McKee, Voorhees & Sease, P.L.C.

At one time or another, nearly all of us have been riding in the car or laying in bed awake some night, have thought of a useful new idea or contraption, and wondered whether it might be worth some money.  Most of the time, these brainstorms remain just that, brainstorms.  Others put their ideas into action, and seek to commercially exploit their invention.  Some of these inventors, however, unwittingly become the target of scam artists who prey on them with promises of turning their ideas into big money-makers.

Two years ago, the United States Patent and Trademark Office estimated inventors are robbed of more than $200 million a year by invention promotion schemes that do not deliver on their promise.  Despite widespread efforts to educate consumers, a long list of sanctions and courtroom defeats for the companies involved, and even a new federal law, the problem appears to be getting even worse.

The U.S. Patent Office defines invention development companies, or an "invention developer" as a company or a person who is not a registered patent attorney or agent and who advertises invention development services in media of general circulation or who enters into contracts for invention development services with customers as a result of such advertisement.  37 C.F.R. § 10.23(17).  While some of these companies are honest and legitimate, many have been the subject of complaints by inventors.  For those inventors falling prey to the latter, the "lucky" ones only lose money, while the unlucky not only lose tens of thousands of dollars, but also any potential patent rights they would have otherwise had in their inventions.

Many fraudulent invention development companies offer inventors services in a two-step process:  one involves a research report or market evaluation of the idea that can cost several hundreds of dollars.  The other involves patenting or marketing and licensing services in exchange for advance fees that can range from $5,000 to $10,000.  Some companies even offer to finance the full amount to entice inventors into making a quick decision.  Unscrupulous invention development companies tell all inventors in glowing terms that their inventions are among the relative few that have market potential, and should be readily salable in the marketplace.

Sometimes the bogus invention development company will actually assist the inventor in applying for and receiving a patent.  However, the patents are often narrow or not well written, or both, or are design patents, which provide little if any real patent protection to the inventor whose need is for a utility patent.  In some cases, having a design patent or publication (even a useless one) has resulted in inventors losing the rights to their inventions, since a utility patent could no longer be filed by the time the inventors realized they had been "had.”

For inventors that fail to see the writing on the wall and cut their losses, invention development service fees grow larger as the pitch moves to invention development and marketing.  Here again, the actual services provided are minimal, such as displaying the invention at a trade show amongst a hodgepodge of other assorted inventions, or publicizing the invention in a newsletter (usually published by the firm itself.)

In an effort to protect consumers from the harms of invention development companies, the Federal Trade Commission and various state authorities have taken several sweeping legal actions against these companies, beginning with a 1994 settlement with Invention Submission Corp., one of the largest.  In the late 1990s, the invention marketing firms received the attention of Congress, who approved the American Inventors Protection Act (AIPA) of 1999.  The AIPA provided a new level of protection for inventors in requiring invention development companies to disclose, in writing, the number of positive and negative evaluations of inventions they have given over a five-year period and their customers' success in receiving net financial profit and license agreements as a direct result of their services.  Typically, however, most companies reveal this data at the last possible moment, after an inventor has all but signed on the dotted line.  According to the Patent Office, less than 3% of all patents ever make more money for the inventor than what they cost, with invention development companies having a much worse record:  less than 1/10 of 1% of their inventors ever making a profit.

The AIPA also provides means for a person to register a complaint against an invention development company with the U.S. Patent Office.  While the Patent Office does not investigate the complaints or participate in any legal proceedings against the companies, the AIPA requires the Patent Office to forward any complaints to the invention development companies, and make the complaints and responses publicly available.

Iowa has also taken steps to protect consumers from invention marketing firms with the enactment of the "Invention Development Services Act," Iowa Code § 523G.  This Act provides mandatory initial disclosure requirements of these companies, and further requires invention development companies to include certain terms in their contracts with Iowa customers.  In addition, Section 523G.10 requires the companies to file an annual registration statement with the commissioner of insurance.

Thanks to the efforts of government authorities, many fraudulent invention development companies no longer exist.  Yet, because of continuing demand for their services, others are sure to spring up and replace them.  Before making a commitment to pay these companies money and turn over control of their inventions, inventors should thoroughly investigate the companies, and any complaints that may have been filed against them.  The Patent Office (www.uspto.gov) and FTC (www.ftc.gov) web sites are good starting points in this regard.  Under the AIPA, the firms must provide the names of all companies they have been affiliated with over the past 10 years.  This information can be used to determine whether the invention development company with which the inventor is considering doing business has been subject to complaints or legal action.

The inventors should also require the companies to go on record with their answers to the questions mandated by the AIPA, including the number of inventions evaluated by the company in the past five years, and how many of those evaluations were positive.  Inventors should be leery of stories that sound too good to be true, inquire at local consumer protection agencies or Better Business Bureaus, and ask for references.


Provided by McKee, Voorhees & Sease, P.L.C., a Des Moines, Iowa-based firm specializing in intellectual property law. For more information, log onto www.ipmvs.com or call 515-288-3667.