- Court Halts Bogus Invention Promotion Claims
- May 4, 2006
- Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
A federal judge in Pennsylvania has ordered Davison & Associates, a scam operation that purported to promote inventions, to pay $26 million in consumer redress and to cease making bogus claims to lure customers. The court also ordered the company to make specific, detailed disclosures about its track record in helping inventors market their ideas.
As is typical of such money-making scams, the only ones who made money were the scammers. The FTC said that less than one percent of customers received royalties from their patents in excess of the amount they paid to the "promoters."
In a complaint filed by the FTC as part of "Project Mousetrap," the agency charged that the company used Internet ads and classified ads to lure inventors nationwide to sign up for their services. The agency charged that Davison & Associates made false claims about its selectivity in choosing products to promote its track record in turning inventions into profitable products, and the relationship it had with manufacturers. The company deceptively claimed that its income came from sharing royalties, rather than from the $800 to $12,000 fees charged to inventors.
Specifically, the agency alleged the defendants made false and misleading claims such as:
- Consumers who buy their services stand a reasonably good chance of realizing financial gain.
- Their services have helped many of their customers' invention ideas result in profitable products.
- Their services helped specific inventions become profitable products.
- They have a vast network of corporations with whom they have ongoing relationships and regularly negotiate successful licensing agreements.
- Use of their invention-marketing services is necessary for consumers to license their invention ideas.
- They prepare objective and expert analyses of the patentability and marketability of consumers' invention ideas.
The court noted that even after the judge had issued an order barring deceptive claims, "defendants continued to engage in deceptive practices, albeit in slightly different forms. 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."
To prevent those practices, the court ordered the company and its principals to pay $26 million for consumer redress and to provide any future clients with a ten-point disclosure statement to allow them to objectively measure the value of the defendants' assistance. Specifically, when the defendants highlight or advertise specific consumer products or ideas, they must disclose whether the royalties earned exceeded fees paid to the defendants. If the defendants claim they have "matched" or "targeted" an invention to a corporation, they must disclose how many submissions they made to that corporation and the number of licenses entered into with the corporation over the past five years. The judge further required the defendants to disclose that the "Pre-Inventegration" and "modeling" services they sell to inventors are not necessary to achieve licensing agreements and that they disclose that they are not providing consumers with objective or expert opinion of marketability or potential commercial success. The court also established record-keeping provisions to allow the FTC to monitor compliance with the order.
Significance: Americans have long been enamored of the idea of inventing something that will make them a mint, and the defendants, operating a typical invention promotion scam, preyed on that notion. The FTC's announcement emphasized that this enforcement action is just one of a number it is pursuing as part of "Project Mousetrap."