Patent Law

Inventor Scam

By Gary Odom and Jordan Kuhn

After an 11-year court battle, the FTC has squeezed, in settlement, a $10 million penalty from Davison for running a con on patent holders. The FTC claimed the company "enticed consumers with false claims about their selectivity in choosing products to promote, their track record in turning inventions into profitable products, and their relationships with manufacturers. They also deceptively claimed that their income came from sharing royalties with inventors, rather than from the fees consumers paid."

The settlement hypothetically bans misrepresentation, and requires something approximating transparent disclosure of the company's track record.

The FTC press release:

The owners of an invention promotion operation have agreed to pay $10 million in consumer redress to settle Federal Trade Commission charges that they deceived consumers across the country. The settlement includes a cash payment of $6.9 million, plus other property valued at $3.1 million.

According to the FTC, the defendants charged up to $12,000 to evaluate and promote consumers' inventions. The defendants enticed consumers with false claims about their selectivity in choosing products to promote, their track record in turning inventions into profitable products, and their relationships with manufacturers. They also deceptively claimed that their income came from sharing royalties with inventors, rather than from the fees consumers paid.

Under the proposed settlement, in connection with providing research, patent, marketing, and/or invention promotion services, the defendants cannot misrepresent that they're selective in accepting inventors, and that they have a stake in an invention because they "work for free" and/or receive significant income from royalties. They also can't misrepresent how many consumers have contracted with them, how many of those consumers realized a net profit, or how many product licenses they obtained for consumers.

The settlement also bans the defendants from misrepresenting that they've helped inventions become products without disclosing whether consumers have profited from the product, and that they have a vast network of corporations with which they regularly negotiate licensing agreements. They also can't misrepresent that their services are necessary for consumers to license their ideas, and that they prepare objective and expert analyses of the marketability or patentability of ideas.

The settlement requires the defendants to post on any Web site or advertising, and to furnish to prospective clients, an affirmative disclosure statement that clearly and unequivocally states:

How many consumers submitted ideas within the past five years;
Of those, how many were offered, and how many signed, agreements for defendants' several services including research, presentation, and licensing services; and
How many consumers succeeded in licensing their ideas, how many made more money in royalties than they paid the defendants in fees, and the percentage of the defendants' income that comes from royalties earned from their customers' inventions.
The statement must include, in bold print, how many consumers in the last five years made more money in royalties or sales proceeds than they paid the defendants, and the percentage of the defendants' income that came from royalties paid on licenses of consumers' products.

The defendants are Davison Design and Development, Inc., formerly known as Davison & Associates, Inc., and its principal, George M. Davison III; Manufacturer's Support Services, Inc. and its principal, Gordon M. Davison, and his wife, Barbra M. Davison; and relief defendant Barbara L. Davison, who is George M. Davison's wife. The settlement ends the litigation between the FTC and the defendants.

Earlier, after a trial, the U.S. District Court for the Western District of Pennsylvania entered a $26 million judgment in favor of the FTC against the defendants, except that it limited Barbra M. Davison's liability to $8 million and imposed no liability on Barbara L. Davison. The proposed settlement will suspend the judgment once the defendants transfer cash and other assets valued at about $10 million, including residences in Fox Chapel, Pennsylvania. The cash payment includes $6.8 million specifically listed in the order, plus approximately $105,000 in interest on a cash bond. The FTC has established a telephone line for consumers who may have been harmed by the defendants' conduct. Consumers may call 216-263-3434 for more information.

The Commission vote to authorize staff to file the proposed consent order for permanent injunction was 4-0. The order was filed in the U.S. District Court for the Western District of Pennsylvania on July 14.

Full post as published by The Patent Prospector on July 20, 2008 (boomark / email).