Markets Wired

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.

The Commission appreciates the substantial assistance in this case provided by the U.S. Attorney’s Office for the Eastern District of Virginia and the U.S. Patent & Trademark Office.

The FTC has established a phone line for consumers who may have been harmed by PTI’s conduct. Consumers may call 202-326-2926 for more information.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.