ArtistShare diagrams the business method it claims rights to in a patent issued Feb. 8.

The tech world was surprised this week by patent claims levied against popular crowd-funding site Kickstarter; but the man behind those claims tells The Patent Examiner that he wanted a real business relationship with the company. ArtistShare CEO Brian Camelio even wanted Kickstarter to use his software, he says.

But the negotiations, which began in earnest shortly after Camelio received a patent, have fallen apart. Now, Kickstarter is asking a court to throw out ArtistShare‘s patent (held by a subsidiary called Fan Funded LLC), after Camelio threatened Kickstarter with a lawsuit, according to a complaint filed in the Southern District of New York on Sept. 30.

Patenting business methods, as ArtistShare has, is a trend some tech commentators take issue with on principle. And the dispute may be getting more attention because it calls into question whether patents should be issued on the fan-funding business that some artists use to finance their creative projects.

ArtistShare and Kickstarter both allow artists such as filmmakers and musicians web platforms to raise investment money for specific projects, for a small commission. The models are built around the idea of “crowd-funding” or “fan-funding.” ArtistShare, which has generated fan money for five Grammy Award-winning projects, launched in 2000. Kickstarter, which launched in 2009, boasts $53 million pledged to more than 20,000 projects, according to a TechCrunch article published in April.

The legal action stems from a six-month correspondence between the two companies during which Kickstarter refused to pay licensing fees to ArtistShare for a patent on “Methods and apparatuses for financing and marketing a creative work.” The patent – No. 7,885,887 – was issued Feb. 8.

ArtistShare Founder Brian Camelio said he is “stunned and disappointed” by Kickstarter’s decision to sue his company, and feels “betrayed,” in an email to The Patent Examiner. Kickstarter’s complaint leaves out “a number of key facts” about the dialogue between the two companies, he said.

Negotiations Sour

Camelio says he initiated contact with Kickstarter to license the company his software, but at first, Kickstarter ignored him. The company did begin negotiating with him after the patent was issued, however.

At a meeting between the two companies in August, Kickstarter alleges that Camelio accused the company of infringing on his patent and asked for royalty payments. Camelio denies accusing Kickstarter of infringement.

“To the contrary, we expressly told Kickstarter that any infringement issue was ‘for the lawyers’ and that we wanted instead to focus on whether we could forge a business relationship together,” he said.

In late September, ArtistShare transferred the patent to Fan Funded, a non-practicing entity Kickstarter says is owned by ArtistShare.

Camelio said Kickstarter refused to acknowledge his offer until after the patent came through, and then offered to buy the patent. ArtistShare’s refusal to sell prompted the lawsuit, Camelio said.

“Any settlement discussions between Kickstarter and [ArtistShare and Fan Funded] have concluded,” Kickstarter says in the complaint. “Kickstarter believes it will be sued for patent infringement by [ArtistShare and Fan Funded].”

Kickstarter declined in an email to be interviewed for this story.

Boundless Battleground

The court will have to answer whether the web-based crowd-funding model is too abstract an idea to deserve a patent. Such disputes surrounding patents on business methods are playing out in each tier of the federal circuit courts, even up to the U.S. Supreme Court (see Bilski v. Kappos).

“This is, I think, an increasingly important battleground,” said Jim Myers, a partner at Washington, D.C. based law firm Ropes & Gray who has represented several financial services companies in business method patent litigation. “It’s one in which the boundaries are up in the air.”

It’s also one that is fast-expanding. Take a look at the annual number of business method patents filed and issued in the past nine years.

The number of filings has increased more than twofold – from 7,400 in 2002 to more than 17,000 in 2010, according to statistics from the U.S. Patent and Trademark Office web page. Issues have been increasing at an even high rate. In 2002, 494 of the patents were issued; last year more than 3,600 were issued.

To Myers’ eyes, Camelio’s patent has only one main claim, which Myers called “very unusual.” In a day when patent warfare is commonplace, writing multiple claims into a patent is like “designing a fort in the medieval era,” he said. Claims form the protective structure around the patent; so incorporating only one major claim into the ArtistShare patent leaves it vulnerable if that one claim is judged invalid or un-infringed in the Kickstarter suit.

Further, business method patent complaints tend to be filed in a window between five and 12 years after the patents in question are issued, Myers said. In Kickstarter’s case, the first punch was thrown in about eight months.

“Patent litigation is expensive,” Myers said, “but there are times when you’re better off getting an answer than you are being left in limbo.”

Read the full complaint Kickstarter filed, here.

 

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