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Spotting Invention Scams:
Warning Signs

Scambusters: Table of Contents
  • A Brief Introduction to Invention Scam Companies

  • Spotting Invention Scams: "We-do-it-all-for-you" Warning Signs Chart

  • "DE-SCAM-BLER" Checklist

  • The Big Question: "What Your "Success Rate"?

  • A Special Warning About Nondisclosure (Confidentiality) Agreements

  • FTC Facts for Consumers: Invention Promotion Firms

  • FTC Cracks Down on Fraudulent Invention Promotion Firms

  • FTC Settlement With Pennsylvania Invention Promotion Firm Requires $80,000 Payment, Disclosures; Cooling Off Period

  • FTC NEWS: New Jersey Invention Promotion Firm Settles FTC Charges. Defendants To Pay Three-Quarters Of A Million Dollars In Redress

    To check if a company has been investigated and/or fined by the Federal Trade Commission (FTC), enter the word INVENTION in the FTC's web site search engine and you will be able to view a list of FTC news releases about invention scam companies.

  • By Stephen Paul Gnass

    Unfortunately, the increasing media coverage of scams has both positive and negative effects upon the invention industry. While helping to expose the scam companies which is an extremely good thing, media coverage has simultaneously created paranoia and unnecessary suspicion of "all" companies that provide services to inventors, which I believe has also hurt the entire industry.

    This has happened because there is so much confusion about the process of inventing itself, in addition to the problem of the scam companies. That's why I believe that it is important to clearly distinguish what a scam company does, that makes it a scam.

    The main way to spot an invention scam is whether they offer to do-it-all-for-you as a one-stop-shop. In the real world, there is no such thing as a "package price" of $5,000 or $10,000 or $20,000 or $30,000 or any amount FOR ALL OF IT. The ultimate investment made in any invention will depend on how simple or complex the invention is, and on what is needed for that particular invention. While there are general guidelines that can be followed, there is no exact "cookie mold" for all products.

    Print out the following chart which has a checklist of services. If all, or most of these, are offered and performed by a single company, there is a high possibility that the company is a scam.

    Keep in mind that in reality, inventing is an "a-la-carte" process, and that you will eventually work with a variety of companies that specialize in different aspects of the invention process. You will contract their services when you need them, as you need them, and only if you need them, depending on what the product is. For example, you will deal directly with a patent attorney for a patent search and a patent application; you will deal directly with a prototype maker for a prototype; you will deal directly with an evaluation center for an evaluation; you will deal directly with a manufacturing company for molds/samples/product runs of your product; you will deal directly with tradeshows or advertising venues to make contacts with a targeted audience; you will deal directly with a licensing agent or licensee for the licensing of your product, etc. A different company for each different function!

    Success Rate:

    As a part of the suspicion caused by the growing exposure of the scams, most companies that work with inventors are asked about their success rate, even though "success rate" doesn't even apply to certain services. What people don't realize is that the idea of "success rate" was created by the FTC specifically for the invention scams. The FTC defines "success" as earning more in revenues than was paid to the invention scam company. In other words, if an inventor paid an invention promotion firm the amount of $10,000.00 , but earned $11,000.00 in revenues, theoretically, as defined by the FTC, this is a "positive" success.

    But this guideline has come about because there is really no standard definition for success!! Synonyms for the word "successful" include prosperous, flourishing, thriving, prospering, booming, growing, mushrooming, fruitful, lucrative, advancing, etc. How do you quantify that??? Click here for a detailed exploration of "success rate".

    We will be adding more information on how to spot the scams as well as how to find legitimate companies and services, so be sure to subscribe to our free invention newsletter to get updates of new information and articles that are added, as well as industry events, news, etc.


    CHART: Invention Scams: "We-do-it-all-for-you" Warning Signs
    Warning Signs Explanation of why these are warning signs Solution
    1. Advertises on TV, radio, and back of magazines in classifieds Unfortunately, only the invention scams have the large budgets to advertise on TV, radio and in the back of magazines. In general, advertising does not mean a company is a scam, but specifically in the invention business, it is a big warning sign. Analyze the company with the following points in this chart. Remember that advertising in and of itself is not bad. Advertising is a warning sign "only in combination" with the following red flags in the field of inventing.
    2. Company sends you a "pre-signed" confidentiality agreement with their brochure and sales promotion. A confidentiality agreement is something that "you" initiate after you have shopped and decided to do business with a company that absolutely needs to know what your idea is in order to do their job (ie. like a prototype maker). We recommend that you do not blindly sign any unsolicited confidentiality forms that come in sales promotional packages. No company needs to know what your idea is in order to explain how their services work and what their services cost! Don't sign "pre-signed" confidentiality agreements sent to you with sales promotion in the mail. When you're shopping for services, talk about your idea in "general" terms without giving away the details. When you have selected a company you want to work with, that needs to know the details to do their job, then present "your" confidentiality form for them to sign.
    3. Company evaluates ideas Invention scams use the signed confidentiality agreement that inventors return to them (that describe the invention) to talk about the idea's potential for success. They act as if they evaluated the idea (or imply that they evaluated it), and use the idea's potential and inventor's excitement to help convince prospects that they can successfully license it. Do your own preliminary research on the potential of your idea. This takes "your" time and dedication. There is no one source that can validate whether it will be a success. There are many research steps that you can do yourself inexpensively through your local library, which again, will take some time to do properly. Yet always remember that even if you have the properly researched statistics and information, there is still no guarantee that the product will make it. However, it will increase your chances of success if you can back-up your claims with statistics and factual data.
    4. Company compiles marketability reports The marketability reports that these scams compile are usually very generic in nature, and are basically "boiler-plate" forms where they just insert the name of the client. These reports are worthless to inventors because intelligent business people who read them, realize that they are generic and don't take them seriously. The scams usually charge about $300-$700 average for these reports. Find an independent evaluation center that specializes in marketability reports - that's all these organizations do! And there are a few evaluation centers that have excellent reputations. Our recommendation is to utilize these evaluation reports to your benefit. Sometimes they will indicate that a product will not make it, but a wise inventor will use the negative report results to help him improve on those areas that are weak, or cut his losses by realizing that the invention does not have the potential he initially thought it had, or to go do further research to find out if the invention has other markets or uses where it can succeed.
    5. Company does patent searches Naturally, the patent searches that the scam company's patent attorneys perform will always be "positive" because they want the inventors to pay for an expensive patent. In the initial stages, we recommend that an inventor do his own "preliminary" patent search to help him become familiar with the process, to help him see if there's anything else out there that is similar to the idea which will help him determine whether he should invest more time, energy and money into the idea, as well as to present his preliminary findings to a patent attorney for review. Most of the time the patent attorney that files the patent will also perform a patent search. So we recommend doing a preliminary first, then have a patent attorney perform a valid patent search with his "legal" opinion of its patentability.
    6. Company files patents Inventors should deal directly with a patent attorney, so that they are the direct client. Invention scams act as an in-between, and since the scam company hires the patent attorney, the patent attorney's loyalty is to them, not the inventor! Because the invention scam is the company that hires them (for cheaper fees than patent attorneys normally charge), their goal is to file as many patents as possible which means that they don't care about the quality of the patent or the "real" client's needs. They act as patent factories and the patents they issue are inferior - sometimes a "design" patent instead of a stronger "utility" patent. Sometimes they file a $75 PPA, or even a $10 Disclosure Document which isn't protection at all, while the scam company charges the inventor thousands of dollars! Learn how to file your own patent, so that you are familiar with the process. For example, read books on the process. But we recommend that you "don't" file your own patent because it is a complicated process and if not done right, a poor patent could diminish the value of your invention. Inventors should find their own patent attorney, so that the inventor is the patent attorney's direct client, and so that the patent attorney is working for "the inventor". Some patent attorneys specialize in specific types of patents - and depending on the complexity of the product, this may be important with some types of products like technical or electronic.
    7. Company submits inventions to industry. The invention scams "submit" the inventions to outdated and untargeted mailing lists just to fulfill the contract obligation. Any of those mailings that don't get returned as undeliverable, normally just get tosssed in the trash by companies that receive the mailing. Ironically, nowadays they send the mailing list to the inventors, who have to pay for the postage to send them out themselves! Find out what your full range of options are. For example, first decide whether you are going to go the "entrepreneur" route, or produce an infomercial? What does it mean if you sell through catalogs? Should you license? Should you find distributors? Find out which is the best for you, then find a vehicle to showcase your invention to the right audience, for example, a trade show, or a web site, or a publication. But make sure that whatever vehicle or company you choose has a track record, and experience in showcasing inventions, as well as targeting the right audiences - this is a rare combination.
    8. Company promotes inventions to industry. Sometimes, scam companies also promote the inventions in several international trade shows, or in web sites to display and exhibit it. However, to fulfill the contract these companies basically buy one booth space that promotes their company's services, while they display "all" the inventions either in a directory that sits at their booth table, or through a computer database that also sits on the table, which in my opinion are ineffective andunacceptable invention displays to attendees of the trade shows. Their web sites usually have a small listing of the invention name and brief description of the invention which are also ineffective. Remember that they are charging thousands of dollars for these weak services. If you are considering displaying at a trade show, make your own arrangements directly with the trade show producer, and you will get a full size booth just for your own product's display. You still need to shop for the best trade show venues to attend depending on your specific needs, but you will be in direct control of your exhibit and money. Same thing with web sites. Again, make sure that whatever vehicle or company you choose has a track record, and experience in showcasing inventions, as well as targeting the right audiences.
    9. Company licenses products. The invention scams make their money on the upfront fees charged for the above services. While the inventor is hoping to get licensed, it never gets to that stage. Many scams charge a sliding scale depending on the licensing agreement percentage that the inventor selects. They charge more money upfront if the inventor keeps a higher percentage of the invention, and charge less if the inventor gives up a higher percentage. The joke is that the scam company wins no matter which plan the inventor selects, because the scam makes its money on the upfront fees the inventor pays, since the scam knows the product will never be licensed. If the inventor decides to license, which is one of the options available to an inventor, he will need to find vehicles that will help him reach companies that license products or specialized licensing agents that go find licensing deals. Again, make sure that whatever vehicle or company you choose has a track record, experience in showcasing inventions, as well as in targeting the right audiences. Please note that a company that licenses an invention doesn't charge inventors any upfront fees because they make their money from successfully marketing the product, and you receive a percentage of their revenues. Licensing agents also don't charge any upfront fees because they believe in the product's potential, and they earn a percentage of the inventor's percentage if the product is marketed successfully.

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