Dr. Natalie L. Petouhoff , our Guest Blogger, is a blonde rocket scientist. She consults with companies like Microsoft and Apple and is often asked to appear on TV talk shows commenting on technology and how it makes our life easier, better and simpler. Dr. Nat also teaches in Pepperdine's business school, coaches inventors and is the author of the upcoming book: Smart Inventors Finish Rich: Ten Steps to Reaching the American Dream.
She wanted to share some important information about the inventing process with the readers of InventorSpot.com. Here's her article:
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Why Invention Submission Companies Are Still In Business if they are NOT Really in the Business of Putting Your Product on the Marketplace
If you have ever seen one of those commercials for help with your invention, beware. Some and most of those companies are not real. In fact invention promotion companies have a track record is terrible. So if the success rates are so poor, why are these companies raking in the dough at $300M/year?
The reasons primary are:
- 1. Inventors need better education and resources so they don’t get scammed
- 2. Invention submission companies revenue model is not based on putting inventor’s products on the shelf.
The first point you might not be surprised about. And fortunately, in more recent years, there are sites like InventorSpot.com and WorkingInventor.com where inventors can find honest answers. The second point is what confuses most people. Here’s why. Most inventors don’t understand that an invention submission company’s revenue model is different from a licensor’s.
A licensor makes their money when they put a product on the shelf and it sells. But an invention submission company’s revenue model IS NOT based on generating revenue from selling a product. Their business model is to charge upwards of $15,000 for a quick evaluation, a report, file a patent (generally a design patent), write up a generalized marketing plan, and supposedly submit your invention to licensors. And they probably don’t see any need to change it because the industry reports show they are making $300M a year doing things this way.
However, a licensor, for instance, would make their money by actually making, distributing, and selling your product. Since the invention promotion companies are not counting on making money from the sale of your product, their motivation to go through the hard work of setting up a manufacturing deal and creating a real product on the shelf is nil. It is not how they make money. Period.
But what is misleading is that they are supposed to, by law, have a certain percentage of inventions made. So that means they are supposed to make at least some of the products that get submitted to them. But when inventors compare the amounts paid to submission companies vs. how much inventors made from selling a product, only .002% (15 inventors our of 6592 inventions submitted) made more money than they paid out.
How Invention Scams Companies Work
If inventor’s success rates with invention submission companies are dismal, how come so many inventors keep doing business with them? It is in part because they use a series of “hooks” to lure inventors into the company’s confidence. Some of the steps sound legitimate and are similar to what real invention development companies do, but the result is very different.
Let’s take a look at the steps. So if you are typical, you are watching TV and you see one of their advertisements. They strike a cord with a “would-be” inventor by asking if you have an idea, would you want to become rich by presenting your idea to industry?
- You call the 1-800 number to get the “free” Inventor’s Kit. You give them your info
- They call you to ask for money for an “Invention Evaluation or Review.” Typically this is $500. If you don’t call them back, they keep calling. Once you paid for the Review, then they "discover" that your idea is "original" and could be a big seller.” Many times, this is not true – but they say it just so that you will go the next step with them.
- You get excited by the news and pay the next "installment" of upwards of $4,000 for the next phase, creating a “Report.” “The Report” comes as a nicely bound book that says your invention is patentable and marketable.
- Then to continue the process of getting a patent and marketing the invention, there is a request for a lot more money.
- This process goes on until they end up with a lot of your money. You end up holding a worthless (most times) design patent. A seasoned, respected patent attorney will charge about 1/2 that or less to file most patents.
The Federal Trade Commission has compiled a list of warning signs to watch for when talking to invention promotion firms, Table 1. Federal Trade Commission attorney Peter Lambert says, “Inventors often fall for flattery. Inventors have spent a lot of time and energy thinking about something and they are looking for validation. What inventor’s need is honest feedback — not ego stroking. But because invention promotion companies know an inventor’s weakness, they prey on that.”
Table 1 Invention Promotion Firms Warning Signs
Telephone Script Invention Promotion Firms Use When Speaking To Inventors The FTC Facts About What Invention Submission Companies Tell Inventors
"We think your idea has great market potential.”
Few ideas - however good - become commercially successful. If a company fails to disclose that investing in your idea is a high-risk venture, and that most ideas never make any money, beware.
"Our company has licensed a lot of invention ideas successfully.” If a company tells you it has a good track record, ask for a list of its successful clients. Confirm that these clients have had commercial success. If the company refuses to give you a list of their successful clients, it probably means they don't have any.
"You need to hurry and patent your idea before someone else does Be wary of high pressure sales tactics. Although some patents are valuable, simply patenting your idea does NOT mean you will ever make any money from it.
“Congratulations! We've done a patent search on your idea, and we have some great news. There's nothing like it out there." Many invention promotion firms claim to perform patent searches on ideas. Patent searches by fraudulent invention promotion firms usually are incomplete, conducted in the wrong category, or unaccompanied by a legal opinion on the results of the search from a patent attorney.
“Our research department, engineers, and patent attorneys have evaluated your idea. We definitely want to move forward." This is a standard sales pitch. Many questionable firms do not perform any evaluation at all. In fact, many don't have the "professional" staff they claim.
"Our company has evaluated your idea, and now wants to prepare a more in-depth research report. It'll be several hundred dollars."
If the company's initial evaluation is "positive," ask why the company isn't willing to cover the cost of researching your idea further.
"Our company makes most of its money from the royalties it gets from licensing its clients' ideas. Of course, we need some money from you before we get started.”
If a firm tells you this, but asks you to pay a large fee up-front or to agree to make credit payments, ask why they're not willing to help you on a contingency basis. Unscrupulous firms make almost all their money from advance fees. Know your rights. The Inventors Protection Act of 1999 gives consumers the right to specific answers before they sign a contract with an invention promotion firm. Source: FTC and USPTO
The FTC Targets Legal Action Against Invention Promotion Firms
The rapid growth of such firms and the flurry of legal activity got the attention of Congress in the late 1990s, when lawmakers approved the American Inventor's Protection Act in 1999. The law mandates that the U.S. Patent Office keep a complaint database for consumer reference. The Federal Trade Commission and various state authorities have taken several sweeping legal actions against invention firms. They began in 1994 and the USPTO has a list actions taken. See http://www.uspto.gov/web/offices/com/iip/complaints.htm
The problem is that these companies are so profitable, that a fine doesn’t deter them. They wait a period of time, change their names and resurface on the airwaves. It takes years to establish that they are conducting poor business practices again. Unfortunately, during that time hundreds of inventors get scammed. For more information from the FTC on invention scams, go to http://www.ftc.gov/bcp/edu/pubs/consumer/products/pro21.shtm
Tips to Prevent Being Scammed
If you are talking to an invention submission company, there are several things you must do. First, before you give an invention submission company ANY money, go to the USPTO site and download http://www.uspto.gov/web/offices/dcom/olia/aipa/hr2215ip.pdf or call 1-800-PTO-9199 to get a copy of this, "the American Inventors Protection Act document: Subtitle A- Inventors Rights/Invention Promotion Service."
This document will show you how common invention scam companies are. It will also give you the opportunity to test the company’s scruples.
Next, ask the invention promotion company to send you an ORIGINAL copy of this law (the one you downloaded.) Compare what you got from the USPTO site (above) vs. what they give you. Oftentimes, what they will send you is a reworded version leaving out certain information. And if they are different, this would be your first red flag that they may be a fraudulent invention promotion company.
Second, the Federal Trade Commission suggests you ask these companies (in writing) for:
- How many inventions it has evaluated
- How many of those inventions got positive or negative evaluations
- Its total number of customers
- How many of those customers received a net profit from the promoter's services
- How many of those customers have licensed their inventions due to the promoter's services.
KEEP This Information. If you ever file a fraud complaint against the company, the Federal Trade Commission will want a copy. The AIPA Act requires invention promoters to disclose to inventors in writing the number of positive and negative evaluations of inventions they have given over a five-year period. No real invention firm accepts all inventions. In addition, it also requires them to disclose the customers' success in receiving net financial profit and licensing agreements as a direct result of the invention promotion services.
For instance, companies must reveal how many consumers actually made more money than they paid the promotion firm. However, most inventors don’t know this and don’t ask for it. Experts say typically companies never reveal this data, or if they do they do so at the last possible moment, after a consumer has all but signed on the bottom line. Lambert of the FTC said, "I'm not aware of a single invention submission company with over 1 percent.”
Investigate the company before you send any money or make a commitment. Look up the numbers on the internet and call these offices to see if there are any complaints:
- Better Business Bureau your state or where the company is located
- The Consumer Protection Agency and
- Attorney General in your state and where the company is headquartered.
Be aware, be safe and never stop learning!
By Dr. Natalie L. Petouhoff
Dr. Nat regularly advises inventors and she is hosting the Working Inventors Workshop Weekend on February 22 to 24, 2008. You can find out more about the Inventors Weekend here.