What is the legality of the "pre-order" sales of products?

Question

In most states there are laws that make it illegal to "sell" something something that you do not have, because it is considered a form of fraud.

Nevertheless, the phenomenon has arisen recently of "pre-order" products in which some product is hyped and the putative manufacturer promises to deliver something in the future which a customer can "pre-order". A typical example of this is the "Glowforge" laser cutter which costs thousands of dollars to pre-order. Obviously there is the possibility that the manufacturer may never deliver the promised machines or they may very different in quality and function than what was promised.

Do these sales of non-existent products violate typical state fraud statutes?

A related phenomenon is "order taking" in which a seller represents themself as having something they do not, accepting money for it, then using the money to go buy the product before shipping it to their customer.

Answer 1

Obviously there is the possibility that the manufacturer may never deliver the promised machines or they may very different in quality and function than what was promised.

That's all pointed out on the GlowForge pre-order page

You are pre-ordering a product that has not yet been manufactured. We've tried to accurately describe it, but we may make changes before it's delivered. If that happens, we'll let you know. You can get a complete refund, including shipping, at any time until the product is shipped. By ordering you agree to our Privacy Policy and Terms & Conditions

and in the TOS https://glowforge.com/order#tc , which goes into great detail on how when and you can get a refund, when they may or may not ship, what features may or may not be included, etc. And that fact that you can't sue them if something goes wrong; you are contractually committed to arbitration.

Once you pre-order and they accept your order - which would be as soon as your credit card clears - you and they are bound by the TOS.

My favorite part of the GlowForge TOS is how they are not responsible for product delays in case of "an act of God, terrorism, war, political insurgence, insurrection, riot, civil unrest, act of civil or military authority, uprising, earthquake, flood or any other natural or man-made eventuality outside of Glowforge’s control."

The bottom line is: buyer beware for crowdfunded pre-order products. Some just don't work out. Some do.

All pre-order startups and crowdfunded gigs will have (if they're smart) a full TOS like Glowforge that covers all the bases.

And until GlowForge actually commits fraud and rips people off by taking and keeping money for vapor products - which has happened in the past with crowd-sourced products - prosecution under various state and/or federal laws doesn't come into play.

And,

a related phenomenon is "order taking" in which a seller represents themself as having something they do not, accepting money for it, then using the money to go buy the product before shipping it to their customer.

That's a different deal; they're not getting ready to manufacture or making you wait until they build a factory. Online sellers like eBay look out for that with their business sellers, but have no control over individuals. If you eventually get what you pay for, no law is broken.

You could almost say that Amazon.com works that way, or any online business that keeps a bare minimum of inventory in a warehouse and ships "just in time" to customers or drop ships from another business and location. They're selling what they don't have; but they get it and send it, and most times, you don't know the difference.

Answer 2

In most states there are laws that make it illegal to "sell" something something that you do not have, because it is considered a form of fraud.

This is just not true.

If it were then a business that is temporarily out of stock could not backorder; they can.

Any form of bespoke business like builders, tailors or joiners would be illegal; they aren't.

Any form of service for hire like artists, writers and programmers would be illegal; they aren't.

The whole premise of your question is fundamentally flawed.

Now, saying you are in possession of something when you are not is illegal but it is not fraud - it is deceptive and misleading conduct.

Answer 3

A very reasonable change to this issue about Pre-ordering would be a requirement that no charges could be completed until the stock is shipped to the buyer. At the time of shipping, then the money is transacted. This prevents any unforseen scenarios prohibiting actually receipt by the buyer. THAT Needs to be the policy, and the law.

I am seeing many pre-order listings for comic books. Being in the comic collecting and selling business, I know that all new comics are printed and distributed by Diamond, and they require 3 month pre-orders to their liscensed distributers. Many times, Diamond cancels printings of an item because they decide it will not be profitable because they did not get enough "pre-orders" before going to press. They then never ship those pre-ordered items. The effect is, they collected money from all those who pre-paid for items that will not now be available, thus tying up their funds for long periods of time (3 months at least). Now, it is true, all those distributers agree to "RISK their funds, but knowing the business,Diamond does not offer any other choices (Agree or go elsewhere. but there is no other place to go).