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Comment by mnicole | Hacker News Reader

I am unsure if rewards in this sense means the project itself or just the incentives. In any case, he's fulfilled neither. Here's the text from KS:

"Is a creator legally obligated to fulfill the promises of their project?

Yes. Kickstarter's Terms of Use require creators to fulfill all rewards of their project or refund any backer whose reward they do not or cannot fulfill. We crafted these terms to create a legal requirement for creators to follow through on their projects, and to give backers a recourse if they don't. We hope that backers will consider using this provision only in cases where they feel that a creator has not made a good faith effort to complete the project and fulfill."

It also cites this image: https://ksr-assets.s3.amazonaws.com/creator-responsibility.p... which I think describes this situation pretty well.

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That's listed in the FAQ [1], but not the Terms of Service [2]. Also, the project guidelines shown to people starting a new project don't mention reward fulfillment [3].

That question in the FAQ is new. It wasn't present when this project was funded [4].

Does any of this make a difference? Legally?

[1] http://www.kickstarter.com/help/faq/kickstarter%20basics#IsA...

[2] http://www.kickstarter.com/terms-of-use

[3] http://www.kickstarter.com/projects/guidelines?utf8=%E2%9C%9...

[4] http://web.archive.org/web/20110522104147/http://www.kicksta...

Interesting! I am thereby highly confused as to how Kickstarter is legal (in addition to how it satisfies the requirements of credit card companies, which state that you cannot capture funds until you ship the product someone ordered).

I wouldn't be surprised if it was legal in the same way AirBnB is legal.

For one, a pledge to a Kickstarter project is absolutely not an "order" for a product. It is an investment in a future which may or may not come to fruition. What happens if you put down $60 at the local Gamestop on a game that later gets cancelled? You get your money back, yes, but in the meantime, Gamestop gets to keep your cash.

I'm 100% with you on this.

_BUT_… It's clear from this same situation playing out every week or so, that at least some project owners and certainly Kickstarter themselves are not doing nearly enough to make that clear up front. There are clearly _many_ people who, in spite of words like "Pledge" and "project" and "funding" and "reward", still have expectations that the transaction is a sale - and they then post using language like " I 'paid' for my 'order' and my 'product' hasnt arrived!"

I love the idea of "crowdfunding", but I think it needs to be much better understood as closer to a "donation" or "speculative investment" than a "sale".

Maybe its because the people involved are actual reading the Kickstarter terms of service -- unlike the project creators who are treating the funding like a donation -- which require the project creator to provide the promised rewards or a refund to every backer who doesn't get the reward, and, by doing so, make the transaction more like a sale than a donation or speculative investment.

The problem is with project creators who offer rewards that they aren't able to provide when the project funds, usually because they are promising rewards that include the output of the project when they are funding development rather than production.

Given KS's terms of service, creators risk substantial liability to backers when they do that; the better model would either be to offer rewards that don't depend on project success for development, or use Kickstarter to fund up-front production costs after development is complete and offer rewards that include the project output; there's no reason the same project couldn't do both, using two different Kickstarters, starting with one for development and followed -- once development is complete -- with one for production.

There are two issues here, and I believe you have comingled them.

1) legality with respect to sales tax law: If Kickstarter actually requires that a good is shipped when money is given (the statement I was responding to with this comment), then this difference is barely even academic: it is just a way to do an end run around sales tax law, and I don't think it is one that most places would tolerate well (although enforcement on that sort of thing is slow and spotty).

2) terms of service on credit cards regarding pre-ordering: No, if you are giving Gamestop $60 to hold on to until a product is shipped, and you do this with a credit card, this is in violation of their agreements with companies like Visa. These requirements (obviously) flow through if you use third-party payment networks that, themselves, are based on the usage of credit cards by the end customer.

In fact, this is sufficiently true, that your example is actually wrong to begin with... Gamestop doesn't even do that, because (as I said) if they did they would be in violation. They have a page in the help section of their website where they go over this topic in specific.

http://www.gamestop.com/gs/help/Pre-orders.aspx

"""Your credit card will be charged only when your order is processed. In some cases, we will process your order and authorize your credit card up to 10 days before the release of the product. This allows us to get the product to you faster."""

In essence, they are taking your credit card number ahead of time, but they are not actually billing you; it is only when the product is actually pretty much available that they do the authorization on the card. Even then, I bet they are doing only an "authorization", and performing the "capture" when they ship: they do the authorization ahead of time to make certain there is time to deal with delays, mistakes, or simply a long queue, and then can do the capture quickly when they go to ship.

>No, if you are giving Gamestop $60 to hold on to until a product is shipped, and you do this with a credit card, this is in violation of their agreements with companies like Visa.

Then these agreements are utterly meaningless. Preordering via credit card is hardly a new concept.

Again: if you "preordered by a credit card", and were charged before the shipment (not just an authorization that your bank shows as "pending", but an honest-to-goodness capture), then you can and should report them. You will note that no large company is doing this, not even GameStop.

As another cool example: if you were lucky enough to go to Google I/O this year, they were taking "per-orders" of Google Glass; however, as they are not allowed to take money via credit cards in advance of shipment (and as you can't delay a capture for more than a month or something after the authorization), they were forced to just take name and email addresses down at the event.

Something stinks, then. I put down a preorder for Halo 4 at the local Gamestop and picked it up on launch day.

This cost me $60 about 3 months ago.

I've got the statement open, literally, right in front of me, and it shows a $60 charge from that store. I had to walk in and cough up the sales tax on launch day. I've got that charge right in front of me too.

So after a period, you're required to issue a refund.

The issue is that you cannot always issue a refund after $period, where $period ranges anywhere from 60-180+ days depending on dozens of different factors (three or four different banks, your payment gateway, various data retention policies, card expiration, and more).

Unlike raising a seed round, for example, it's rather impractical to give (remaining?) money back if you realize the project is not going anywhere after six months or a year.

Suffice to say, there's a reason that Kickstarter has started to clamp down on projects with a higher likelihood of failures and is outright blocking certain categories.

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