Invention Promoter Misled Inventors

An invention promotion operator must pay $26 million in consumer redress and stop its deceptive marketing practices. The firm failed to disclose, among other things, that it made very little money from invention royalties and the majority of its money from fees charged to the inventors.

The court found that either expressly or by implication that the defendants made false representations that:

• Consumers who buy defendants’ invention promotion services stand a reasonably good chance of realizing financial gain.
• Defendants’ invention-promotion services helped many of their customers’ invention ideas become profitable products.
• Defendants have a vast network of corporations with whom they have ongoing relationships and regularly negotiate successful licensing agreements.
• Defendants’ invention marketing services are necessary for consumers to license their invention ideas.
• Defendants prepare objective and expert analysis of the patentability and marketability of consumers’ invention ideas.

The order and injunction stems from an action brought by the Federal Trade Commission against Davison Design and Development, Inc., Manufacturer’s Support Services, Inc. and four of its officers and employees. The companies advertised nationwide and on the Internet.

The Pennsylvania federal court found rather than being selective, defendants accepted nearly two-thirds of all submissions by inventors for a “Research Agreement” costing $800. More than half the time, the results of the research concluded that the inventor should proceed ahead with commercialization of the product using defendants’ “Product Registration Agreement” that lasted two years that could be purchased on an hourly basis or paying a flat fee ranging from $8,000 to $12,000.

The court noted that “defendants’ failure to disclose that thousands of people are provided with Pre-Inventegration portfolios, yet, at best, only dozens obtain licenses, significantly misrepresents their track record.”

The court also found that the companies misrepresented that they had a “genuine stake in the consumer’s invention through royalties, when in fact, fees charged, and not royalties collected, are the main source of defendants’ income.” Less than one per cent of the customers who invested in the companies’ services received any royalities that exceeded what they paid to the promoters, the FTC said.

In one instance, the court found defendants claimed a product called “Puzzle Sorter has been sold worldwide” but “defendants’ records reflect no actual sales of this product in the United States, or elsewhere.”

In addition, the court found that defendants claimed to have close working relationships with specific companies but, in fact, “defendants’ submission procedures do not even meet the company’s requirements for the submission of unsolicited ideas.”

Between the time the case was filed and the judge issued his ruling, defendants continued their deceptive activities. “Even after the court issued a Temporary Restraining Order, which was later extended by stipulation, defendants continued to engage in deceptive practices, albeit in slightly different forms,” the court wrote in its order. “Based on this past pattern of conduct, there is a very real danger that defendants will alter their business again, yet continue to engage in wrongdoing.”

In addition to the $26 million payment and the injunction, defendants are required to fully inform inventors that the services defendants’ offer are not required in order to license inventions.

Federal Trade Commission v. Davison Associates, Inc. et al., W.D. Pennsylvania, No. 97-1278, March 17, 2006.