An Alexandria firm that sold contracts to aspiring inventors to evaluate and market their inventions was charged by the Securities and Exchanged Commission yesterday with violating securities laws.
International Inventors Inc. East, signed a consent decree, agreeing to discontinue the alleged practices. The decree and the charges were filed yesterday in U.S. District Court in Alexandria.
According to the SEC filings, IIIE sold "evaluation contracts" to at least 6,000 people across the U.S. and in Canada for about $1.5 million. Then, 3,400 of those people paid an additional total of $2.6 million for " registration and representation agreements."
The evaluation contracts were priced from $250 to $1,206, according to the SEC. For the fee IIE promised to evaluate the invention, market it, and split the subsequent profits, if any, with the inventor.
Potential investors were lured to IIE with advertisements in major metropolitan newspaper addressed to persons who "have a better idea." The company described itself in some of the ads as "THE ACTION PEOPLE. One of the largest, best known and respected companies of our kind."
Respondants to the ads were invited to IIE's office for a "confidential" discussion, according to the SEC. There the inventor was encouraged to talk about his or her invention and was invariably told that it "sounds great."
Then the customer was told he should have "IIE engineers" evaluate his project, and the salesman would propose that the firm begin a patent search for $250, the SEC said.
Later the customer would be given "an almost standardized, nine-page," demographic study of the market for the potential product.
After the inventor was told he had a "unique, well-conceived idea," according to the SEC, IIIE further stated that the product can be produced and marketed for "tremendous profits for the manufacturer; and the inventor could also receive substantial sums in royalty returns."
Then, the SEC states, the inventor was encouraged to sign a "representation contract" with IIIE "so that IIIE can begin making presentations of this idea to manufacturer."
But, according to the SEC, of the ccompany's reported $1,149,503 gross income in 1976, for example, "No income was earned through the sale of inventions to manufacturers." The court papers said $317,205 was reportedly earned from evaluation fees, $778,485 from representation fees, and $2,813 from interest earned on bank deposits.
As background to the action, the SEC noted that firm's president, James H. Haren, who is also named in the action, ran a similar firm in Los Angeles which after he left, was the subject of a Federal Trade Commission cease and desist order.
The SEC charged that the IIIE income from various contracts is actually investment income, and must be registered with the SEC.
Company officials were quoted as saying yesterday that they had already changed their marketing program and would no longer be offering the kind of contracts alluded to in the charges.
IIIE and all other invention promotion firms of the type that advertised in The Washington Post in the past were prohibited from further advertising earlier this year because of continuing reports that many of the firms were fraudulent.
In a letter to The Post's advertising department last August, IIIE officer Arnold Winkelman admitted that his firm had no successful clients for the previous 14 months.*