Wednesday, April 11, 2012

How to Spot an Invention Promotion or Sales Scam

Spotting an Invention Scam isn't hard.   There are usually tell-tale signs.

Note:  This is a cross-posting from my Patent blog.  It is a long article, but discusses a lot of IP related scams, including sales scams.   Anytime someone asks for money-up-front, beware!

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Not a day goes by, it seems, that I don't get an e-mail or phone call from an inventor asking if a particular invention promotion or sales company is fraudulent.

It is hard to answer specifically about a specific company for several reasons:

1. Companies change names on a regular basis to avoid bad reputations, so "Inventomatic Partners, Inc." might morph into "Gee-Whiz Inventco LLC" within a month or so.

2. The larger and more successful companies (in terms of making money for themselves, not you) tend to sue anyone who says anything negative about their company. So offering opinions about any particular company is just not worthwhile.

3. The nature and extent of the schemes they use vary and change over time. As authorities crack down on one type of activity, they morph their scheme to something which, while not against the law, is certainly not a good bargain.

4. Often what they are doing is merely overcharging for inferior services - which is not against the law in this country. If it were, GM would be bankrupt. OK, that is a bad example. But selling an inferior product or service for too-high a price is not illegal.

For that last reason, please note that when I say something is a "scam" or a "con", I mean that it is not necessarily illegal, but merely a bad bargain.

How can you protect yourself from invention scams? Well, using common sense is the first step. Don't let your enthusiasm for your invention blind you to obvious schemes. If it sounds too good to be true, it probably is.

How do you spot a come-on invention company? Well, first, understand how such schemes have worked in the past - often in many different arenas - and how they work today. It is an old con and used for many years in many different venues.

Invention Promotion and Invention Sales companies (and they are different, I'll explain later) have relied on the same model used to get people to part with their money over time - they promise to sell something you have, for what seems like a relatively small fee. You are eager to sell it, so you are blinded to the money aspect of the transaction. They make verbal promises and are very enthusiastic about your item. It all sounds too good to be true - and often is.

A Short History of Sales Scams:

Preying upon other people's dreams and hopes and wishes seems somewhat morally repugnant - and it is. But they do it - and they get filthy rich.  And in most cases, it is not illegal.

For example, Grandma writes a biography of her life on the farm in Indiana. While it is a nice book, not many folks even in her home town want to read it.  She isn't about to become the next Pulitzer Prize-winning author.

She sees an ad in a magazine from an impressive-sounding company that says that publishers are eager to find new authors!  She sends them a letter with a Self-Addressed, Stamped Envelope asking for more information.  A slick brochure (or letter on impressive letterhead) comes in the mail, and they offer to consider her manuscript, for a nominal fee of $100 (a lot of money in 1950).

She sends it in with her hard-earned savings and a week later they call her (or write) and say what a great book it is, and how it will make her rich, as readers across the nation will want to buy her biography of life in a small town.  They can get a publisher for her - they know someone perfect for this material - if she will sign the enclosed contract and send in $500.

Well, you know the rest.  She sends in the $500 and nothing happens.  Well, they might send letters to publishing companies, just to make it appear legit.  But the publishing companies know the score with these con-men and toss their letters in the trash.  The publishing companies have their own editors, readers, and scouts, and they don't need, want, or use information from the outside.

Months or a year later, the company sends a letter to Grandma saying "Gee, we're sorry, but we could not get interest in your book (and thanks for the money, by the way)."   Too late, Grandma realizes she has been had, a foolish old lady who has squandered away some of her savings to pursue a vanity project.  She knows that if she mentions this to anyone in her small town, people will ridicule her and make comments behind her back.  Her children will think she is becoming senile and perhaps put her in the home.   No, it is better to bury her shame, and put "Life in Small Town Indiana" up in the attic or donate the manuscript to the local library.

The shame factor works to the advantage of these types of cons.  There are basically two ways (well three, actually) to silence the victims of your cons.  The first is to make the "Mark" believe that they are the ones doing the scamming (or doing something illegal).  The Nigerian scammers use this one - getting their Marks to believe they are illegally laundering millions of dollars.   Who would go to the Police after that?  "Gee, Mr. Policeman, I was going to get in the money laundering business but got conned instead!"

The second, used by the invention promoters, is shame.  Many inventors become euphoric about their inventions early on, and have an almost religious-like fervor about them.  It is not hard to stoke these fires early on with encouraging advice.  Later on, after years have passed and the invention has not succeeded, they may feel let down.   And if they have handed over tens of thousands (or mere thousands) of dollars to an invention promoter, they feel too ashamed to admit it to others.  The few people who do complain should be commended for their courage.  But in reality, they are often mocked for their perceived stupidity.

The third way, of course is intimidation.  Some invention promoters have made examples of people who post complaints on the Patent Office website or complain to the BBB or post anything online. They file frivolous and time-consuming lawsuits in an effort to silence the people raising the alarm.   The effect is to scare people into silence - not only the people involved, but others as well.

As I noted earlier, there are two related scams with regard to Patents and intellectual property.  The first is the SALES SCAM, which is a time-honored scam like the one outlined above, where the con artist offers to sell your intellectual property for an up-front fee.  The second is more involved and includes Invention Promotion, Evaluation, and Patenting Services.  The two are related, but I will address them separately.

SALES SCAMS: These generally ask you for money up front to sell an item.  These scams have been around for a long time, and have morphed into new scams as of late.  These are not the "big" rip-offs like the invention promoters, which I will discuss separately.  They usually ask for less than $1000 and offer to sell something of yours.   Here are some I am aware of:

1. The Book Publishing Scam: Outlined in the example above. We'll find a publisher for your book for a nominal fee. Send them money and nothing happens.

2. The Poetry Scam: Similar, but they tell Grandma her poem about kittens and flowers is so great it will be published in their national poetry book - if she agrees to buy 10 copies for herself and her friends for $50 a copy.

3. Time-Share Resale Scam: They ask for $500 to advertise your time-share or to find a buyer for it. They put an ad in a publication which may or may not get wide distribution.  No one buys (Time-Shares are a ripoff to begin with) but they will keep the $500, thanks.

4. The Great Wall of Sound: See the movie by the same name.  "Record Promoters" go from town to town, promising starry-eyed musicians a chance at the big time - if they pony up a few grand for "recording expenses".  They take the money and then leave town.

5. License your Patent: You get a Patent, and your name and address are published in the electronic records of the USPTO.  You start getting form letters from companies saying that for a few hundred dollars, they can sell or license your Patent.  You send them money, they prepare and mail a brochure (or send you the brochures for you to mail yourself).  Nothing comes of it, but they keep the money.  You could create an mail your own brochure for far less.

6. Car/RV/Boat sales:  NEW for 2009!   This is an extension of this scam in time for the recession. Sales of used cars and particularly Boats and RVs have tanked in the last year.  You put an ad on Craigslist or in Autotrader or Boattrader and you get an illegal robo-call from a company offering, for $500, to market your "vehicle".  They claim that not only will they sell your vehicle, but get over book value for it - and line up financing for the buyer.  Again, the marketing services are limited, the cost far over-valued, and no results come of it.

So you can see, these sales scams are not limited to Patents, but can be applied in any situation where someone has something they want to sell, but don't have the connections or means by which to sell it.  Patent licensing is just one example of this trend.

Con-men?   Fraudsters?  Criminals?   Not really.  Just people selling services that I think are overpriced.  In America, that is not illegal or even considered immoral.  If it sounds too good to be true, it probably is, I'm afraid.

And overpricing things is not illegal.   I use a virtual fax service, Maxemail, that costs me $16 a year.  A competing service, eFax, charged nearly that much a month.  Is eFax a scam?  No, just wildly overpriced, in my opinion - by a factor of 13!   They advertise more heavily and thus gain customers. Other services, that are harder to find, offer the same service for less money.  You just have to know where to look - you have to educate yourself and not click on the first advertisement you see on Google.

How do these guys do it?   I think perhaps that they may have started out as legitimate schemes, but then didn't work out.  They realized, like the characters in Mel Brooks' The Producers, that there was more money to be made in failure than in success.  Even though they rarely, if ever, successfully marketed an invention, sold a time-share, a car, a book, or whatever, they end up raking in money.   In fact, a successful invention would be difficult for them, as they would not know how to go about the messy business of licensing or producing the product.

It is the same old, same old.  They ask for money up front, promising to sell your invention/time-share/condo/book/poem whatever, and then promise to use "best efforts" to do so.   Under the law, "best efforts" means nothing.   Getting out of bed in the morning could be considered "best efforts".   It is not an enforceable contract, in a practical sense - unless they use no efforts whatsoever.

In most cases, companies like this take a copy of the Patent and mass-mail it to a mailing list of companies and then say "Gee, no interest, sorry. But we'll keep the money."  In some cases, they will call back near the end of the contract term and say "Gee, no interest yet, but we have some nibbles. Want to extend the contract for another 6 months/year/whatever?" and then they take a second bite at the apple.  These types of companies prey upon inventors, who want to see their inventions succeed.

Few are legitimate.  The only legitimate ones do not ask for money up front, but rather want only a percentage of royalties.  And you are not likely to find them from a mass-mailing sent to you using data harvested from the USPTO website.  You will not likely find them calling a 1-800 number from an ad in the newspaper or on TV.

Invention sales companies, like the other sales companies listed above, usually ask for only a few hundred dollars, so they are not hurting people in a big way.  But they do rake in the dough, over time. The big money is in what some call Invention Promotion Companies.  They differ from Invention Sales Companies as follows.

Invention Promotion Companies: Invention promotion companies are slightly different from the Patent sale or licensing companies.  The Patent sale companies merely offer to prepare a brochure and mail it out - nothing illegal about that, they just charge a hefty fee to do it.  Invention Promotion Companies tend to take the whole concept a step further - and charge a lot more money to do it.  In this regard, they have run afoul of the law on occasion.

These companies offer to do invention evaluations and then offer to obtain Patents for their "clients".  The evaluations are boilerplate (often from a form letter) that always conclude that the invention will be wildly successful.  The Patent obtained is usually a worthless Design Patent or a narrow "Picture Claim" Utility Patent.

Unlike the licensing and sale companies, they ask for thousands (not hundreds) of dollars - often $5000, $10,00, $20,000 or more.   By venturing into the legal field, they gave the authorities at the Patent Office and other agencies a foothold for prosecution.

But even then, prosecution of these companies has not been very successful.  For every one company shut down, others pop up.   For every Attorney suspended, another takes his place.  They change their strategies and tactics to suit the attacks they are under.   Like the Invention Sales people, much of what they do is not necessarily illegal - just wildly overpriced.

For example, one company I ran into offered invention evaluation services.  For thousands of dollars, they offered various packages of invention evaluation, including determining your U.S. Census Bureau industry designation.  Why this information is useful (to anyone outside the Census bureau) is beyond me. And you can find it free, online, on the Census bureau website.

A company licensing your Patent doesn't care what your Census Bureau industry designation is - and the information is hardly useful to you either.  But for $1500, they'll tell you what you can find on a governmental website in 20 minutes.

The bottom line, is they charge a lot of money for services they pay little for, and pocket the difference. They rely on your lack of knowledge about Patenting and Licensing to take advantage of you.

How Can I Spot A Scam?

Well, the best way is to use your own Judgement.  Anyone who asks you for money up front in a way you can't recover should be scrutinized.  It is nearly impossible to recover, as a practical matter, using legal means (courts, lawsuits) amounts less than $50,000, particularly for an out-of-State entity.  Thus, when you send money to someone for services, you had better have some way of getting it back if they don't perform . Once you send the money and they don't perform to your satisfaction, it may cost more to file suit than the amount of damages - and because of the nature of "best efforts" contracts, you likely won't win.

Here are some typical warning signs of an operation that is an overpriced scam:

1. The name "invent" or "invention" is in their company name: This is not determinative, of course, but most of these companies have catchy names with invention or innovation in them - or innovation or some variation.

2. They ask for lots of money up front: Here's the big deal.  The really egregious companies charge thousands of dollars for "invention evaluation" services and also promise to obtain Patents and "market the invention to industry".   The typical take is $10,000 to $20,0000 and they usually obtain worthless Design Patents or picture-claim Utility Patents.

3. Their prices are amazingly flexible: Can't afford $20,000?  Suddenly a package is available at $10,000 - or $5000 or even $3000.

4. They can call you, you can't call them: They call you, usually in the evening.  But it is hard if not impossible to call them back and reach anyone other than an answering machine or service.  Where do you think this relationship is going down the road when you need to contact them?

5. They send unsolicited letters or make unsolicited phone calls, send SPAM e-mail, robo-calls, or other questionable, if not illegal forms of communication: In the case of the latter, do you expect the relationship to go uphill?   Spam and junk mail are annoying. Letters faked up to look like official government documents are deceptive.  Just say "no" to ANYONE who tries to start a business relationship through trickery.

6. They promise things on the phone verbally that are not written down in the contract: You should always read any contract you are asked to sign.  If someone makes a verbal promise, ask where it is in the contract.  If it ain't there, it ain't there, period. You have no one but yourself to blame for broken verbal promises.

7. The contract promises to use "best efforts" to promote the invention: As noted above, such clauses are not really enforceable unless they use no efforts whatsoever.   Under the law, "best efforts" means nothing.  Getting out of bed in the morning could be considered "best efforts".   It is not an enforceable contract, in a practical sense - unless they use no efforts whatsoever.

8. They have a very slick-looking website that is actually very short on real content (lots of impressive sounding but vaguely worded paragraphs, slick graphics, etc.): Anyone can put together a website and throw in some fancy graphics.   The key is to look for real content, not just generic boilerplate.  Evasive language is a real tip-off.  They tout success stories, but you try to find out more about them, but get no real hard data.  If you can't distinguish between fact and fluff (many cannot!) you will get taken in a lot in life.

9. They advertise heavily on radio, TV and other media: Just because something is advertised on television does not mean that the network has investigated and vetted it.   Don't fall into the trap of "it was advertised on TV, so it must be legit!"  Many prestigious magazines and newspapers take ads from questionable sources.  Have you seen the ads in the back of the Smithsonian for "collectibles"?   It really is shameful.  But it is your own fault if you can't figure out the "The Official Gov't Mint, Inc." is not part of the real U.S. Government or Mint.

10. They offer a money-back guarantee: This sounds like a good deal, but in reality it is just a way of trying to get you to part with your money.  Such guarantees are nearly impossible to enforce.  They risk nothing by offering it, so don't fall for it.   To collect on such a guarantee, you'd have to sue them.  A lawyer would charge you at least several thousand dollars just to file suit.  Chances are they would just fold their tent and reincorporate elsewhere.  Since it is a best efforts contract, your suit would likely fail anyway.   Money back guarantees mean nothing at all.

There are other ways of investigating Invention Promotion or Sales companies. Ron Riley has a "watch list" of invention promoters, but I am not aware of what criterion he uses to put companies on this list.  Some companies that I think should be on the list are not.  Perhaps some on the list shouldn't be.   I cannot endorse it one way or another.   But it is a good research tool to get you to ask questions.

Magazines like Inventor's Digest generally (in the past) accepted ads only from "legitimate" invention marketers and Patent Agents and Attorneys.  But since it is very hard to determine what constitutes "legitimate", an ad in that magazine (or any magazine, for that matter) is no guarantee of anything. The magazine recently changed owners. (Note:  This magazine changed owners recently.  I no longer recommend it).

Organizations like the United Inventors Association also provide endorsements for companies.  But a company that provides Invention Selling services (but is never successful at it) could be endorsed by such organizations.  A 0% success rate is nothing to write home about.  For that reason, I am not sure it is possible for an inventor group to "police" such companies or certify them.  I am no longer a member of UIA.

The Better Business Bureau, as I have noted in the past, is worse than worthless.   While a laudable idea, it is funded by businesses themselves.   If a company has a "no complaint" record, it is given a clean bill of health.  This could mean that the company has reincorporated over and over again (and thus has no track record).   It also could mean that that they have intimidated or forced people into settling complaints. It also could mean they are a good company.  You really can't tell from their ratings.  Also, some fraudulent companies will tout their record with the BBB, knowing it is horrible - and also knowing you'll never bother to check!

The Patent Office maintains a complaint site for people to post complaints about invention brokers.  Again, many have been harassed for posting to the site.  And the presence (or absence) of a complaint is not necessarily determinative.  Note that many of the larger companies SUE people who speak out about invention promotion, so many folks do not complain or withdraw their complaints.  Many more are cowed into silence.

But your best defense is your own skepticism.  Ask pointed questions, and if you don't get straight answers, ask yourself - why?

For example, the Inventors Protection Act requires invention promoters to state their success rates. Most have success rates under 1% and cannot readily point to any specific success story.   The fact that an invention was developed, marketed and sold is not a "secret", so don't believe it when they say they cannot tell you do to "confidentiality" concerns.

The invention SALES places claim not to be bound by the Inventors Protection Act, as they do not evaluate inventions.  But again, you'd think they'd want to tout their success rate like all get-out, wouldn't you?  After all, that is the best advertising there is, right?  Yet strangely, many have no success stories at all on their website.

(And, just in case you are asking,  I do have some success stories on my website.  I cannot take credit for them, though.  I just wrote the Patents and in some instances helped negotiate licenses.   Patents I have written have been licensed, sold, or litigated by Corporations and Private Individuals for millions of dollars.  Success or failure of an invention depends on the merits of the invention, however, and one reason my success rate is higher than 1% is that I try to turn away dreamers and people with unrealistic expectations).

Hey, but wait, Patent Attorneys ask for money "up front" (as retainers). Are they con-jobs as well?

Well, some Patent Attorneys have been known to go rogue and try to con people out of money.  However, since a Patent Attorney is licensed both by the State and the United States Patent Office, they risk losing their livelihood if they "rip off" a customer.

Most Patent Attorneys do not ask for ALL the money up front, but merely a retainer.  So you are not likely to be out as much.  Legal debts are the hardest to collect, so if you run up a bill with a lawyer, they may have a hard time collecting from you.

You can also shop around and compare prices for attorneys - and you can change attorneys as well. You have a lot more flexibility and control over the process.

It costs little or nothing to file a complaint against an Attorney, either with the State or with the USPTO.  But it can cost the Attorney a lot of time and money to answer such a complaint.  You have a powerful weapon at your disposal, if you feel you have been wronged.

Invention companies do not have this weakness.  Even if sued, they can simply declare bankruptcy and reopen under a new name in a new town . They have little in the way of attachable assets and have little to risk from the legal system.

A legitimate Patent Attorney will only promise to write and prosecute a Patent for you.  He will not guarantee to get one for you as many invention brokers have done in the past (guaranteeing a legal result is a breach of State ethics rules).  A good Patent Attorney should discourage you from even trying, frankly - or at least honestly assess you of the long odds.  Invention Broker companies rarely do this and in fact play cheerleader for your invention, rather than provide a brutally honest evaluation, which a Patent Attorney (a legitimate one) should do.

Why Do People Become Invention Promoters?

The simple answer is MONEY and tons of it.  You might not think it is that lucrative a deal, but you can make tens of millions of dollars at this.

For example, one company, when raided by the FBI, had over 3,000 worthless Design Patents pending at the time of the raid.  They charged an average of $10,000 for their "services" which comprised a superficial search, a Design (not utility) Patent, and the bogus "marketing" - all of which cost them less than $1000 per client.

So $10,000 and 3,000 clients = 30 MILLION dollars.  Not a bad haul.  Think about it - they are charging the equivalent of the price of a new car, without actually doing anything other than generating a small amount of paperwork and making a few phone calls.

The Patent Sales people charge only $1000 per client.  For 3,000 clients, this might amount to 3 million dollars.  Still not a bad haul.  Over 50 years, you could make a good living at it.

Why Haven't YOU Become an Invention Promoter?

I would have made a lot more money if I went over to "the dark side".  In fact, I had more than one opportunity to do so.  One firm I was with took on a secret representation of an invention promoter when they got into legal trouble.  I served my notice then and started my own practice.

It is not hard to start an invention broker or sales scam.  You hire a clerk and secretary to produce the "personalized" letters and do the advertising brochures.  It becomes a machine that just cranks out money.  Your only real expense is advertising.

It is a lucrative business.   So why not do it?   Well for me, there were numerous reasons, including this pesky morals thing.  I like to sleep at night.  Also, many of these shady characters end up in legal trouble (and many fight it and win).  Some older players are, at this point, largely immune.  Newcomers to the business end up getting hassled by the law - which in effect protects the older players in the business - ironic, isn't it?

It is interesting to see how many of the people in the invention broker or sales businesses seem to crave acceptance or recognition as legitimate businessmen.   On one website, one touts his civic accomplishments.  It is interesting to say the least.  Perhaps the people at the Country Club still snub them?   I think so.

People who have a desperate need to be successful - at all costs - often have troubled backgrounds.  I have worked for such men, and they tend to follow a pattern - impoverished childhoods, being snubbed by society due to racism or other prejudice.  Perhaps abuse at the hands of their parents. Becoming wildly successful and wealthy is a way, perhaps, of putting that all behind them and getting revenge.  Perhaps.  But what I've seen is that they are rarely, if every, happy once they get all that stuff.  They sit alone in their mansions, their families shattered, their children not talking to them (or refusing to move out of the basement).

I've never been "jealous" of the rich, perhaps because I grew up in places with lots of wealthy people (Greenwich, Connecticut, Lake Forest, Illinois, Cazenovia, New York) and they all seemed to me to be very miserable people.  Money does not equate to happiness, particularly when it is achieved at any cost.  Now granted, the opposite is not true - poverty does not make one happy either.

Human beings are programmed (literally, our brains are little more than trained Neural Networks) to enjoy working.  There is nothing more satisfying that working at a task which is difficult enough to be considered work, but not so hard to be unsolvable.  You approach a task, find the problem, figure out a solution, and create something new.  Whether it is repairing a car or figuring out a way around a 103 rejection, the reaction in the brain is the same.  Your brain rewards itself when you work and do well. It punishes you (through depression) if you are just laying about.

Lottery winners are rarely happy.  Laying around and doing nothing of value is fine for short periods of time (or as a reward for hard work), but over a lifetime, it could be damaging.  The Invention Brokers of the world (and other con-men) might like to show off their acquired wealth and try to convince you they are successful and happy.  But it is, in the end, a hollow existence, and they know it.

And they may try to tell you otherwise, but don't believe it for a second.

So How Do I Spot an Invention Promoter? How Do I Protect Myself?

To some extent, you can't do either.   Let's face it, if you are the kind of person who is inclined to get corralled into these types of cons, you are not going to listen to anything I've said here or be dissuaded from going with an invention broker.

I once had a potential client call me and ask about XYZINVENT company.  I spent 20-30 minutes with them on the phone and discussed the invention with him, the pros and cons of Patenting, and the nature of invention brokers.  While on the phone, I found a reference that was "spot on" to his invention and e-mailed it to him, free of charge.

P.T. Barnum was right, the Marks don't value something unless they pay for it.

He called me back the next week and said that XYZINVENT company told him his invention was great - and that he would get a Patent and make millions.  He chided me for being "unduly pessimistic".  He read me the riot act!  I again explained to him how invention promotion companies worked and told him to be careful sending anyone that kind of money up front.  He ignored my advice.

Two years later, he called me and said that XYZINVENT company had "ripped him off" and WHY DIDN'T I WARN HIM ABOUT THEM???

At that point, I stopped feeling "sorry" for people caught up in invention promotion schemes.  You can't help them.   In fact, trying to "help" people is something fraught with peril.  It never pays to be altruistic, and in fact, there is something somewhat evil about altruism in general.

People should look after their own interests, period.  Yes, if you see someone driving their car off a cliff, you should shout "hey, look out for the cliff!".   But if in response, they give you the finger, well, nothing to do but watch them crash and burn.  Bring marshmallows.

We all have to look out for our own interests, I'm afraid.  You can try to warn people about scams and schemes but the fact is, there will always be someone falling for them and there is not a lot you can do to stop them.

Use your common sense, and Good Luck!

Post Script: I recently came across this link, which discusses how our friends, the Nigerians, are getting in on the act - posing as Japanese Patent investors who will buy your Patent for millions of dollars, provided you hand them over a $15,000 "processing fee".   Do people really fall for this sort of thing? Apparently they do.  A real licensing agreement is rarely paid in cash, rarely paid up front, and never asks YOU for money first.