New Jersey Invention Promotion Firm Subject To Preliminary Order Obtained by FTC Following Fraud Charges

National Invention Services, Inc., of Cranford, New Jersey, and its president and CEO, John F. Lee, are required by court order to disclose that none of the nearly 1,000 clients who signed up for their invention promotion services has made more money from their inventions than they have paid the firm to patent and promote them, the Federal Trade Commission announced today. The disclosure requirement is included in preliminary orders issued by a federal district court in Newark, New Jersey, following FTC charges that the firm and Lee deceptively marketed their services. The preliminary orders also prohibit NISI and Lee from falsely representing any material aspect of their research, patent, marketing or invention promotion services, and from making a number of other specified misrepresentations. The orders are in effect pending the outcome of a trial on the FTC allegations.

The FTC filed charges against NISI and Lee in July as part of "Project Mousetrap," a federal-state campaign targeting fraudulent invention promotion firms that promise to help independent inventors develop and market their ideas. The FTC said a significant number of the firms in this industry are operating fraudulently, and suggested that consumers avoid firms that are enthusiastic about invention ideas, but insist on substantial up-front fees to develop or market them. These and other tips are included in FTC consumer education materials, including the "Invention Promotion Firms" brochure, the "Spotting Sweet-Sounding Promises of Fraudulent Invention Promotion Firms" alert, all of which can be found on the FTC's web site at www.ftc.gov (no final period). Project Mousetrap netted seven actions, five of which were brought by the FTC.

In the NISI case, the FTC alleged that the defendants marketed services in two phases: phase one is a product research report that, together with a preliminary patent search, cost inventors $995; under phase two, the defendants used the phase one report to pitch patenting and promotion services to "selected" inventors under a contract for $6,450 to $7,450 depending upon the type of patent procured. According to the FTC complaint filed in court, the defendants falsely claimed that their services were likely to result in financial gain for their customers when the likelihood of that happening is extraordinarily low, if not nonexistent.

NISI agreed to the entry of the preliminary order, or consent order, pending trial, and that order was entered by the court on Aug. 20, 1997. Lee fought the FTC action, however. Following a hearing, Judge Maryanne Trump Barry found that "not one of NISI's 997 Phase Two customers have made more money as a result of their invention than they had paid to NISI for its services," and that "there is a reasonable probability that the FTC will be able to prove that Lee either orchestrated the alleged unlawful scheme or, at the very least, knew about it." Therefore, the court granted a preliminary injunction with an asset freeze against Lee. The court entered the order on Sept. 5.

NISI has sales offices throughout the United States, including in Costa Mesa, Glendale and San Francisco, California; Miami, Florida; Cranford, New Jersey; Mineola, New York; King of Prussia and Wayne, Pennsylvania; and an administrative office in Pawleys Island, South Carolina, where Lee resides. The FTC said in court that consumers lost at least $8 million to the NISI scheme. A trial likely will be scheduled on this case in 1998.

Copies of the consent order governing NISI and the court opinion and preliminary injunction against Lee, as well as the FTC consumer education materials issued in connection with Project Mousetrap, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. X970063)
(Civil Action No. 97-3459)