Managing Third-Party Platform Litigation Risk in Crowdfunding: Terms, Pricing, and Reputation

Third-party platforms, intermediaries in the financing proposition offered by crowdfunding, assume various risks in undertaking that intermediation role, including the risk that legal actions may be brought against them by those seeking funding and the funders they attract. This litigation risk undoubtedly affects the terms of the services provided by third-party platforms, including platform terms of use and the pricing of platform services. Moreover, the reputation of a platform may impact and be impacted by litigation risk.Untangling these factors and assessing their interaction will involve multiple studies over an extended period of time. This paper begins that process by identifying platform litigation risks (using U.S. law as a key reference point) and specific nonfinancial terms of platform hosting arrangements relating to litigation risk. Preliminary, anecdotal observations are made about the effects of litigation risk on the pricing of platform services and platform reputation. In later work, it is anticipated that empirical observations also could be made about certain elements of the relative cost of platform services and platform reputation.