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Protecting Yourself Against Scams and Crooks

Do your homework to avoid making a bad business decision.
July 13, 2007
URL: http://www.entrepreneur.com/article/181752

It's a common story, yet it breaks my heart every time someone tells me their version: An aspiring inventor sends his or her product to an invention promotion company, pays a large fee (often their entire savings) and gets nothing in return. Not only have they been embarrassed, but they've also been depleted of the money they could've used to further develop their product.

Often these "firms" will charge thousands of dollars, promising to bring an inventor's product to market within a specified time period. They prey on the inventor's excitement and passion. These firms advertise on TV, radio, the internet, newspapers and in magazine classified sections. Their guarantee and promise of success is tempting.

While not every invention promotion and marketing company is fraudulent, unfortunately many good ones go underground to avoid being associated with the unethical and dishonest firms. How do they work? Be aware of a company that promises too much using these tactics:

These firms have become so damaging and pervasive that the Federal Trade Commission issued a statement warning against them: "When it comes to determining market potential, inventors should proceed with caution as they try to avoid falling for the sweet-sounding promises of a fraudulent promotion firm." For more information, download " FTC Facts for Consumers: Invention Promotion Firms " or call (877) FTC-HELP.

So how can you separate the good from the fraudulent when it comes to getting help promoting your idea? Here are eight important tips to keep in mind when considering an invention promotion company:

1. If it sounds too good to be true, it probably is . Anyone who gives you extreme assurances on getting your product licensed or is a little too enthusiastic about your product is probably giving you the hard sell. Licensing is difficult and never a certainty, no matter how brilliant your idea. They know you believe in your idea and they capitalize on your own initial bias.

2. Treat this relationship like you would any other serious business relationship . Insist on a written proposal. Read and ask questions about the fine print and check the company's credentials. Be sure you understand what they are committing to--and not committing to--as well as what is expected of you.

3. Get references . If a company has a good track record and reputation, ask to speak to at least two other clients with whom they've worked. Then, actually speak to those clients. Note that if a company is in the business of bilking inventors, they can easily concoct fake references. Therefore, cross-check the validity of these clients. Ask them questions that you can verify, such as: What is your patent number? When was it issued? What manufacturer licensed your product? Where is your product sold?

4. Be suspicious of pay-upfront deals.

For a legitimate operation, a modest upfront payment is reasonable if it's clear how the money will be used and the prices seem appropriate. An example of this would be $100 to $500 for the creation and duplication of a marketing packet, with which you should be provided copies. A legitimate company is compensated on its performance and results, usually in the form of a percentage of future revenues.

Even if they don't charge a lot out of the gate, more upfront fees may be coming. These companies have been known to charge a small fee upfront for a "feasibility study" and then come back with, "Great news! Your product can make it big!" This is the hook. They'll then ask for another payment, which typically ranges from $3,000 to $15,000, and which they claim will go toward costs like market research, a preliminary patent search or identifying licensing partners. I have heard from a number of inventors that after paying this money, they never hear from the product submission company again.

5. Use the web to check for complaints about the company. Search "invention" on the U.S. Federal Trade Commission website and the U.S. Patent and Trademark site . These sites also have instructions on how to file a complaint.

6. Refer to the American Inventors Protection Act of 1999 . The law requires a firm to present certain provisions to you prior to contracting. These provisions include the number of inventions the firm has evaluated over the prior five years, the number of customers the firm has contracted with, the number of customers who have made money, and the names and phone numbers of other invention companies with whom the principals of the firm have been previously affiliated. Click here for a full copy of the act.

7. Be sure your agreement contains clear timelines . These timelines should state when the company should achieve certain benchmarks and when it will communicate progress to you. It should also contain a clause that permits you to terminate the agreement if you are dissatisfied, without releasing any of the rights to your invention.

8. Some of these companies have offered "guaranteed patents." Understand that anybody can submit and receive a patent if the claim(s) are narrow enough. Few, if any, serious patent attorneys I know would offer a "guarantee" of issuance of a patent if the claims are being written as broadly as possible. Therefore, before accepting any "guaranteed patent" you may want an outside USPTO-registered patent attorney review the documentation.

The bottom line? Be skeptical. Keep your eyes and ears open and your wallet closed until you've completed due diligence on the company with whom you plan to do business.