact Revision Legal today.

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