Businesses, government agencies, and non-profits are crowdsourcing research and innovation initiatives to outsiders for fresh ideas and solutions – and offering big prizes in return. The “gig economy” has increased participation in competitions and contests to solve technical, policy, and business problems from diverse “makers” outside the traditional organizational confines.
While it may seem like an attractive approach to fostering new ideas and solving intractable problems, there are a few key things to consider before dangling the carrot.
Licensing Rights/Intellectual Property
From naming a soon-to-be-released product to solving complex technology challenges, it’s exciting to see contest submissions flow in. But once the judges have determined a winning submission, are you sure it comes with the intellectual property rights that you planned on? The project may involve a patent, copyright, or trademarks and the sponsor must ensure that the submitter and the sponsor understand their arrangement.
At the outset of an incentive innovation contest, ask yourself if you want to obtain rights upfront to each submission through a full assignment, or if contestants will keep those rights and license to the contest sponsor. A full assignment is most protective of the sponsor but a license in which the submitter keeps IP rights may be enough and may attract stronger participation. Copyright issues in creative and software development challenges can be impacted by the rights of the non-employee creator to retain copyright. Carefully draft the intellectual property provisions to make sure the contest produces usable submissions.
In one of the most well-known innovation contests, Netflix offered a $1 million prize to a team that would improve its algorithm for recommending movies. Netflix successfully ran the challenge and selected a winner but decided not to use the winning algorithm. The contest participants should understand that the sponsor may not use the winning idea.
Method of Judging
Who is going to choose the winner? Do you have an internal panel of judges/critics to vet submitted ideas? Have you spelled out the specific criteria that each entry will be judged against? Is there any element of public voting? Pay attention to judging and execution details to avoid misunderstandings. Sweepstakes and contest law principles come in to play; make sure that chance-based elements are removed so the contest is truly skill-based.
Depending on the nature of the campaign, opening up some element of public voting adds the benefit of a quasi-focus group, providing public response to the idea before it ever gets off the ground. One caveat – a public vote doesn’t guarantee that everyday consumers or participants have read the rules, the criteria, or any of the contest materials for that matter, leaving you with non-objective results.
Another consideration is the proximity of the participants to the challenge. Do entrants need to have a physical presence to show off their solution? The University of Michigan Solar Car Team competes in the Bridgestone World Solar Challenge, where teams from top engineering schools show up with their cars and compete to see how fast/far they can go on solar power. Yes, it’s for bragging rights, but in everyday applications, consider how much you’re asking of your participants (from a cost and time investment perspective) when the challenge is based on problem solving skills alone. If physical presence is required at some point, such as making a team presentation in the finals of a national or global competition, understand and address any responsibilities for travel plans and related liabilities.
What are your marketing goals?
Is your intent to create a buzz around your campaign? Do you want to look connected to the university environment and a research-based organization? Another thing to consider is how well outsourced ideas fit into your brand guidelines. Have you clearly spelled out what not to do or what to include in terms of branding the submissions? Can the participants use your trademarks and logos, and if so, under what terms?
AARP ran a challenge with a goal to get young people to think about seniors and senior needs. AARP clearly is interested in the submitted ideas, but also in fostering a social mission of elevating the awareness of senior needs across the broader population.
Taxes on Prizes
Innovation contests often have a global spin, with partners and participants from all across the globe. Depending on where the winner is from and where the sponsor is based, you may be subject to specific and unique tax laws based on those countries. If US-based, you’ll probably be subject to US tax withholding and reporting requirements.
Some of the most sophisticated tech companies are using crowdsourced challenges to support their need for innovation. Many public agencies, including the US Defense Department, are asking “makers” to get involved in challenges to drive new ideas and approaches. According to McKinsey & Co., innovation contests award over $2 billion annually. Organizations will continue to use contests to drive new ideas as well as to support their marketing and branding goals. Those that pay attention to intellectual property rights, sweepstakes and contest legal requirements, and that execute programs to provide a positive experience for makers, will keep those ideas flowing.
To read more ideas with the legal lens, visit us at https://helloworld.com/insights/whitepapers
Josh Yaker is General Counsel for HelloWorld, a digital marketing solutions company specializing in promotional campaigns and loyalty programs.