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Invention Promotion Swindlers Ordered to Pay $60 Million

"The operators of an invention promotion business, which a judge called "one grand con game to take money away from consumers," have been ordered to pay $60 million for violating a 1998 court order.

"By changing the name of their company, these individuals thought they could continue to make false promises and take inventors' money, but they didn't get away with it," said Lydia Parnes, Director of the FTC's Bureau of Consumer Protection.

"This scam should also remind inventors to question the assurances of promotion firms. No one can guarantee an invention's commercial success."

Under the 1998 order, Julian Gumpel, Darrell Mormando, Michael Fleisher, and Greg Wilson were barred from misrepresenting the services they offered to amateur inventors, but they revived their scam under a new name, the Patent & Trademark Institute (PTI).

For a fee of $895 to $1,295, PTI promised to evaluate the marketability and patentability of inventors' ideas, but its evaluations were almost always positive and were not meaningful, according to the FTC.

For a fee of $5,000 to $45,000, PTI's clients were offered legal protection and assistance to obtain commercial licenses for their inventions. They also were told that PTI would help them earn substantial royalties from their inventions, but PTI did not help consumers license their inventions, and clients did not earn royalties.

In January 2007, the FTC charged the defendants with civil contempt and obtained a temporary asset freeze against PTI and its owner, Gumpel, and the appointment of a receiver over PTI.

In March, the FTC added Fleisher, Mormando, and Wilson as contempt defendants, alleging that they participated in the order violations as managers and salesmen.

On May 3, 2007, after a four-day hearing, U.S. District Court Judge Gerald Bruce Lee held the defendants in contempt, finding, among other things, that PTI failed to disclose to consumers that none of its clients had successfully marketed an invention. The judge concluded that consumers were defrauded of $61 million through "lies and misstatements."

On July 12, 2007, the court permanently banned Gumpel, Mormando, and Wilson from engaging, in any way, in the marketing of invention promotion services. The court did not enter a ban against Fleisher because he did not sign the original order, although the court found that he knew about it and was subject to it.

On August 27, 2007, the court entered an order holding PTI and Gumpel jointly liable for a $61 million judgment, and holding Fleisher, Mormando, and Wilson jointly and severally liable for the judgment to the extent of $59,682,958.

PTI operated through several corporate entities, including original defendants Azure Communications, Inc. and London Communications, Inc., and through United Licensing Corp., International Patent Advisors, Inc., Datatech Consulting, Inc., International Product Marketing, Inc., and Unicorp Consulting, Inc.

These companies also were held in contempt and ordered to pay $61 million."

I like reviewing the FTC cases, just to point out how little the consumer actually gets.  For essentially ten years, these con criminal thumbed their noses at the FTC, violated a court order, and collected around $60 million.

They walk, do no jail time, and no consumer gets any meaningful redress.  This is a perfect example of why there should be a private cause of action for a violation of section 5 of the FTC Act - trial lawyers would have a meaningful reason to get money out of these clowns.

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Full post as published by Misleading Advertising Law on July 14, 2010 (boomark / email).