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 Wednesday, November 18, 1998

 
SMALL BUSINESS 
Patently Dishonest? 
Invention Promoters May Only Be Promoting Themselves 
By STEPHEN GREGORY, Special to The Times

Patrick Corcoran and his son John know all too well the old adage: Too good to be true.

The Walnut residents paid a Costa Mesa invention-promotion company $995 to trumpet John's creation of a water-cooled vest for workers who toil in high temperatures. The pair were especially impressed with claims that National Invention Services Inc., or NISI, could help them realize a six-figure return from mass production and marketing of the Cool-U-Vest.

Ultimately, however, the Corcorans learned that New Jersey-based NISI, with 12 offices nationwide, really had no expertise in successful invention promotion. According to documents included in a Federal Trade Commission lawsuit against the company months later, NISI had not helped a single client earn more money than he or she had paid the company in fees.

"We thought we were getting a fair shake, and we weren't," said Patrick Corcoran, who ended his dealings with NISI after it failed to respond to his questions. "How many people out there are like myself and my son?"

With applications to patent new inventions heading to record highs this year, more and more Americans are looking to turn ingenuity into income. But scores of would-be Edisons are likely to fall prey to a small number of invention-promotion companies that focus on landing fee-paying clients rather than finding manufacturers and distributors for the ones they already have.

Southern California is fertile ground for these companies. The Los Angeles metropolitan area last year posted the fourth-highest number of patent applications, behind San Jose, Boston and Chicago, according to the U.S. Patent and Trademark Office. Orange County ranked 14th.

This year Southern Californians are expected to file more than 6,300 applications for the most common type of patent, which protects an invention's inner workings and function.

'Anything to Hitch Their Dream To'
These local inventors are helping to fuel a nationwide movement to capitalize on innovation. Officials say the number of patent applications this year is likely to far exceed the 120,445 filed by Americans in 1997. Of those, more than 37,000 came from small businesses and individuals, about 560 of them from Southern Californians.

Never mind that roughly one of every two patent applications is rejected and that of those accepted, only 1% to 3% result in commercial success. However, most inventors are convinced they've created the better mousetrap.

"There are just tons of people out there who think they are inventors and are just looking for anything to hitch their dream to," said David Fix, a Federal Trade Commission attorney who oversaw the lawsuit against NISI.

Joanne Hayes-Rines, editor of Inventors' Digest magazine, said years of high consumer demand, coupled with corporate downsizing and shrinking job security, have spurred tinkerers across the country to begin eyeing their hobbies and after-hours creations as a potential ticket to financial security.

"The economy is good and people want more stuff. The stuff has to come from somewhere," Hayes-Rines said. "People aren't sure their job is going to be there in six months. They're learning to depend on themselves again."

But consumer advocates fear an increase in inventors means that more will fall in with unscrupulous promoters. Though the majority of companies are legitimate and do provide a useful service, many are not.

Rusty Ruscetta, chief operating officer of Glendale-based Inventors Assistance League International, estimates there are roughly 80 suspect invention promotion businesses in the United States, more than 15 operating in Southern California.

Ruscetta's group is among a handful of support organizations for inventors across the country that act as watchdogs against shady promotion schemes.

"Inventors got this child of theirs and they are very attached to it," Ruscetta said. "Anybody that tells them they are in for tons of money because of it has got them in a trap."

Lawsuits and Regulation
The hundreds of legitimate product promotion businesses across the country provide such services to inventors as prototype creation, patenting and marketing, Hayes-Rines said. These companies are especially helpful for neophyte inventors with no experience in product development, she said.

But that inexperience can also leave inventors vulnerable to fraud, Fix said. Last year he helped lead a crackdown on suspect invention-promotion firms in which five companies, including NISI, were charged with intentionally misleading clients into thinking their inventions stood a good chance of making money. In the end, the lawsuits alleged, most if not all money changing hands at these companies came from "upfront fees," supposedly to cover legal, research and marketing costs.

Of the five, only NISI had offices in California. In July, the company settled the suit by agreeing to refund $441,250 to clients, though it denied any wrongdoing.

Representatives of NISI did not return phone calls, but Philip Farinacci, a South Carolina businessman, says the company no longer exists. Farinacci said he bought NISI's assets in September and opened his own invention-promotion company called Advent Product Development, which he added has no ties to NISI and is not part of the lawsuit. "We provide a quality service," Farinacci said.

NISI's former offices in Glendale and Costa Mesa now do business as Advent , although the Orange County office does maintain a separate phone line that representatives answer as NISI.

Farinacci said he keeps the NISI line because Advent acts as a "service agent" for clients who signed up with NISI before he purchased the company.

So far, Farinacci said, none of Advent's clients has made money on an invention, but he noted that the company is only 2 months old and too young to have a track record.

Invention-promotion services have been operating in California at least since the 1970s, when complaints about fraudulent practices prompted the state Legislature to pass a law requiring product-promotion businesses to disclose to new clients the number of existing clients who have made money through their relationship with the company.

Warning Signs for Inventors to Heed
NISI, in fact, supplied that information to the Corcorans among a sheaf of documents they received before making their initial payment. But the statement--"No client has received by virtue of the company's performance of invention development services, an amount of money in excess of the amount . . . paid by such clients to the company"--was buried midway through a disclosure form that mostly discussed the patent process. The Corcorans weren't aware of the disclaimer until after they were contacted as witnesses in the case against NISI.

John Corcoran, an air-conditioner repairman, now uses the prototype of his Cool-U-Vest himself on hot days while he and his father consider other ways to develop the invention commercially.

Consumer advocates say that more than anything else, inventors need to make sure they have a company's success rate in writing before they give any money to an invention-promotion service.

"Many of these scam artists actually have a zero success rate, and you're dooming yourself to failure right off the bat if you go with them," said Bob Lougher, founder of Massachusetts-based Inventors Awareness Group.

Lougher should know. He said he worked for a Massachusetts promotion service for nearly two years, then quit when he realized it was scamming clients. The company closed its doors and is now the subject of a federal grand jury investigation for tax and mail fraud.

"I was really embarrassed with myself that I could be so stupid that I would believe what they were telling me," Lougher said. "But the majority of the people on the inside [of these companies] think they are doing something good for people."

Along with a company's success rate, Lougher also urges inventors to ask for written information on the number of inventions it has reviewed and the number it has accepted. He advises steering clear of firms with high acceptance rates.

"A true invention-development company is very selective," he said. "Most of the time, these bogus companies have close to 100% acceptance rates. The more people they accept, the more money they make."

Inventors, understandably, can get giddy over their creations and the prospects of cashing in on them, but Alan Tratner, president of Santa Barbara-based Inventors Workshop International, urges them to step back and play devil's advocate before handing money over to any product-promotion company or agent.

"Keep in mind the standard consumer caveat," Tratner said. "If something sounds too good to be true, it probably is." * * *


Avoiding Fraud
How to avoid potentially fraudulent invention promotion companies:

* If a firm is enthusiastic about your idea but insists on a substantial upfront fee, take your business elsewhere. Reputable companies are choosy about which ideas they pursue and typically work on a contingency basis.

* Understand that many ideas can be patented but very few have real commercial value.

* Ask the promotion firm you're considering for answers to these questions in writing: How many clients have made as much money back from their inventions as they have paid the firm for services, how many inventions has the firm reviewed, and how many has it accepted for promotion? (A high acceptance rate is generally a red flag.) Also ask for the names and telephone numbers of past clients and check the firm's references.

* Avoid firms that use high-pressure sales tactics, such as claiming you need to hurry and patent your idea before someone else does.

* Inventors can conduct their own search on the patentability of their ideas free of charge at the Los Angeles Public Library's patent and trademark section, 630 W. 5th St. Staff members will explain how to conduct a search. Appointments are necessary: (213) 228-7220.

* Fees listed by the U.S. Patent and Trademark Office for filing a standard patent application are $790 for "large entity" business submissions and $395 for small businesses, nonprofit groups and individuals.
Sources: Federal Trade Commission, U.S. Patent and Trademark Office 
Copyright 1998 Los Angeles Times. All Rights Reserved

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