Invention submission companies: Scams or valuable services?

So, you think you have a hot idea for a new cup—one that's as durable and heat resistant as Styrofoam but more biodegradable than paper. If you think you have an invention with potential, you're not alone. Each year, people, by the thousands, try to develop and mold their ideas into commercial success. How do you turn your simple idea into a multi-million dollar business?

Many inventors have turned to invention submission and idea promotion companies that promise service—they say they'll evaluate your invention, research the patent, and contact manufacturers on your behalf. Unfortunately, many companies that claim to help inventors develop and market their ideas have been under investigation for fraud by the Federal Trade Commission (FTC) and other government agencies. In fact, the U.S. Patent Office estimates that inventors stand to lose close to $300 million each year. How do you protect your invention and your wallet from fraudulent invention promotion companies?

Read before you dial that toll-free number

Invention promotion companies usually advertise on television, many times in the late night or early morning hours. Before calling that 1-800 number flashing on your television screen, consider the following real-life examples. Hopefully, they'll persuade you to do some research before opening your wallet to an invention promotion company:

• Texas resident Shannon Mahaffey dialed the toll-free number for Invention Submissions Corporation (ISC), the nation's largest patent broker and promotion company. He invented a system that would provide storm warnings to rural areas without sirens through the phone lines. After years of borrowing money to pay ISC a total of $13,000, his idea still isn't on the market.
• Former smokers Eric Fortier and his wife, Tina, came up with a disposable cigarette butt holder that automatically snuffs out cigarettes but had no idea how to market the device. The Fortiers contacted another invention promotion company, NewInventions.com, which, for a small up-front fee and a split of the profits, promised to take care of every marketing detail of the invention. The small $500 upfront fee grew to $3,000 for a business plan, then another $3,000 for marketing and Web site development. Soon after Fortier wrote that final check, the relationship with NewInventions.com stopped. Now out of business, NewInventions.com has about 100 victims who gave up to $10,000 each to the company.
• In 2001, Virginia Jones, an elderly widow from North Carolina, took out loans to pay for $20,000 worth of invention promotion services. She and her former husband invented a device that controls smoke emissions from wood stoves. Jones spent more than $10,000 with one firm and had only a patent to show for it. That company eventually refunded her money, but only after she agreed to a "gag" order not to discuss the case. Then a second firm, Invention Publishing and Research, noticed the patent on file at the U.S. Patent Office and contacted Jones, saying it had a better way to promote the product. She fell for the second company and, after parting with more money, got a six-month period of work. After that, she never heard from the company again.

FTC targets invention submission companies

More than 10 years ago, the FTC began taking legal action against invention firms, beginning with a 1994 settlement with ISC. In that deal, ISC agreed to pay $1.2 million to former consumers without admitting to any wrongdoing. The FTC charged that the company made several misrepresentations to consumers while persuading them to pay fees ranging from $395 to $4,890. Since then, the FTC has sued at least four other inventor submission companies, requiring them to pay customers hundreds of thousands of dollars, as well as millions of dollars in fines.

Don't fall for flattery

We're all vulnerable to flattery. Inventors are no different. Who doesn't want to hear that they've invented the next big thing and are about to become rich beyond belief? The important thing to remember when soliciting inventor promotion companies is if it sounds too good to be true, it probably is.

Many fraudulent invention promotion firms offer inventors a research report or market evaluation of their idea that can cost hundreds of dollars. Once the research is completed, they offer patenting or marketing and licensing services, which can cost several thousand dollars. If you are thinking about contacting a promotion firm, the first question you should ask is for the total cost of its services. Legitimate companies will have relatively small, if any, upfront fees because they make their money from successful royalty arrangements for the inventions they accept. If they do have upfront fees, reputable companies will tell you all of the out-of-pocket costs right away before a relationship is solidified.

The American Inventors Protection Act of 1999 gives you certain rights when dealing with invention promoters. Before an invention promoter can enter into a contract with you, it must disclose the following information about its business practices during the past five years:

• how many inventions it has evaluated
• how many of those inventions got positive or negative evaluations (legitimate companies will have a fairly low acceptance rate, usually under 5%)
• its total number of customers
• how many of those customers received a net financial profit from the promoter's services (that is, the number of clients who made more money from their invention than they paid to the company) and
• how many of those customers have licensed their inventions due to the promoter's services (if the success rate is too low, between 2 and 5%, the company's services may not be worth your out-of-pocket expenses)

Find additional information

The smartest way to make sure you're using a legitimate company to promote your idea is to do research. Find out if the company was ever investigated or in trouble with the FTC, Better Business Bureau, or any other consumer protection agency. This may be a good sign as to whether or not the company is reputable.

For information on how to spot a legitimate inventor promotion firm, visit the FTC's Web site at www.ftc.gov. For information on patents, visit the U.S. Patent Office Web site at www.uspto.gov.