U.S. District Judge Gary L. Lancaster has approved a settlement that ends 11 years of litigation between the Federal Trade Commission and Davison & Associates Inc.
Under the final terms the invention promoter will pay $10.7 million in cash, real estate and investment assets to the FTC, which claims the company misrepresented its services and rate of success in growing clients' ideas into actual products for sale.
The $10.7 million represents less than half of Lancaster's original judgment against Davison. In a March 17, 2006, decision, he ordered Davison to repay $26 million to clients it represented going back to 1989, when CEO George M. Davison founded the company.
"This is the strongest order we have ever had in an invention promotion case, in terms of money and requirements" for how the company does business from now on, said John Mendenhall, regional director of the FTC's Cleveland office.
"It is a strong signal to the invention promotion business, that if they take advantage of people they are at risk of a large penalty."
The FTC's case against Davison was one of its "Project Mousetrap" actions in the 1990s against invention promoters, but unlike most of the cases it wasn't settled in its earlier stages. A three-week trial was held in 2005.
Mendenhall said while Davison's payment won't cover "all the injury from the case, it will be fairly significant." The court order requires Davison to supply the FTC with clients' names up to the date of the original judgment; they'll be matched with FTC records.
FTC officials won't say how many Davison clients might receive payments. Mendenhall said checks will be proportionate to what clients paid the firm, and could be sent in four to six months.
"Chances are, it's going to be skimpy," said Patricia Nice of Tamaqua, Schulkill County, who said she paid Davison $10,000 to look for a company to license a decorative plate she created.
"I'll look for a check and when I get it I'll have a smile on my face -- if I get a cent."
Ralph Veltre of Bethel Park said he paid Davison $15,000 to market a brake light device, which never was licensed. "I'm glad to hear it -- show me the money," he said of the order, though he questioned why the case took a year to resolve, after a settlement was announced last July. Mendenhall said the property transfers involved took time to work out.
Davison noted the company opted to settle the dispute, rather than continue with a federal court appeal. "My focus now is on taking care of my company and my clients -- and the best way to do that is to put this chapter behind me and look toward a very bright future," George Davison, who was unavailable for comment, said in a statement.
Company spokeswoman Alicia Kopar said publicity about the FTC case seemed to generate dissatisfaction. The company investigates published complaints, she said, and while some clients are found to have legitimate concerns, others were upset with their results -- even though they signed disclosure forms spelling out the low likelihood of success.
With offices in the RIDC Park in O'Hara and about 260 employees, the company said it's added risk disclosure statements to marketing materials to emphasize that "new product design is a high-risk venture." In the past five years, 10 consumers made more money in royalties than they paid Davison, for example, Kopar said.
Davison's revenues from 1994 through 2005 totaled $89.3 million, according to U.S. District Court testimony.
A company news release announcing the settlement includes comments from Allegheny County Chief Executive Dan Onorato and Barbara McNees, president of the Greater Pittsburgh Chamber of Commerce, praising Davison for creating jobs and doing business in the region.
Kevin Evanto, Onorato's spokesman, said Onorato knows George Davison, and the firm is growing and is the kind of "cutting edge technology company we like to see in this region."
Davison Associates typically charges a new client $685 for initial product research, then thousands more to build a prototype and present it to companies that might produce it. The FTC has said most who sign on with Davison eventually spent between $8,000 and $14,000.
Ronald J. Riley, a Michigan inventor who runs the nonprofit InventorEd Inc., said anyone with an idea for a new consumer product needs to understand the invention industry and its pitfalls, before signing with a marketer.
The best firms work on a contingency basis, only collecting fees if the gadget is licensed, he said, and unlike Davison and other firms, "they don't need to advertise." Riley provides information for new inventors online.
No comments:
Post a Comment