When Formlabs raised $2,945,885 on Kickstarter for its high resolution 3-D printer in October 2012, neither company was expecting a lawsuit. Still, 3D Systems, one of the biggest names in 3-D printing, sued both companies, accusing them of patent infringement. Debate swept the maker community -- a 3-D printed Kickstarter project boycotted 3D Systems, and Formlabs ended up shipping their printers, undaunted by the legal threat.
Strong opinions are plentiful, but the novelty of the case leaves many confused. Wired Design asked an attorney, patent agent, and venture capitalist to share their thoughts on the case and what it might mean for the maker movement.
“This is an interesting lawsuit, but a bit on the edge," says Rick Frenkel, a partner at Latham & Watkins who has a background in IP strategy and patent litigation. "Kickstarter is going to have a strong defense. I expect Kickstarter’s legal team to file a motion to dismiss and I would expect it to be granted.”
Frenkel also indicates that Kickstarter is an unusual target. “Patent laws are not meant to stop companies from raising funds. If you can sue Kickstarter, can you go sue the bank?”
If this logic was taken to its extreme, it could also apply to VC's interested in funding companies or even individuals who backed the project on Kickstarter.
Frenkel says this is an unusual tactic and the case might come down to whether Kickstarter is viewed as a funding platform or a storefront. The famous “Kickstarter Is Not a Store” blog post that reaffirmed Kickstarter's goal as a funding platform could help in this case. If the judge does not dismiss the case, Frenkel believes Kickstarter’s history of defining itself as a funding platform instead of an ecommerce site will work in its favor.
What about Formlabs? To get a better understanding of the patent issues, Wired Design asked Mark Nowotarski, a patent agent and founder of Markets, Patents, & Alliances, to weigh in. His firm helps inventors understand the IP landscape in their field and file patents of their own.
“It’s a very interesting patent." Says Nowotarski of the 3D Systems patent. "There are two parts to a patent, first a written description that lays out in detail the invention. Looking at the description of this patent, it's very comprehensive. The other part of the patent is the claims, one sentence descriptions of what the patent holder claims to have invented and it looks like they're a little broad.”
“There are 31 claims in this patent." Nowotarski explains. "If your invention is described by any one of those 31, you infringe on the patent. Formlabs needs to make sure they don’t infringe any of those claims, not just the two claims 3D Systems singled out in their complaint.”
According to Nowotarski, in order to avoid lawsuits, Formlabs or any 3-D company would need to design around the patent’s claims, negotiate a license with 3D Systems, or try to invalidate the patent by finding examples of prior art -- other products or publications that describe the same function, but predate the invention detailed in the patent.
How can budding hardware entrepreneurs avoid the fate of Formlabs? “You need to find the right kind of technical and legal experts." Says Nowotarski. "Patent agents can help clients get the patents they need. If the client is worried about competitor's patents, you find someone who specializes in 'design arounds.' If they get sued, then they should seek out a firm with experience in patent litigation. Whatever challenge you’re faced with, you want an expert in that area.”
Project creators should also start saving for potential legal issues, Nowotarski says. “Companies can easily spend north of $50,000 to get the most basic legal guidance to avoid a lawsuit, but if a case goes to trial they could spend millions in legal fees.”
Nowotarski offers another strategy: “Project creators might want to consider capping their fund raising to two to three times their initial goals. I was looking at the Formlabs Kickstarter campaign and they were only looking for $100,000. If they had capped their funding at $200,000 to $300,000 instead of letting it run up to $3,000,000, they might not have been such a tempting target for 3D Systems.”
While some worry that this lawsuit could hinder the burgeoning hardware movement that Kickstarter has been instrumental in starting, Frenkel does not share this concern. He says, “I don’t think patent lawsuits will put a cloud over crowd funding. Savvy investors know that lawsuits are a part of doing business.”
Wired Design asked a savvy investor to confirm this. Jason Mendelson is a Managing Director at the Foundry Group, a venture capital firm that has invested in Fitbit, MakerBot, Orbotix, and Sifteo. The Foundry Group doesn't define these as hardware products, but rather "software wrapped in plastic." Still, Mendelson was willing to share how he views the looming threat of patents as he evaluates investment opportunities.
"I don't have pause given patents, because at this point, one must assume that a successful company will face a patent suit." says Mendelson. "It's a horrible business tax and makes the U.S. less competitive but it is what it is. I think most of the incumbent companies sue on patents in order to try to keep the status quo versus compete on a fair basis."
Mendelson's advice for startups looking to navigate this IP minefield is simple. "Unfortunately, they must get patents to have as a shield." says Mendelson. "And find a good lawyer."
Now the question will become, how savvy are Kickstarter backers? It’s one thing for a diversified VC to write off an investment, but the calculation for backers is more complex, especially with high-priced items like the Form 1. In any case, lawsuits are just one more kind of impediment in a process that is already fraught with delays.
Kickstarter and Formlabs declined to provide comment for this story. 3D Systems provided the following statement: "3D Systems does not comment on ongoing litigation, however, in general the company believes that there is nothing more American than entrepreneurship, but it comes with an awesome responsibility to respect the IP rights of others who have traveled the startup journey earlier. We believe that with the passage of time this very issue will come home to roost for those crowing about it today."
