The Federal Trade Commission has charged American Institute for Research and Development, Inc. (AIRD) and its predecessor, American Inventors Corporation (AIC), with running a deceptive invention-promotion scheme that bilked consumers nationwide out of thousands of dollars each over a 20-year time span. The FTC alleged that the Massachusetts firms and their principal officers made a variety of false claims, and failed to disclose key information, in the course of inducing consumers to purchase patenting, marketing and commercialization services. At the FTC's request, a federal district court has issued an order temporarily freezing the assets and requiring the preservation of documents of all but one of the defendants.
AIC and AIRD operate out of a Westfield, Massachusetts, office. Also named as defendants in the FTC complaint detailing the charges are AIC president Ronald Boulerice of Russell, Massachusetts; AIRD president John Samson, who resides in West Hatfield, Massachusetts; and John Hoime, of Westfield, and who was employed by AIC between 1989 and 1994.
"The FTC has targeted several invention promotion schemes in recent years," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "What we repeatedly find are consumers paying thousands of dollars to firms promising to help bring inventions to market, and getting nothing in return. Unfortunately, independent inventors with enthusiasm for their ideas are vulnerable to someone who appears willing to help market their dream. The reality is that independent inventors trying to market an invention face staggering odds."
The FTC expressed concerns about the invention promotion industry in testimony last fall before a Senate subcommittee: "Unfortunately, many, if not most, of these companies ultimately attain little in the way of commercial success or profit for their inventor clients.... Based on its investigations, the Commission estimates that over the years, tens of thousands of independent inventors have been victimized by, and have lost tens of millions of dollars to, ineffective or dishonest companies and individuals offering invention promotion services," the Commission said.
Bernstein urged consumers to protect themselves by keeping the following advice in mind when considering the sales pitch of an invention promotion firm:
- Be realistic. Few inventions make it to the marketplace; fewer still are commercially successful. You face staggering odds trying to market an invention.
- Beware of any firm that charges an up-front fee.
- Beware of any firm that offers to evaluate your invention, but refuses to disclose details about its review criteria, its system of review, or the qualifications of its evaluators.
- Beware of any firm that refuses to disclose its success and rejection rates.
- Beware of any firm that claims special access to manufacturers looking for new products, but refuses to document such claims.
- If you decide to retain a firm, ask up-front what the total cost of its services will be.
According to the FTC complaint in this case, the defendants have run ads for their services in newspapers and magazines, and also have made in-person and telephone sales presentations. They have offered two basic services:
- a "feasibility report" that costs from $250 to $495 and which purportedly evaluates the patentability and marketability of the product; and
- a "representation agreement" that costs from $5,490 to $11,990 and under which the firms promise to prepare, file and prosecute a patent application, and to promote the idea or product to industry in an effort to secure a licensing agreement for the inventor
The complaint challenges the following representations allegedly made by the defendants:
- that the patents they seek and obtain have some commercial value when, in fact, in many instances AIC seeks only design patents, which have little or no commercial value, rather than utility patents, which are more valuable and difficult to obtain;
- that they only select and recommend for further invention promotion services a small percentage of the ideas submitted to them, when, in fact, most if not the vast majority of the ideas submitted, regardless of their merit or marketability potential, are selected and recommended;
- that their services are likely to result in financial gain for their customers, when, in 20 years of business, perhaps no more than 13 customers have realized any financial gain at all as a result of the defendants' services; and
- that the money-back guarantee they offered until about two years ago minimizes the risk of purchasing their services, when that is not the case.
In addition, the FTC charged, the defendants often have failed to disclose to customers the distinction between a design patent and a utility patent. A design patent protects only a product's ornamental design or shape, while a utility patent protects a product's utility or mechanical function. The Defendants also systematically failed to disclose when customers' utility patent applications had been rejected; they instead obtained design patents with no significant commercial value, the FTC alleged.
The court order obtained by the FTC is a temporary restraining order that freezes the assets of all but Hoime until after the court can hold a hearing on whether to issue a preliminary injunction extending the temporary order provisions, enjoining defendants from engaging in the misrepresentations alleged, and requiring defendants to make certain affirmative disclosures pending the outcome of the trial in the case. That hearing is scheduled for Nov. 3, 1995.
The FTC investigated this case in coordination with the U.S. Postal Inspection Service in Boston, and the U.S. Attorney's office in Springfield.
The Commission vote to file the complaint was 5-0. It was filed under a seal order in U.S. District Court for Massachusetts, in Springfield, on Oct. 24. The court lifted the seal on the case this afternoon.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
An FTC brochure titled "Invention Promotion Firms" offers tips for consumers who are considering trying to patent and commercialize their inventions. Copies of the brochure are available for 50 cents from the Consumer Information Center, Pueblo, Colorado 81009. Copies of the complaint in this case, as well as documents associated with several other FTC cases against invention promotion firms, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases, consumer brochures, and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov