Patent Law Updates | New Settlements and Verdicts
July 28, 2008
Davison to Pay $26M to Settle FTC's Invention Fraud Charges in PA Court
Federal Trade Commission v. Davison & Associates, Inc. et al.
No. 97-1278, U.S. District Court for the Western District of Pennsylvania, 7/8/2008
The Federal Trade Commission ("FTC") announced on July 18, 2008 that in a consent order approved by the U.S. District Court for the Western District of Pennsylvania, the owners of an invention promotion operation have agreed to pay $10 million in consumer redress to settle FTC charges that they deceived consumers across the country. The settlement includes a cash payment of $6.9 million, plus other property valued at $3.1 million. The defendants are Davison Design and Development, Inc., formerly known as Davison & Associates, Inc., and its principal, George M. Davison III; Manufacturer's Support Services, Inc. and its principal, Gordon M. Davison, and his wife, Barbra M. Davison; and relief defendant Barbara L. Davison, who is George M. Davison's wife. Under the settlement, in connection with providing research, patent, marketing, and/or invention promotion services, defendants cannot misrepresent that they are selective in accepting inventors, and that they have a stake in an invention because they "work for free" and/or receive significant income from royalties. They are also prohibited from misrepresenting how many consumers have contracted with them, how many of those consumers realized a net profit, or how many product licenses they obtained for consumers. Earlier, after trial, the district court entered a $26 million judgment in favor of the FTC against defendants, except that it limited Barbra M. Davison's liability to $8 million and imposed no liability on Barbara L. Davison. The settlement ends the litigation between the FTC and the defendants.
According to the FTC, defendants charged up to $12,000 to evaluate and promote consumers’ inventions. The FTC added that defendants enticed consumers with false claims about their selectivity in choosing products to promote, their track record in turning inventions into profitable products, and their relationships with manufacturers. They also deceptively claimed that their income came from sharing royalties with inventors, rather than from the fees consumers paid.
The settlement also bans the defendants from misrepresenting that they have helped inventions become products without disclosing whether consumers have profited from the product, and that they have a vast network of corporations with which they regularly negotiate licensing agreements. They also can not misrepresent that their services are necessary for consumers to license their ideas, and that they prepare objective and expert analyses of the marketability or patentability of ideas.
The settlement requires the defendants to post on any Web site or advertising, and to furnish to prospective clients, an affirmative disclosure statement that clearly and unequivocally states the following: How many consumers submitted ideas within the past five years; Of those, how many were offered, and how many signed, agreements for defendants’ several services including research, presentation, and licensing services; and How many consumers succeeded in licensing their ideas, how many made more money in royalties than they paid the defendants in fees, and the percentage of the defendants’ income that comes from royalties earned from their customers’ inventions. The statement must include, in bold print, how many consumers in the last five years made more money in royalties or sales proceeds than they paid the defendants, and the percentage of the defendants’ income that came from royalties paid on licenses of consumers’ products. http://www.ftc.gov/opa/2008/07/davison.shtm.
The settlement will suspend the judgment once the defendants transfer cash and other assets valued at about $10 million, including residences in Fox Chapel, Pennsylvania. The cash payment includes $6.8 million specifically listed in the order, plus approximately $105,000 in interest on a cash bond. The FTC has established a telephone line for consumers who may have been harmed by the defendants’ conduct. Consumers may call 216-263-3434 for more information. Id.
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