Editors Note: Kevin E. Flynn is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A. This is the first of a two-part article.There are plenty of inventive people out there. Unfortunately, some rather inventive people have devised processes for separating enthusiastic but sometimes naïve inventors from their money. Several years ago the Patent and Trademark Office estimated that invention promotion scams cost U.S. inventors an estimated $200 million annually. (see http://www.uspto.gov/web/offices/com/speeches/02-02.htm )

I am about to warn inventors and would-be entrepreneurs about Invention Promotion Firms. The warnings are not flattering. As it is wrong to characterize an entire industry in a disparaging way, let me start with the admonition that there may be invention promotion firms which do provide useful services for a reasonable price to a majority of their customers…but I have not yet run across one.

To be clear, I am not talking about specialists who may be retained to evaluate the strengths and weaknesses of pending patents or patent portfolios, nor am I talking about the more academic type businesses which help determine flaws in a potential applications or evaluate the commercial viability of an idea or invention (such as the World Innovation Network (WIN) at Southwest Missouri State University www.innovation-institute.com or Wisconsin Innovation Service Center (WISC) at the University of Wisconsin-Whitewater www.uww.edu/business/innovate/innovate.htm).

So who are the people I am warning you about? They are the businesses you find advertising on late night television, on the Internet and in the back of magazines. These businesses solicit your ideas (they do not even have to be inventions) and suggest that they can turn your ideas into cash by marketing the ideas to “industry.”

As an introduction to this topic, here is some of what you find on the Federal Trade Commission (“FTC”) web page on Invention Promotion Firms:

Some people try to sell their idea or invention to a manufacturer that would market it and pay royalties. But finding a company to do that can be difficult. As an alternative, others use the services of an invention promotion firm. Indeed, some inventors pay thousands of dollars to firms that promise to evaluate, develop, patent, and market inventions . . . and then do little or nothing for their fees.

Unscrupulous promoters take advantage of an inventor’s enthusiasm for a new product or service. They not only urge inventors to patent their ideas or invention, but they also make false and exaggerated claims about the market potential of the invention. (See http://www.ftc.gov/bcp/conline/pubs/services/invent.htm)

The above-cited FTC web page provides a very good summary of the pattern of escalating fees and empty promises or virtually worthless deliverables provided by many Invention Promotion Firms. I strongly urge anyone considering hiring an Invention Promotion Firm or anyone with a friend or relative considering hiring an Invention Promotion Firm to follow this link and read this summary material. The FTC repackages much of the same information on another web page. In this case the page title gives the story away…Consumer Alert: Spotting Sweet-Sounding Promises of Fraudulent Invention Promotion Firms. (See: http://www.ftc.gov/bcp/conline/pubs/alerts/invnalrt.htm. )

This problem is not new

As a patent attorney, I have followed the Federal and state investigations into this industry. This problem is not new. The FTC was active in this area throughout the 1990s. For example, in 1997 the FTC working in cooperation with various state officials announced the filing of seven cases against Invention Promotion Firms as the result of “Project Mousetrap.” (See http://www3.ftc.gov/opa/1997/07/mouse.htm )

Recognizing that truth can hurt, in some settlements with Invention Promotion Firms against which these actions were brought, the FTC required the firms provide statistics such as what percentage of ideas evaluated by that particular Invention Promotion Firm were given positive evaluations and how many of its total customer made a net profit from use of the idea by industry. These forced revelations were a problem for these firms as the answers to be disclosed were often (1) almost all inventions received positive evaluations and (2) almost none of the inventors made money from the process. I believe press reports indicated at least one Invention Promotion Firm had to close shop after this because none of its clients over the years had made a net profit.

American Inventors Protection Act

Problems with Invention Promotion Firms appeared to be so pervasive that Congress held hearings on the issues and eventually passed the American Inventor’s Protection Act of 1999. This law added new provisions to Federal patent law regarding “Improper and Deceptive Invention Promotion,” including requiring all Invention Promotion Firms to release the statistics showing their track records, giving “bilked” inventors special rights to sue and to collect trebled damages under certain conditions, and giving a new duty to the US Patent and Trademark Office to collect and make available complaints against Invention Promotion Firms along with any responses from the Firms. http://www.uspto.gov/web/offices/pac/mpep/documents/appxl_35_U_S_C_297.htm#usc35s297

After this legislation I thought everyone knew about this industry, and that it would fade away. I was wrong.

The problems continue

Over the last several months, I have come into contact with inventors that have used various Invention Promotion Services and belatedly asked for some independent advice before gathering thousands of dollars from friends and relatives to enter into the next phase in the program. The inventors described or brought to my office what they had received after months of contact with an Invention Promotion Firm, and as a result of a series of ever larger payments. For the most part, all they had a nice binder with the inventor’s own description and drawings which had been reproduced in a more attractive format.

One nice binder I examined included results of a patent search. Out of curiosity, I typed in a quick online search against the public USPTO files and I found, on my first query, more relevant results than were in the search report that had been provided.

To be fair, it is not surprising that the Invention Promotion Firms cannot deliver companies eager to pay large royalties for every submitted invention. Most of the inventions are submitted by individuals without adequate funding to test or fully develop the invention. Sometimes the invention is not even new. The inventions submitted to Invention Promotion Firms are not in focused business or technology sectors, but instead cover everything under the sun.

Isn’t it implausible that any one company could have the expertise and contacts to efficiently find, from within the ideas submitted in every conceivable field, those ideas with a reasonable possibility of successful commercialization, as this would requiring a knowledge of every conceivable technology and market? Contrast this with potential businesses submitted to venture capitalists, which only consider businesses in specific areas, which have specialists to examine the inventions in those areas, and which have significant business contacts in those areas.

The venture capitalists only review a small fraction of what is submitted to them, and find an even smaller fraction viable to pursue–and only part of those pursued are actually successful. Alternatively, and perhaps a closer parallel, consider the technology transfer offices at the universities.

Faculty members submit potentially commercializable concepts to these offices on a regular basis, but there is no buyer for most of the concepts submitted despite the fact that these offices have extensive contact with potential buyers and the ideas submitted to be sold are of better than average quality as they have been created by a leading expert who has already demonstrated the idea works.

Thursday: Advice to inventors

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Kevin Flynn combines the knowledge and experience that he has obtained as an engineer, lawyer, and patent lawyer to provide guidance to clients on a range of patent and other legal issues. Questions or Comments can be sent to kflynn@d2vlaw.com