How crowdfunding can bar you from getting a patent

Let’s set the stage: Nikola has a brilliant idea but doesn’t have the time or money to focus on turning his idea into a working product. Nikola hears about a website where he can ask anyone on the internet to donate money to help develop his invention. He will then work on his invention and eventually send a working product to anyone who sent him money. So, when should Nikola file for a patent?

Let’s examine some basic facts before we get to the answer.

Crowdfunding (the type of fundraising described in the example above) is when a person or company raises money for a project from a large number of people. Some types of crowdfunding include:

• Equity – The funder receives equity or ownership rights in the projected. 
• Reward – The funder gets some kind of reward or product.
• Coin – The funder receives a software token or cryptocurrency. This may be referred to as an initial coin offering (ICO). 
• Lending/social financing – This may go by many names like peer to peer lending, crowdlending, debt-based crowdfunding, etc. Funders provide funds that are used to lend money to borrowers. Borrowers are typically vetted and selected based on low risk.

In the U.S., 35 U.S.C. § 102 codifies an “on-sale bar” to patentability. The on-sale bar means that an invention cannot be patented if it has been on sale or offered for sale for over one year before the inventor filed for patent protection. In many other countries, inventions cannot be patented if they were offered for sale even a day before the inventor filed for patent protection. For our example, we will focus on the U.S.

With crowdfunding, inventors often ask for funds very early in product development. These funds are often needed to help the inventor fully develop their product. The funds may also be needed to file a patent application.

Back to the example. When should Nikola file a patent application?

The short answer is within a year from when his invention has been both offered for sale and is “ready for patenting.” Ready for patenting means that Nikola can build his invention or can describe his invention so that it can be understood and built by someone else.

For example, when Nikola first posted his idea on the website, he did not yet know how it would work or how it could be built. He needed the money for experimenting and further developing his product. Thus, the one year clock has not started. Why? If he does not have enough detail to file a patent, then he has not offered to sell anything that could be patentable.

Two months go by and Nikola has now made a working prototype. This means that his invention is now “ready for patenting.” Nikola now has one year to file his patent application. If he does not file, then he will be barred from receiving a patent.

What if Nikola never updates the website to tell investors that he has a working prototype? At this point, it does not matter. He has made the offer to sell his invention and the clock starts. 

What if Nikola only posted a small part of the invention on the website? Again, it does not matter. The on-sale bar applies even if Nikola carefully disclosed only a small portion of his invention. Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. (Fed. Cir. 2017).

Knowing when to file for a patent is the key to success

While there are many advantages to crowdfunding, particularly for start-ups or inventors who need capital to help develop their inventions, the on-sale bar is a dire pitfall. Knowing when to file could be key to the success of a company. The best practice is to talk to an attorney early and update your attorney as you develop your inventions.