Hook, Line & Sinker: USPTO Warns About Invention Scams

On Thursday, November 4, 2010, I attended the 15^th Annual Inventors Conference at the USPTO.  In my article Reporting from the 15th Annual USPTO Inventors Conference I discussed the morning sessions and lunch speaker, for day one of the conference.  After lunch, and a panel discussion of the morning speakers, the attendees of the conference went into two sets of separate concurrent breakout sessions where they were able to choose from one of five topics being offered.  Of those available, I decided to attend the session on Invention Promotion Firms, which was given by John Calvert, the Administrator of the Inventor’s Assistance Program at the USPTO and Cathie Kirik, Management and Program Analyst for the Inventor’s Assistance Program.  I thought it was quite interesting to see that a government agency, such as the USPTO, is working hard to educate inventors of this issue and so I wanted to see what they had to say first hand.  Whether you are an inventor or an attorney, this information is something that should always be kept in mind.

Calvert started by stressing something that we always tell those who contact us at IPWatchdog — do your homework.  He said that if you are contemplating working with any company, but in particular, an invention promotion firm, be sure to check them out.  Conduct an Internet search, check with your states government and ask others about them.  He also gave four additional resources that inventors have at their disposal: the USPTO, the Federal Trade Commission, the United Inventors Association and your State Attorney General’s Office.

When contemplating working with an invention promotion firm, it is imperative that you ASK QUESTIONS.  He gave the attendees a list of sample questions that are important to ask.  Given that so many people do not do their research until after they have signed a contract, paid money and feel taken advantage of, I thought it was important to share these sample questions that he recommend you ask of all firms you are considering to do business with.  The questions are as follows:

1.  How many inventions have been evaluated in the past 5 years?  How many have received a positive evaluation and a negative evaluation?

2.  How many customers have contracted with the company in the past 5 years. (This should NOT include those who have purchased trade show services, research, advertising or other non-marketing services or those who have defaulted in their payments to the company.)  Calvert added, “I’ve seen some companies that say they have as many as 600 contracts signed per year.  That comes to about 3 applications a day.  What kind of quality can you get with so little time being reviewed?  Examiners take one whole day to review a single application.”

3.  How many customers have received a net financial profit as a direct result of the services provided?

4.  How man customers have received license agreements for their inventions as a direct result of services provided?

5.  What other names and previous addresses has the company or its officers collectively or individually been affiliated with in the past ten years? Calvert mentioned Davison and their $26 Million settlement they were ordered to pay in redress for consumers.  He let the inventors know that this company has continued to do business even after the settlement and have changed both their company name and address on multiple occasions.

There are several other things that an inventor should look out for which are usually indications that caution should be taken when approaching such companies.   First look for slick Internet sites, TV commercials or ads in do-it-yourself magazines that offer one-stop help for inventors, low up front costs, the promise of a patent or state that they know all manufacturers.  We often caution our readers that when someone claims to be a one-stop shop, you should err on the side of caution.   Think of it this way, a company can know a lot about a few things, or a little about a lot of things.  I personally would prefer the former of the two.  Calvert also highly stresses that you should read contracts before ever signing one.  You do not need to be an attorney to do so, but when reading it ask yourself, “What does it say you are getting and who does what and for what price?”  Of course, if you have questions contacting an attorney to ask questions is better than signing and being on the hook for many thousands of dollars and not being able to get out of the deal.

For those who are not inventors, or perhaps even attorneys, it is often difficult to understand how inventors can be taken advantage of so easily.  But when an inventor approaches this type of company, they are most often excited about the prospects of their inventions and what I hear most from first time inventors themselves is that they feel they have developed something brand new that has never been done before because they do not see it already on the market.  From a non-attorney point of view, prior to my getting involved in IP, I was unaware of the fact that many inventions that are granted patent rights are never taken through to production.  For this reason I can assume that most first time inventors lack this same knowledge.

So how do invention promotion companies operate?  Calvert used the Hook – Line – Sinker analogy to make his point and pointed out that this is generally done in five stages.

• The “Hook” – Low upfront cost, and the inventions are always deemed patentable subject matter.
• The “Line” – They guarantee to get a patent and locate companies that are interested in the invention.
• The “Sinker” – Patent of poor quality (at best) and most if not all companies from Thomas’ Register.

Stage 1: Get the Inventor Excited: Preliminary Marketing Report & Patentability Opinion

1. Costs around $700 to $1000 (Or some where around that range.)
2. Preliminary marketing “analysis” is always positive (Usually accompanied by a verbal assurance of success.)
3. Invention is almost always deemed patentable, regardless of merit.  (Attorneys can receive as little as $25 for the opinion and make their money on quantity, not quality.)

Stage 2: Sign the Agreement

1. Typically costs around $5,000 to $10,000 for marketing and patenting services
2. Promotion company will finance the cost at a high interest rate.
3. If a provisional application is involved, the cost can be $15,000 or more to convert to a nonprovisional.
4. Inventor has no real choice of patent attorneys.  (One will be assigned by the promotion company.)
5. The attorney will put promotion company’s interests ahead of the inventor’s interests.

Stage 3: Faulty Patent Applications

1. Attorney may file a design application for an invention with functional features, e.g., engine.
2. Attorney may file an unnecessary provisional application. (Application cannot issue as a patent and is usually part of scheme to double the money spent by the inventor.)
3. These companies will emphasize the so-called patent pending status, which has little or no legal meaning.
4. Claims will give no meaningful patent protection.

Stage 4: Application Goes Abandoned

1. There are defects in the application at time of filing.
2. These companies fail to respond to office actions.
3. These companies fail to pay issue fees.
4. Each patent attorney may have several hundred patent applications that are abandoned. (The company’s attorneys file applications in bulk and have a difficult time keeping track of each one.)
5. If patent does issue, the inventor will typically have no meaningful patent protection.  (Wide use of “picture claims”.)

Stage 5: I Think We Have a Problem

1. Inventor finally realizes there is trouble with the invention promotion company.
2. These promotion companies are usually non responsive to complaints filed by the inventor.
3. Inventor sees nowhere to turn, cuts losses and may just walk away.

So what can you do if you have been a victim of an invention promotion firm?  There are options for inventors who want to fight back. There are several things that can be done.  First, file a complaint against the invention promotion company with the USPTO.  Next, file a complaint against the attorney with the Office if Enrollment & Discipline. Then file a complaint with the FTC and the State Attorney General where you live and where the company is located.  Finally, under some circumstances you may be able to file a civil action in court citing 35 U.S.C § 297(b), which is a part of the American Inventors Prevention Act (AIPA).

[Inventors-Google]

Calvert gave the inventors some “Words to the Wise.”  First and foremost, use caution when dealing with invention promotion companies.  Be realistic with your expectations knowing that very few patents actually generate income and always keep in mind that fraudulent promotion companies prey on unrealistic expectations.  Second, make sure you get answers to the five AIPA mandatory disclosures listed and numbered above.  Work directly with your patent attorney (that you chose on your own) to get the patent protection that you need.  And finally if it sounds too good to be true, it usually is.

He ended the session with a rather profound statement that I think most inventors do not understand, in particular, those that are looking to do things as “cheaply” as possible.   He said: “You can’t afford to be an inventor if you can’t afford to protect your invention.  Patenting is the cheapest part of the process.”

With the creative genius of Cathie Kirik, who was one of the presenters on this topic, the USPTO has created a brochure for inventors that are located in the public search room at the USPTO.  The brochure is also available to practitioners.  You just need to call and request a few.  The brochure, titled “Contact the USPTO BEFORE you get BURNED!”  features a top ten list of scam warning signs.  They are:

1. Slick ads on the radio, TV and magazines.  (These are the first “hooks”)
2. Refusal to respond to your questions in writing signed by a company official.  (Legitimate companies will provide the answers in writing.)
3. Salespersons want money right away… upfront.
4. You are told to describe your idea in writing, mail it to yourself and don’t open the envelope.  (This is worthless advice.)
5. 5.  You are promised a patent search but no patentability opinion by a patent attorney/agent.  (This should be provided to you.)
6. You are guaranteed to get a patent or your money back.  (No one can guarantee issuance of a useful patent.)
7. You are advised to apply for a design patent.  (This type of patent has limited applicability to most inventions.)
8. You can’t reach salespeople or company officials without leaving messages.  (Maybe there is no real office location of company.)
9. You are told that your idea is a “sure fire” hit. (Probably every client of this company is told that so be skeptical.)
10. Refusal to provide client references or copies of forms and agreements for your review.  (Get at least 5 names to contact and show the forms to an attorney before signing.)

It is really sad to see how many inventors do not do their homework BEFORE signing contracts and handing over money.  The session on this topic at the 15th Annual Independent Inventors conference as well as the USPTO printed brochure are right on.  Do Your Homework!  Even if you are not looking to work with an invention promotion firm, if you are looking to work with any type of professional, whether you find them in the phone book or online, use your available resources and research them!  Look for reviews, positive and negative, but keep in mind that not every company can please everyone.  If you see one complaint for example  “Forms were too difficult.” or “Customer service rep was rude.” etc, that does not mean that that company is a scam.  What you are looking for are patterns; multiple complaints about “cannot get anyone live on the phone.” or “My calls or emails go unanswered.”