Intellectual Property Regimes: Implications for Crowdfunding and Research

Crowdfunding has emerged as an innovative way for entrepreneurs and startups to raise money by soliciting small investments from a large number of individuals. This more democratic form of fundraising has flourished with the rise of online platforms like Kickstarter and Wefunder. But an often-overlooked question is—how do you protect your ideas when publicly seeking funds this way?

In a new paper, we provide insights into this key issue of intellectual property (“IP”) rights in crowdfunding. Our analysis shows that countries with more stringent IP laws and enforcement see higher crowdfunding engagement per capita. For instance, Sweden, with an International Property Rights Index (“IPRI”) score of 8.187, exhibits a crowdfunding per capita of $64.03, while Spain has a per capita of $27.24 with a lower IPRI of 6.599.

This makes sense—if you feel your innovative ideas have sufficient legal safeguards in a country, you will be more willing to put them out there when crowdfunding. Conversely, in jurisdictions with weaker IP rights, entrepreneurs will be far more worried about infringement, undermining their desire to seek capital publicly. Thus, stronger IP frameworks allow crowdfunding ecosystems to thrive. Figure 1 from our study visually depicts these geographic disparities in IP regimes through color codes—darker shades for weaker protections and lighter for stronger ones. North America, Nordic countries, and Australia stand out with robust IP systems. In contrast, much of Africa, Central Asia, and South America face challenges in fostering a vibrant crowdfunding ecosystem.

Figure 1: International Property Rights (IPR) Index 2020 by Country (Source: Property Rights Alliance)

For entrepreneurs contemplating crowdfunding, securing IP rights before disclosure should be prioritized. This is crucial in “first-to-file” jurisdictions, where delaying formal IP filings can expose innovators to the risk of being pre-empted by competitors. Strategies such as provisional patent filings can offer temporary protection, safeguarding an entrepreneur's position in the innovation landscape.

Our analysis also distinguishes between IP dynamics in entrepreneurial crowdfunding and academic research. While both domains involve early-stage public disclosure of ideas, they diverge in their approach to IP protection. For scholars, the repercussions of IP conflicts often manifest as intangible costs like lost citations, making litigation an impractical recourse due to its disproportionate expenses compared to potential gains. Thus, enforcement culminates in greater reliance on academic integrity principles than legal actions. For instance, academic platforms may rely on community enforcement of norms, such as acknowledging prior work, but this approach is insufficient in the competitive and commercial environment of crowdfunding, where legal safeguards against infringement are paramount.

The implications of our findings extend to policymakers, who are tasked with designing IP frameworks that strike a balance between protecting inventors and fostering innovation. For crowdfunding to realize its full potential as a driver of global innovation and economic growth, policymakers must adjust IP regimes to offer robust protection without imposing prohibitive enforcement costs.

For the academic community, our study sheds light on the persistent challenges of IP in research dissemination, advocating for enhanced mechanisms to protect intellectual contributions, such as adopting standardized citation practices, improving peer review transparency, and establishing clear protocols for addressing disputes.

As crowdfunding continues to gain traction, its interplay with IP rights emerges as a critical area of scholarly inquiry, underscoring the need for ongoing research to navigate the complexities of innovation in the digital age.

The authors’ complete article can be accessed here.

Douglas Cumming is the DeSantis Distinguished Professor of Finance and Entrepreneurship, Sofia Johan is an Associate Professor of Finance and Robert Reardon is a Ph.D. C​andidate in Finance, at the College of Business, Florida Atlantic University.