The Federal Trade Commission (“FTC”) recently announced that it reached a proposed settlement in an alleged invention-promotion business scam with Mr. Scott Cooper and his companies, World Patent Marketing, Inc. and Desa Industries, Inc. (collectively “Defendants”). The FTC investigation led to the filing of a formal complaint against the Defendants alleging that they had violated Section 5(a) of the FTC Act by participating in deceptive and unfair acts or practices in the marketing and sale of invention promotion services.

What did the FTC allege violated the law?

Defendants’ Business Practices and the FTC Investigation

Defendants offer purported research, patenting, and invention-promoting services to consumer-inventors. Defendants market and advertise their services through a variety of mediums (Internet, telemarketing, and television), crafting their marketing materials to create the impression that their invention-promoting services are likely to result in financial gain for their customers. As alleged by the FTC, Defendants’ websites feature misleading and/or bogus “success stories” of inventions promoted by Defendants and testimonials from purportedly satisfied customers.

The FTC investigation uncovered that Defendants’ salespeople praise the intellectual property ideas of prospective customers, emphasizing that these ideas are novel and potentially lucrative, and convince prospective customers to spend up $1,295.00 on a detailed report which invariably holds that their ideas are patentable and marketable. These salespeople then pitch various packages to consumers, which include filing for patents and obtaining licensing agreements, ranging in price from $7,995 to $64,995. The FTC found that “[v]irtually all” of Defendants’ customers lost their entire investment, much less realized a profit, and often ended up in debt or lost their life savings or inheritance.

The FTC investigation also revealed that if customers complained or threatened to complain about Defendants’ services (or lack thereof), Defendants’ allegedly promise to file lawsuits (having filed at least one) based on extortion, defamation and other causes of action.

The Terms of the FTC Investigation Settlement

Following the FTC investigation and the filing of a complaint, the FTC and Defendants reached a proposed settlement, which is now pending before a federal district court judge for approval. The terms of the settlement include monetary fines in excess of $25 million and a permanent injunction prohibiting Defendants from offering inventor-promotion services in the future.

Avoid FTC Investigations

Broadly speaking, the FTC and state attorneys general require businesses that market goods and services to refrain from making false, misleading, or unsubstantiated claims in their advertising. The foregoing case illustrates the importance of complying with applicable state and federal laws, rules and regulations. To avoid regulatory enforcement and other legal risk, businesses should always consult with an experienced marketing attorney before commencing any new marketing campaign.