Tuesday, December 8, 2020

Best Efforts Contracts - Worthless!


Suppose you contracted to have your portrait painted and this was the result.  Could you sue?

I mentioned before, many years ago, about invention brokers.  They advertise on television, convincing people that their clever ideas are going to make them millions.  All they need to do is send them $10,000 and they will "get them a Patent" and "market their invention to industry!" $10,000 later is an unenforcable Patent and not much in the way of marketing efforts.  One such company, when busted by the FBI and FTC had over 3,000 worthless "Design Patents" (which cover the shape of an object, not its function) pending for its "clients".   Do the math on that, - $10,000 x 3,000 is thirty million dollars.  This isn't some small-time grift.   I'm surprised Trump isn't in on this.  Oh wait, one of his appointees was.

So how do they get away with this?  Year after year?  Even after several investigations by the FTC - one of which I testified in.  Bear in mind that the company I mentioned above was only one of dozens out there.  You can see the size of the scam - taking thousands of dollars from thousands of people every year, and raking in millions.   But how can you get your money back?  Well, you can't, as I noted in a recent posting.

You see, the term "worthless Patent" might mean something to me and other Patent attorneys who would look at the claims of the Patent and quickly determine that the scope was so limited as to be useless - or that it was a Design Patent that only covers the "ornamental appearance" of an object, not its functionality.   But try explaining that to a Judge who has no background experience in Patents - as I tried to do.  They give you a bored look and say, "this is just a fee dispute, not fraud!"

Think of it this way.  I show you the title deed to a house - can you look at it and determine whether it is correct?   Maybe, maybe not - they contain a lot of "legalese" which is to say, specific language adopted to describe how a property is described in its "metes and bounds" - just as the claims of a Patent describe the metes and bounds of your intellectual property.  And even lawyers get this wrong.  Almost five years after we closed on our Jekyll Island property, we got a call from the lawyer saying that they made a mistake in the deed recitation - apparently we theoretically owned our neighbor's property, not ours.   He missed it, and he's a real estate attorney with 30 years' experience.  I missed it, and I'm a lawyer, too - but not a real estate lawyer.

They fixed the problem with a new deed, which the previous owner (who was a real estate agent) signed, and it was all fine.   But it is a good reason to get title insurance - an owner's policy, not just a lender's policy.  But even if you don't have that, you have a "cause of action" against the lawyer, who in turn has malpractice insurance to cover such scenarios.  Although, as noted here, there was no  real problem as the previous owner signed a new deed.  They would be hard-pressed to claim the house back, as they also signed a sales contract, which also provides a cause of action against them, if they tried any shenanigans.   So don't sit up all night worrying about this - there are layers of protection here.

But, if you hand over $10,000 to an invention broker, well, there isn't much you can do to get it back.  It would cost you more than that to sue, and you would be hard-pressed to win such a suit.  Not only would the Judge not be able to discern what is and is not a "worthless Patent" the contract never specified what kind of Patent or what it would be worth.   So that makes it hard to enforce.  (In the case I testified in, we went after the attorney for breaching his duty to his client, as he communicated with the invention broker and not the inventor).

But what about the marketing efforts that went nowhere?  They basically put out a one-sheet flyer with a description of the invention, and then mass-mail it (along with hundreds of others) to various companies, or they post it on the Internet.   As you might guess, this doesn't result in any call-backs or interest.  It is a half-hearted attempt, and that's all they need make, as the contract specifies only that they use "best efforts" to promote the invention.   Sounds like a binding term, but you have to go to law school to learn that "best efforts" means little or nothing - I got out of bed this morning, that was the best I could do.  End of story.

The law is weird this way.  In contracts, you may see these "consideration" clauses, "in consideration of $1.00 hereby received, I hereby... blah, blah, blah."   Why do they put this in a contract, even if you never give or receive this mythical dollar, and whether or not the actual dollar amount involved in the contract is, in fact, far more?  It is a "consideration clause" inserted into the contract, because arcane contract law stipulated that a contract is invalid without a recitation of "consideration."  And as Professor Pock taught us, "consideration is more than a mere peppercorn!" - but a buck never paid, apparently works.

The law abounds with such traps.  In Trademark Law, you cannot assign rights to a Trademark without transferring the "underlying goodwill of the mark" in the contract.  Trademark law is not merely buying and selling words (tell that to the new generation of Trademark attorneys, though)!  No, we are buying and selling this mythical "goodwill" which is merely a recitation of words in a contract.

Wills are a similar thing.  If you give your sister $5 in your will, she doesn't have grounds to sue the estate for more money (well, hopefully, anyway).   But if you don't mention her at all, she can argue that you "forgot" to mention her in the will, and thus has grounds to invalidate the will.  Again, this is a stupid technicality that has been handed down over the ages, and perhaps less important today. Nevertheless, it is not a bad idea to throw a few dollars at immediate family members, lest they challenge your will after you die.

It is these sort of aspects of the law that gets lay people pissed-off.  There should not be secret codes in the law or secret words that need to be incanted in order to succeed on the merits of a case.  And often, cases with merit are discarded as a result.

Going back to our hypothetical, suppose you hire an artist to paint your portrait, for $5,000, and the end result is as shown above?  Can you sue them to get your money back?  Well, again, there is the issue of attorney's fees, which may make the entire thing moot. Even small claims court can be problematic, as even if you "win" you still have to collect, which from a "starving artist" may be hard to do.

And let's face it, art is subjective.  You can argue the portrait above is something a child would draw, or on the other hand, some sort of edgy new-wave art form.  We have Andy Warhol pictures of soup cans (which may not have even been created by him, personally) fetching thousands, if not millions of dollars.  Jeff Koons puts vacuum cleaners in glass boxes (which we know are not created by him, personally) and sells them for millions as "art" - apparently the joke being part of the performance.  So good luck getting someone to say, "this is good art" or "this is bad art" as the term is subjective.

If the contract stated that the artist would use "best efforts" to create your portrait, the things are even worse.  As noted before, what constitutes "best efforts" is so vague that it means nothing.   If you see a contract with a "best efforts" clause in it, chances are, you are being scammed.  Because it is akin to writing a contract that says, "I may perform on this contract, or I may not, and you have no recourse to sue, so there!" - and you wouldn't sign such a contact, would you?

If you sign a contract to have a new roof put on your house, you want a contract that says the contractor will put a new roof on your house, not use "best efforts" to attempt to roof your house.   He either is going to do the thing or not, there are no "best efforts" involved.   Best efforts usually is applied only when the service provided is something that is indeed subjective, and as a result, maybe some more defined term would been needed, to make the phrase less subjective and more objective - e.g. spelling out what is to be done, and to what standard (industry standards, for example).  In absence of any particular definition, though, the term is meaningless.

Commerce is based on trust.  At some point in every transaction, there is a period where one party has been given the money, and the other the goods, and the transaction is not quite consummated.  Kurt Vonnegut wrote about this, and noted that a clever lawyer can insert himself at this point, take a lion's share of the money, to the blubbering thanks of the recipient.   He was being sarcastic, but it has a note of truth to it.

I bought a truck and wrote them a personal check.  They put temp tags on it and I drove it home. I could have written a bad check or put a stop-payment order on it (they checked my bank balance, first, of course). They could have kept the check and not given me the truck. There is a period of trust involved, where the check hasn't quite cleared yet (and indeed, as we learned in Commercial Paper a check can be "backed out" months later!) and the title hasn't been processed by the DMV.  At that point, they don't have the money, and technically, I don't own the truck.  All we have is a piece of paper known as a contract.

And the contract is enforceable because they are an established business with a fixed address and attachable assets.  They also have some interest in maintaining their reputation, as they don't want it getting around that they steal money from buyers.   But for some fly-by-night operation, headquartered overseas?  No such restrictions apply - which is why it is never a good idea to do business with such folks.

There are also people - grifters - who just don't give a shit about their reputation. Donald Trump created this stupid "Trump University" and scammed his followers out of tens of thousands of dollars, each.  He was sued, of course, and he paid a few million to make the whole thing go away - he probably still came out ahead in the deal.  Again, it is hard to "prove" with 100% certainty that the courses offered were entirely worthless.  And he knows that, so he settles and moves on.  Sadly, this is the nature of the law - bad people often get away with bad things.

Those with a Justice Boner think this is an outrage - and perhaps it is.  But it is an outrage that is hard to correct, other than to encourage people not to do business with shady characters.  Stop being a true believer.  Stop handing over money to the evangelical mega-church, Scientology, or the latest MLM scheme your friends are pushing.  Stop being a chump.

Maybe I used to have a Justice Boner, but I realized, over time, that going after "the bad people" only works so far.  The folks "ripped off" by the scam artists are often willing participants, and if you try to educate them, they shout you down.

I mentioned before a potential client called me on the phone asking about an invention broker.  He had read an article I had written about them, and was concerned he was being ripped-off.  He was.  Over the phone, he described the invention, and I went online as we talked and I found five Patents already issued on the same invention.*  I e-mailed these to him and explained that it would not be possible to get worthwhile protection for the invention, as others had already obtained Patents on every aspect of it and moreover these Patents described the invention and thus the invention was already "known in the art."  You can't get a Patent on something that was already invented by someone else, even if they never Patented it!  Moreover, if five other people came up with the same idea and it wasn't already on the market, chances are, it wasn't a marketable invention.

He thanked me and asked me how much I owed him and I said, "no charge" - happy to help someone avoid being conned.  Anyway, a few weeks later he calls again and says I am full of shit.  The invention broker said his invention was great!  And he could still get a Patent (likely a worthless Design Patent)!  They have well-honed persuasion skills and countered everything I said with nonsense arguments that sounded legit to a lay person

I told him again how these folks worked and suggested he look carefully at the Patents I sent him.  I should have charged him $500 for a "Patent Search and Patentability Opinion" as maybe he would have taken my advice more seriously.  P.T. Barnum said it best (and I think Heinlein parroted it, in If This Goes On) that you have to charge the suckers something or they don't value it.  No one takes anything that is free, seriously.

The story doesn't end there.  Several months later, he calls me back, outraged that he has been "ripped off" by the invention broker and why didn't I warn him these folks were crooks?   I pointed out that I did warn him, but he would have none of it.   It wasn't enough that I told him the truth, apparently I didn't tell the truth strongly enough for it to sink in.

I realized right there that you can't save people from themselves.  You can't convince a "true believer" of anything.  You can't tell an MLM convert it is a scam - they have to figure it out for themselves, after squandering hundreds, if not thousands, of dollars.  You can't dissuade someone from handing over 10% of their pre-tax money to "Pastor Cash-Flow" or the Church of Scientology or whatever - they will just push back.  You can't "fix" people or try to help them, if they resist help.

And besides, who is going to help you?   I see online, forums of people who want to "help" friends and family avoid these financial traps.  "How do I talk my friends out of joining an MLM scheme?" they ask.  At the same time, they are carrying a credit card debt from month-to-month, and just leased a new car.  Maybe it would be a better idea to fix their own house before attempting to salvage their neighbor's?

There are so many pitfalls for the unwary.   "But the contract says they will use best efforts!" the victim cries, not realizing that this basically means less than nothing. "But they offer a money-back guarantee!" another says, not realizing that a guarantee means nothing if the person making the guarantee simply refuses to give you your money back - which means all you have is a contract claim, and as we have seen, such contracts are hard to enforce in court, when the amount in question is less than the lawyers fees involved.

So, how does one avoid these scams?  Well, in part by going for more simple transactions.  The more complicated you can make any transaction, the easier it is to rip-off the consumer.  I hand you money, you hand me goods - that is as basic as it gets.   It helps to do business with someone who comes recommended by people you know (not some online shill site).   It helps to do business with a company that has a physical presence and a local reputation.   This is not to say you will never get ripped-off this way, only that it is less likely.   Because yea, that MLM scheme is "highly recommended" by your friend who is trying to sell you on it, and they do have a national reputation (even if it somewhat odious).

But there are warning signs to look for.  And one of them is a "best efforts" clause in a contract.  If you see that, you should re-think the whole deal, as it may be a sign of fraud.  At the very least, it is a sign that that particular clause of the contract is utterly unenforceable and you should be aware of that going in.

* * *

* A reader asks, "how can there be more than one Patent on an invention?"   The answer is multifold.  A Patent comprises three parts - the Specification, the Drawings, and the Claims.  The Specification and Drawings teach how the invention is made and used, and this is required under 35 USC 101 to get a Patent.  In exchange for tell us how the invention works, you get this limited monopoly - but on what?  The Claims set forth the metes and bounds of your invention.  And what you claim determines how enforceable and valuable the Patent is.  Suppose your Patent describes a novel computer system that could be worth billions of dollars - but the claims are only directed to a minute feature of the power supply?  Unless someone copies the power supply,  you can't sue them over the computer design.

And that is what these invention brokers to - get worthless Patents.  They put every feature, even trivial things, in to the main claim.  In order to infringe the Patent, a would-be infringer would have to copy every single feature in the claims.  By leaving one thing out, he avoids infringing - and since so many of the claimed features are not necessary to the functioning of the thing, it is easy to avoid the Patent.  Meanwhile, the Examiner allows the case, knowing the that scope of the Patent is so narrow as to be useless.

We apply Patents as "Prior Art" to reject the claims of a pending application as being not novel under 35 USC 102 or "obvious" under 35 USC 103.  We used Patents as "Prior Art" but any publication or public use would do as well. The only reason the Patent Office favors using Patents to reject applications is that issued Patents are in a huge database that is indexed by subject matter and easier to search.   It is the Achilles heel of the USPTO when new technologies emerge, as often this new tech isn't in the Patent database, and until the Internet came along, it was pretty hard to search for publications, articles, and public use or sale which might be used to reject an application.

But let me guess, I lost you in the first paragraph, right?   All that "legalese" again!