Wednesday, July 30, 1997

BUILDING THE BETTER MOUSETRAP

Last week, the Federal Trade Commission and state authorities announced that they had filed charges against seven firms and their operators as a part of "Project Mousetrap," a federal/state crackdown on fraudulent invention promotion firms. According to the FTC, "[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." In a message urging extreme caution by consumers, officials characterized fraudulent invention promotion services as "very expensive, but almost always fruitless."

The FTC charged five companies with misrepresenting their services and their ability to make an invention profitable. According to the charges, the defendants "generated $90 million for their own pockets by exploiting the ideas, hopes and dreams of tens of thousands of consumers." Pennsylvania charged one company, becoming the first state to bring action in federal court under the new telemarketing sales rule. Florida filed on complaint in state court. All the agencies filed for temporary restraining orders and asset seizure. The agencies claim that all of these companies, after only a minimal appraisal of the idea, practically or in reality guaranteed that if the inventor paid for their services, the invention would be profitable. Unfortunately, according to Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, "[i]t is a fact that less than one percent of all new products succeed in the marketplace."

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, DC and preceded by the following four firms: American Invention Associates, Inc., headquartered in Miami, FL; Invention Consultants, USA, Inc. of Philadelphia, PA; New Products of America, Inc., of Atlanta, GA; International Licensing Corp., Inc. of Reston, VA; and Azure Communications, Inc., of Reston, VA, 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, PA; 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, PA; 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, PA; President and founder Gregory S. Bender, and sales representative Frank J. Cillo; and

• one other case, still under court-ordered seal.

In addition to filing charges, the FTC has announced the release of new consumer education materials. According to those materials, inventors should realize that there are actually two types of patents. One is a utility patent. It grants the inventor of a "new and useful process or machine" exclusive rights to that machine and often offers more protection than the other type of patent, a design patent. A design patent grants exclusive use of a new "ornamental design" for an article of manufacture. A utility patent offers more protection but it is easier to get a design patent. Fraudulent invention promotion firms often get their customers design patents, providing such limited protection that competitors can copy the idea without fear. Some firms may also claim that filing an idea with the US Patent & Trademark Office's Disclosure Document Program will serve the same function as a patent. The program, which costs only $10, actually only provides "evidence of the date of conception of the invention" and not exclusive rights.

Other tips and information included in the materials are:

• 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 upfront 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 of 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 disclosures.

• Many unscrupulous firms agree in their contracts to identify manufacturers by coding your idea with the US Bureau of Standard Industrial Code (SIC). Lists of manufacturers that come from classifying your idea with the SIC usually are of limited value.

The FTC also suggests visiting the US Patent & Trademark Office website.

Consumers interested in more information on how to spot and avoid fraudulent invention promotion firms should read the FTC brochure "Invention Promotion Firms" and the alert "Spotting Sweet-Sounding Promises of Fraudulent Invention Promotion Firms."

If you would like to ask a question or report an incident, call the National Fraud Information Center at 1-800-876-7060 or use one of our online forms.

Note: The Federal Trade Commission files a complaint when it has "reason to believe" that the law has or is being violated. A complaint by the FTC is not a finding or ruling that a defendant has actually violated the law. Such determinations can only by made by the court.

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