'; Crowdsourcing Innovation Requires Care

Crowdsourcing Innovation Requires Care

January 19, 2016 Chicago Daily Law Bulletin

Companies have started to use crowdsourcing for innovation. The crowdsourcing projects may include creating new products or services, solving problems, or developing logos, trademarks or advertisements. Crowdsourcing for innovation involves several issues and risks relating to intellectual property. This article will provide some background information on crowdsourcing and then discuss the legal issues.

Crowdsourcing Innovation

Crowdsourcing is the process of using a group of people to perform a designated act. Crowdsourcing can be separated into several different categories, such as, crowd funding, crowd knowledge, and crowd innovation. For example, crowd funding is when an entity raises funds from the crowd, i.e. Kickstarter. Crowd knowledge is when the crowd provides information, i.e. Wikipedia.

Crowd innovation is when an entity uses the crowd to create or improve products or services, or to solve a specific problem. One type of model for crowd innovation is the Challenge Model. The Challenge Model operates in the following manner. The entity which is seeking a solution to a problem (“Crowdsourcer”) provides the crowd with a description of the problem and any parameters or limitations concerning solutions to a problem. For example, the problem may specify that the solution cannot exceed a certain size, weight and/or cost of manufacture. Members of the crowd then submit individual solutions directly to the Crowdsourcer. The other members of the crowd do not see the submission by another crowd member and they do not provide any comments or improvements with respect to the submission by another crowd member. The Crowdsourcer reviews and selects the winning submission. The crowd member responsible for the winning submission may receive some type of payment for use of the submission.

Intellectual Property Issues

In order to understand the legal issues involved with crowd innovation, we need to review background information concerning intellectual property. With respect to patents, the inventor is the initial owner of a patent application or patent. The inventor then transfers title or rights to another entity through a written agreement, such as, an assignment or a license. Thus, the crowd member with the winning solution may own the patent rights to the solution until the rights are transferred to the Crowdsourcer.

With respect to copyrights, the situation is similar. The creator of the work is usually the owner of the copyright unless the work is “made for hire.” The copyright statute provides a test for determining whether a work is made for hire. Many of the problems which are the subject of a Challenge Model would not qualify as a work made for hire under the copyright statute. Thus, the crowd member with the winning solution may own the copyright(s) until the copyright(s) are transferred to the Crowdsourcer.

In addition, the submission of an idea can be construed as an implied in fact contract in some states. For example, if the idea submitter conditioned the conveyance with the expectation of compensation and the receiver voluntarily accepted the idea submission, then an implied in fact contract may be found. Consequently, this case law should be considered when developing a crowd innovation project.

These legal issues and other issues demonstrate why many companies do not accept submissions from people outside of the company.

Ownership issues can be addressed by an agreement with each member of the crowd. For example, before a person can become a member of the crowd or community, the person would agree to certain terms and conditions. The terms and conditions may be provided in a “click through” agreement. The click through agreement would require that the person agree to assign or license the rights to the winning submission to the Crowdsourcer. After the winning submission is selected, that person would assign or license the rights to the Crowdsourcer. Although the person assigns or licenses the copyrights to the Crowdsourcer, the copyright statute allows the person to terminate the assignment or license approximately 35 years after the transfer. Thus, the Crowdsourcer is at risk of losing some of the rights to the solution after approximately 35 years.

Another potential issue is a claim by a member of the crowd who provided a rejected submission. Also, the submissions may not be original, may be misappropriated and/or may violate a third party’s right. In addition, the Challenge Model may involve sweepstakes law issues. The click through agreement may have provisions concerning these issues.

The law concerning intellectual property and other issues can vary by country. In order to avoid various issues, the Crowdsourcer should limit the project and crowd members to a single country.

There are many other issues involved in such projects which cannot be covered in this article. The Crowdsourcer should seek legal counsel prior to creating a crowd innovation project.

Most of the risks associated with the legal issues can be reduced by structuring the crowd innovation in a particular fashion. The program would focus on a particular challenge or problem and request individual submissions from a membership community. The members of the community would agree to the specific terms and conditions. A panel of people would evaluate the submissions and select the best submission. The best submission would then be assigned or licensed to the Crowdsourcer.