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Susan Pulice was convinced she had a winning idea. The would-be entrepreneur from North Hollywood, Calif., designed a line of children's educational furniture that she believed was both fun and practical. To move forward with her idea, however, Pulice needed what most entrepreneurs need: legal protection for her concept, a manufacturer, and help marketing and selling her products. On the advice of a friend, she turned to a company that promised to help her accomplish all three.
"I walked into the office, and it was really nicely done, all in mahogany. I got the impression that this was a first-class operation," Pulice recalled. She also liked the company's president, whom she described as a good-looking man with plenty of time to chat with her and encourage her entrepreneurial dream. Excited about the future, Pulice plunked down more than $10,000 in exhange for a promise of intellectual-property protection, killer marketing, and hands-on sales help.
Five years later, Pulice is selling advertising and wondering, she says, where next month's rent money will come from. Her furniture line went nowhere, and the money she spent on it wound up totaling around $13,500. "That [experience] really sucked a lot of money away from me. I've got to admit that hindsight is 20-20, and I wouldn't ever do it again. I took someone's word, but I probably should have never jumped into something that I didn't know anything about," she says.
COSTLY DISAPPOINTMENT. Pulice's story, or some variation on it, is all too familiar to Richard Maulsby, director of public affairs for the U.S. Patent & Trademark Office. "I've been battling this problem for 10 years. It's like kudzu -- you beat it back in one place and it crops up in another," Maulsby says.
The problem, he says, is companies that prey on inventors and would-be entrepreneurs, collecting thousands of dollars from them up-front for all sorts of inflated -- sometimes impossible -- promises. Typically, inventors spend between $10,000 and $20,000 on such services, only to wind up with disappointing results.
These outfits "claim that they'll go to trade shows, help you get a patent, write a business plan for you, and find a distributor. But when they get the money in hand, they do the minimum necessary to comply with the contract. Nobody is really going out there beating the pavement," Maulsby says. In most cases, would-be entrepreneurs have signed contracts saying they understand the company can't guarantee results, and their only recourse is a costly and time-consuming civil lawsuit.
SKIP TOWN, START OVER. The federal patent office has no jurisdiction to pursue criminal charges against such companies, leaving prosecution of blatant, repeat offenders to states attorneys general. Because most state prosecutors are overwhelmed with complaints, they concentrate on the worst offenders. Thus, local scam operations tend to get overlooked unless they grow large enough to involve dozens of vociferous victims, Maulsby says.
Once a fraudulent operation is under investigation by state prosecutors, it's likely to close its doors -- and in some cases, pay a fine -- to settle the case. Later, the outfit will change its name, move to another jurisdiction and start over again.
Many of the large companies that specialize in trading on the American Dream advertise heavily on late-night TV, radio, and the Internet, promising inventors pie-in-the-sky for money up-front. "When companies advertise on TV or radio, it lends them some kind of credibility in people's minds. [These companies] claim they'll petition the Patent Office to expedite a patent approval, which doesn't happen. They also tend to flatter the inventor, saying that their product is the greatest thing since sliced bread. People are in love with their inventions, so they want to believe it," Maulsby says.
"INSULT TO INJURY." In truth, odds are stacked astronomically against inventors, and no marketing outfit can change them. "There are around 1.5 million patents in effect and in force in this country, and of those, maybe 3,000 are commercially viable," Maulsby says. "It's a very small percentage of patents that actually turn into products that make money for people. On top of all that, to get ripped off for tens of thousands of dollars adds insult to injury."
Wanda Plimmer, of San Pedro, Calif., borrowed $7,600 from a relative to hire a patent-assistance company in the late 1990s. It promised to create a marketing package, get her legal protection, and represent her in negotiations with manufacturers. Plimmer says she did eventually receive a marketing report that summarized her target market demographic. "They put a little bit of effort into gathering that data, but it could probably be found online fairly easily," she reflects now.
Next, she was given a couple hundred address labels and instructed to send the marketing packages out, paying for the postage herself. Within a few weeks, she realized that she had been scammed. "I got more than 60% of my mail back with labels saying the company had moved, gone out of business, or that the address was simply undeliverable. I never got a personal introduction to a real business contact. In fact, I got a total of one response, from a company that sent me a form letter saying my idea was marketworthy, but they couldn't produce it at that time."
DO YOUR RESEARCH. Individuals should educate themselves to protect against being scammed, Maulsby says. The Federal Trade Commission has information about patent scams and how to avoid them at its Web site. The Patent Office collects complaints against promoters that it publishes on its inventor resources Web page (click on "promotion firm complaints").
Above all, would-be entrepreneurs should see red flags waving any time they're asked to pay large sums up-front for services promised in the future. They should also do basic homework about any company they're considering hiring, and they should never take claims of past success at face value. Ask questions before signing a contract, get referrals to satisfied clients, and investigate a company's background before hiring it.
The good news is that online consumer watchdog groups have created Internet forums that victims can use to share information about fraudulent operators, track company promoters, and swap horror stories. A diligent inventor who does a thorough Internet search will likely turn up information about a scam artist.
Plimmer, who now runs a successful Web site selling infant products, says losing the money on her first invention attempt was a wake-up call. She has since filed patent applications herself for under $1,000 and hired legitimate local patent attorneys to assist with additional filings. "The ultimate lesson is: If you want something done right, you have to do it yourself," she says. Armed with patented advice like that, she's not likely to get scammed again.