I thought that most states made it illegal to sell products that do not exist.

Nevertheless, there seem to a lot of "crowd-funded" companies who sell their products as "pre-orders" meaning they are using your money to capitalize their company and they promise to ship the product to you at some undefined time in the future.

Is this legal?

  • Where did you see that most states make it illegal? – Pat W. Nov 24 '15 at 19:56
  • If you read the terms, companies on most crowd funding sites are not selling anything. You are donating or investing, which is a different type of transaction entirely. – ColleenV Nov 24 '15 at 20:21
  • Does states mean nation states or sub-national jurisdictions. Given there are about 200 hundred of the former and several hundred of the latter can you explain what you mean by "most" – Dale M Nov 25 '15 at 5:53

Not all preorders are fraud.

For fraud, generally you want to show that someone: (1) falsely represented some material fact, (2) knew it was false, (3) intended for the victim to rely on it; and then the victim (4) reasonably relied on it and (5) was injured.

It's probably the case that some crowdsourced ventures are deceptive, but preorder is a fairly common practice---phones and video games, for example. However, an example that's closer to your question is aviation, where aircraft preorders are frequently funded to incentivize particular features or timelines.

Whether it's allowable to do a funded preorder generally comes down to a question of contracting terms. Law is generally pretty deferential to contracts. For example, the Kickstarter Terms of Use make it clear that you enter into a contract, not with Kickstarter, but with the project sponsor. The terms of this contract will govern recovery when things go awry.

  • The question is asking about state and federal laws respecting selling non-existent products. I know what fraud is. – Cicero Nov 25 '15 at 16:01
  • @Cicero You used the fraud tag...does that mean you suspect the statutes of interest characterize preorder behavior as fraud? I'm not sure what jurisdictions you're talking about, and as DaleM implies, scouring legislation is a big project – Pat W. Nov 25 '15 at 16:40

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