A significant number of firms in the invention promotion industry are perpetrating a massive fraud on middle American consumers by claiming they have the resources and corporate connections to successfully develop and market individuals' inventions, according to federal and state officials who gathered at Federal Trade Commission headquarters in Washington, D.C. today. Issuing a message of extreme caution to consumers about using the very expensive, but almost always fruitless, services of an invention promotion firm, the FTC announced "Project Mousetrap," a law-enforcement sweep that has leveled federal and state charges in seven actions against companies and their principals involved in schemes purportedly to help independent inventors who tinker away in their garages late into each night in the hope of "building a better mousetrap."
The FTC, which brought five of the cases, said the defendants in its actions generated in excess of $90 million for their own pockets by exploiting the ideas, hopes and dreams of tens of thousands of consumers. The Pennsylvania Attorney General's Office brought its action under the FTC's Telemarketing Sales Rule, one of the first to be brought by a state in federal court seeking a temporary restraining order and asset freeze, without notice to the defendants, under that rule. Florida's Attorney General also filed an action, in state court, as part of Project Mousetrap. The FTC obtained temporary restraining orders and asset freezes against the defendants in its cases and is seeking permanent injunctions and redress for consumers.
"It is a fact that less than one percent of all new product concepts succeed in the marketplace," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, at a press conference announcing Project Mousetrap. "Yet the fraudulent firms in this industry conclude, after a 'professional' evaluation, that virtually every new idea or product crossing their desks is patentable and has 'tremendous market potential.' They promise enthusiastic inventors that they can provide professional assistance in getting a patent and securing licensing and manufacturing agreements with manufacturers. Time after time, however, these firms lie to consumers about the sincerity of their belief in an idea and its marketability. Mark Twain once said that the name of the greatest inventor is accident. But it is no accident that these firms profit while the dreams of their customers die. That is their plan, and up to now, they have been very successful in perpetrating that plan. Virtually no consumers have even made back their investment, let alone any profit, from these companies' services."
"Attorney General Mike Fisher is committed to striking back against unscrupulous companies that take advantage of the hopes and creativity of inventors," said Pennsylvania Executive Deputy Attorney General Alexis Barbieri, who also spoke at the press conference. "Too many inventors, who thought they could turn a good idea into reality, ended up with nothing more than their own canceled check."
"Project Mousetrap" also begins a concerted effort among law enforcement officials and other federal regulators to combat this type of fraud with a targeted consumer education campaign. The U.S. Patent and Trademark Office (USPTO), the Department of Justice and the FTC have formed a task force to gather and share information about law enforcement efforts, and to develop a long-term campaign to give consumers information about invention promotion fraud at key times where they might be especially receptive to the message -- for instance, when they receive information from the USPTO.
According to USPTO's Solicitor, Nancy Linck, "We are particularly concerned about the impact these disreputable firms have on independent inventors' confidence in the patent system. As a result of their dealings with unscrupulous invention developers, they come to see the system as frustrating rather than promoting the recognition and protection of their inventions. We strongly support the actions taken today by the FTC and look forward to working closely with them on their consumer education effort."
The FTC issued several new consumer education pieces at the press conference: a post card, new consumer brochure, "Invention Promotion Firms," and an alert, "Spotting Sweet-Sounding Promises of Fraudulent Invention Promotion Firms," all of which it developed in cooperation with the USPTO. The pieces feature information about how to detect and avoid invention promotion scams. In addition, the FTC is partnering to distribute the pieces with Science Service, a non-profit organization that administers the Westinghouse Science Talent Search and the Intel International Science and Engineering Fair -- approximately 500 science fairs at public schools worldwide feed into the Intel Fair -- and also publishes Science News, an international weekly magazine.
Defendants named in the FTC cases are:
- International Product Design, Inc., The Innovation Center, Inc., and the National Idea Center, Inc., all of which were headquartered in Washington, D.C. and preceded the following four firms: American Invention Associates, Inc. headquartered in Miami, Florida; Invention Consultants, USA, Inc. of Philadelphia, Pennsylvania; New Products of America, Inc., of Atlanta, Georgia; International Licensing Corporation, Inc. of Reston, Virginia; and Azure Communications, Inc., of Reston, Virginia, doing business as London Communications, Inc. and which is the corporate headquarters of the four successor firms; and officers of one or more of the companies Robert N. Waxman, Peter Doran, Darrell Mormando, Julian Gumpel and Greg Wilson;
- National Idea Network, Inc., doing business as The Concept Network out of Indiana and Wexford, Pennsylvania; CEO and President Harry E. Sharf, III, Executive Vice President Wayne R. Obitz, and Senior Marketing Representative Robert J. Zarko;
- Davison & Associates, Inc., of Oakmont and Indianola, Pennsylvania; President and CEO George M. Davison, III, and sales associate Thomas Dowler;
- Eureka Solutions International, Inc. and OEM Communications, both doing business out of the West Pittsburgh Expo Mart in Monroeville, Pennsylvania; President and founder Gregory S. Bender, and sales representative Frank J. Cillo; and
one other case, still under a court-ordered seal.
THE FRAUDULENT INVENTION PROMOTION SCHEME:
The schemes challenged in Project Mousetrap are all woven with a common thread: false claims about the firms' potential for helping inventors generate substantial profits. Additional deceptions are stitched in as the presentations continue. For example, the firms often emphasize their track records and the importance of their screening process, touting product research reports that purportedly constitute a professional product and market evaluation of the idea. Over prior years, the FTC has charged a half dozen invention promotion firms with deceptive practices. These cases were brought individually, and although collectively they have generated in excess of $2 million in redress payments to consumers, the agency said a more massive law enforcement "sweep" approach coupled with a consumer education campaign is necessary to curb this persistent problem.
The FTC said its investigations of the industry have given it a wealth of knowledge about how invention promotion firms work. Most firms offer services in two stages, the FTC said. First, the firm might promise a free initial evaluation of the inventor's idea -- the evaluation is virtually always highly favorable -- and that sets the stage for phase one, a more extensive study of the idea and its patentability and market potential. The FTC showed samples of these reports at today's news conference -- they often are quite lengthy, but typically are mass produced and consist largely of boilerplate pages into which the inventor's name and idea is electronically inserted. Indeed, the FTC said, fraudulent invention promotion firms do not offer an honest appraisal of the merit, technical feasibility or market potential of an idea, and in some instances their patent searches are incomplete. Nonetheless, these reports generally cost several hundred dollars or more, although the price is not mentioned until after the customer is taken through a series of calculations about the costs associated with manufacturing and marketing the product and its ultimate retail price. The sum of this discussion -- the likely profits an inventor might see -- is inevitably big dollars, officials said.
The phase one report serves as a marketing tool for phase two services, which include patenting and marketing the idea. Invention promotion firms might mention trade shows at which they purportedly will display an idea, or special relationships they have with manufacturers who might be interested in producing it. Unscrupulous promoters often require the consumer to pay a fee of several thousand dollars -- in some instances, more than $10,000 -- in advance for phase two services, the FTC said, noting that reputable companies usually rely on royalties from the successful licensing of their clients' ideas, rather than large advance fees.
TIPS FOR INVENTORS:
According to the consumer education materials released today, inventors should know that there are different kinds of patents and that, while many ideas are patentable, very few have real commercial potential. A utility patent, which grants the inventor of any new and useful process or machine exclusive rights to the invention, may offer more protection than a design patent, which grants to any new ornamental design for an article of manufacture. "Unscrupulous invention promotion firms often apply for patents that provide such limited legal protection that it is easy for competitors to find a way to design around the patent," states an FTC brief on invention promotion firms. Other firms might say that registering your idea with the USPTO's Disclosure Document Program protects your idea, but that is not true, the brief states. Filing with this program, which costs $10, only provides evidence of the date of conception of the invention. Other tips and information included in the materials include:
- Reputable companies are choosy about which ideas they pursue, and typically work on a contingency basis. If a firm is enthusiastic about your idea, but insists on a substantial up-front fee, take your business elsewhere.
- A firm that claims you need to hurry and patent your idea quickly before someone else does is engaging in high pressure sales tactics, a red flag for fraud.
- Many firms claim to have a great record licensing their clients' inventions. Ask the firm to disclose its success rate, the number of clients who made more money from their inventions than they paid to the firm for its services. Also ask for the names and telephone numbers of recent clients. Check the references, and check with your state Attorney General's office to determine whether state law requires success rate disclosure.
- Many unscrupulous firms agree in their contracts to identify manufacturers by coding your idea with the U.S. Bureau of Standard Industrial Code (SIC). Lists of manufacturers that come from classifying your idea with the SIC usually are of limited value.
The materials also suggest places consumers may want to call, write, or visit on the World Wide Web, including the FTC's web site (www.ftc.gov), the USPTO's web site (www.uspto.gov) or the web site of the National Congress of Inventor Organizations at (www.inventionconvention.com/ncio.index.html).
The FTC received assistance in these cases from the Pennsylvania and Florida Attorneys General, and the U.S. Attorney's Office in New Jersey. The Commission votes to bring the cases were 5-0. The FTC filed the complaints in federal district courts, as noted below, and has won temporary restraining orders prohibiting the challenged practices and freezing defendants' assets pending hearings. Trials in the cases will be scheduled at later dates.
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.
Copies of the complaints, as well as the consumer education materials, are available from the FTC's web site at http://www.ftc.gov and also 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 File Nos. / Civil Action Nos. / Individual Case Contacts:
American Invention Associates, Inc.: File No. 962 3276 / U.S. District Court for the Eastern District of Virginia, in Alexandria, Civil Action No. 96-1114-A / David Fix, 202-326-3248
National Idea Network: File No 962 3296 / U.S. District Court for the Western District of
Pennsylvania, in Pittsburgh, Civil Action No. 97-1279 / Russell Damtoft, FTC Chicago Regional Office, 312-353-3771
Davison & Associates: File No. 962 3310 / U.S. District Court for the Western District of Pennsylvania, in Pittsburgh, Civil Action No. 97-1278 / Steven Balster, FTC Cleveland Regional Office, 216-263-3455
Eureka Solutions: File No. 972 3057 / U.S. District Court for the Western District of Pennsylvania, in Pittsburgh, Civil Action No. 97-1280 / Steven Balster, FTC Cleveland Regional Office, 216/263-3455
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