I

104TH CONGRESS

1ST SESSION H. R. 2419

To amend part I of title 35, United States Code, to provide for the protection

of inventors contracting for invention development services.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 28, 1995

Mr. MOORHEAD (for himself and Mrs. SCHROEDER) introduced the following

bill; which was referred to the Committee on the Judiciary

A BILL

To amend part I of title 35, United States Code, to provide

for the protection of inventors contracting for invention

development services.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Inventor Protection

5 Act of 1995’’.

6 SEC. 2. INVENTION DEVELOPMENT SERVICES.

7 Part I of title 35, United States Code, is amended

8 by adding after chapter 4 the following new chapter:
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1 ‘‘CHAPTER 5—INVENTION DEVELOPMENT

2 SERVICES

‘‘Sec.

‘‘51. Definitions.

‘‘52. Contracting requirements.

‘‘53. Standard provisions for cover notice.

‘‘54. Reports to customer required.

‘‘55. Mandatory contract terms.

‘‘56. Remedies.

‘‘57. Enrollment of invention developers.

‘‘58. Records of complaints.

‘‘59. Enrollment fee.

‘‘60. Suspension or exclusion from enrollment.

‘‘61. Unenrolled representation as invention developer.

‘‘62. Rule of construction.

3 ‘‘§ 51. Definitions

4 ‘‘For purposes of this chapter, the term—

5 ‘‘(1) ‘contract for invention development serv6 ices’ means a contract by which an invention devel7 oper undertakes invention development services for a

8 customer;

9 ‘‘(2) ‘customer’ means any person, firm, part10 nership, corporation, or other entity who enters into

11 a contract for invention development services;

12 ‘‘(3) ‘invention developer’ means any person,

13 firm, partnership or corporation, who offers to per14 form or performs for a customer any act described

15 under paragraph (4), except—

16 ‘‘(A) any department or agency of the Fed17 eral, State, or local government;

18 ‘‘(B) any nonprofit, charitable, scientific,

19 or educational organization, qualified under ap-
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1 plicable State law or described under section

2 170(b)(1)(A) of the Internal Revenue Code of

3 1986; or

4 ‘‘(C) any person duly registered and in

5 good standing before the United States Patent

6 and Trademark Office acting within the scope

7 of that person’s registration to practice before

8 the United States Patent and Trademark Of9 fice; and

10 ‘‘(4) ‘invention development services’ means,

11 with respect to an invention submitted by a cus12 tomer, any act involved in—

13 ‘‘(A) evaluating the invention to determine

14 its protectability as some form of intellectual

15 property;

16 ‘‘(B) evaluating the invention to determine

17 its commercial potential; or

18 ‘‘(C) marketing, brokering, licensing, sell19 ing, or promoting the invention or a product or

20 service in which the invention is incorporated or

21 used.

22 ‘‘§ 52. Contracting requirements

23 ‘‘(a)(1) Every contract for invention development

24 services shall be in writing and shall be subject to the pro25 visions of this chapter. A copy of the signed written con-
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1 tract shall be given to the customer at the time the cus2 tomer enters into the contract.

3 ‘‘(2) If a contract is entered into for the benefit of

4 a third party, such party shall be considered a customer

5 for the purposes of this chapter.

6 ‘‘(b) The invention developer shall—

7 ‘‘(1) state in a written document, at the time

8 a customer enters into a contract for invention de9 velopment services, whether the usual business prac10 tice of the invention developer is to—

11 ‘‘(A) seek more than 1 contract in connec12 tion with an invention; or

13 ‘‘(B) seek to perform services in connection

14 with an invention in 1 or more phases, with the

15 performance of each phase covered in 1 or more

16 subsequent contracts; and

17 ‘‘(2) supply to the customer a copy of the writ18 ten document together with a written summary of

19 the usual business practices of the invention devel20 oper including—

21 ‘‘(A) the usual business terms of contracts;

22 and

23 ‘‘(B) the approximate amount of the usual

24 fees of the invention developer or other consid25 eration, that may be required from the cus-
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1 tomer for each of the services provided by the

2 developer.

3 ‘‘(c)(1) Notwithstanding any contractual provision to

4 the contrary, no payment for invention development serv5 ices shall be required, accepted, or received until the expi6 ration of a period of 5 business days beginning on the

7 date on which the customer receives a copy of the contract

8 for invention development services signed by the invention

9 developer and the customer.

10 ‘‘(2) Delivery of a promissory note, check, bill of ex11 change, or negotiable instrument of any kind to the inven12 tion developer or to a third party for the benefit of the

13 invention developer, irrespective of the date or dates ap14 pearing in such instrument, shall be deemed payment re15 ceived by the invention developer on the date received for

16 the purpose of this section.

17 ‘‘(d)(1) Until 5 business days after the payment de18 scribed under subsection (c) is made, the parties shall have

19 the option to refuse to enter into the contract as provided

20 under paragraphs (2) and (3).

21 ‘‘(2) The customer may exercise the option by—

22 ‘‘(A) refraining from making payment to the in23 vention developer; or

24 ‘‘(B) providing written notice of the refusal to

25 the invention developer.
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1 ‘‘(3) The invention developer may exercise the option

2 by giving to the customer a written notice of the exercise

3 of the option. The written notice shall become effective

4 upon receipt by the customer.

5 ‘‘§ 53. Standard provisions for cover notice

6 ‘‘(a) Every contract for invention development serv7 ices shall have a conspicuous and legible cover sheet at8 tached with the following notice imprinted thereon in bold9 face type of not less than 12-point size:

10 ‘‘ ‘YOU ARE NOT REQUIRED TO MAKE

11 ANY PAYMENTS UNDER THIS CONTRACT

12 UNTIL FIVE (5) BUSINESS DAYS AFTER YOU

13 SIGN THIS CONTRACT AND RECEIVE A COM14 PLETED COPY OF IT.

15 ‘‘ ‘THE TOTAL NUMBER OF INVENTIONS

16 EVALUATED BY THE INVENTION DEVEL17 OPER FOR COMMERCIAL POTENTIAL IN

18 THE PAST FIVE (5) YEARS IS lllll. OF

19 THAT NUMBER, lllll RECEIVED POSI20 TIVE EVALUATIONS AND lllll RE21 CEIVED NEGATIVE EVALUATIONS.

22 ‘‘ ‘IF YOU ASSIGN EVEN A PARTIAL IN23 TEREST IN THE INVENTION TO THE IN24 VENTION DEVELOPER, THE INVENTION DE25 VELOPER MAY HAVE THE RIGHT TO SELL
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1 OR DISPOSE OF THE INVENTION WITHOUT

2 YOUR CONSENT AND MAY NOT HAVE TO

3 SHARE THE PROFITS WITH YOU.

4 ‘‘ ‘THE TOTAL NUMBER OF CUSTOMERS

5 WHO HAVE CONTRACTED WITH THE IN6 VENTION DEVELOPER IN THE PAST FIVE

7 (5) YEARS IS lllll. THE TOTAL NUM8 BER OF CUSTOMERS KNOWN BY THIS IN9 VENTION DEVELOPER TO HAVE RECEIVED,

10 BY VIRTUE OF THIS INVENTION DEVEL11 OPER’S PERFORMANCE, AN AMOUNT OF

12 MONEY IN EXCESS OF THE AMOUNT PAID

13 BY THE CUSTOMER TO THIS INVENTION

14 DEVELOPER IS lllllll. THE NAMES

15 AND ADDRESSES OF SUCH CUSTOMERS, IF

16 ANY, SHALL BE PROVIDED TO ANY PERSON

17 REQUESTING IT.

18 ‘‘ ‘THE OFFICERS OF THIS INVENTION

19 DEVELOPER HAVE COLLECTIVELY OR INDI20 VIDUALLY BEEN AFFILIATED IN THE LAST

21 TEN (10) YEARS WITH THE FOLLOWING IN22 VENTION DEVELOPMENT COMPANIES:

23 (LIST THE NAMES AND ADDRESSES OF ALL

24 PREVIOUS INVENTION DEVELOPMENT COM25 PANIES WITH WHICH THE PRINCIPAL OFFI-
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1 CERS HAVE BEEN AFFILIATED AS OWNERS,

2 AGENTS, OR EMPLOYEES). YOU ARE EN3 COURAGED TO CHECK WITH THE UNITED

4 STATES PATENT AND TRADEMARK OFFICE,

5 THE FEDERAL TRADE COMMISSION, YOUR

6 STATE ATTORNEY GENERAL’S OFFICE, AND

7 THE BETTER BUSINESS BUREAU FOR ANY

8 COMPLAINTS FILED AGAINST ANY OF

9 THESE COMPANIES.

10 ‘‘ ‘YOU ARE ENCOURAGED TO CONSULT

11 WITH AN ATTORNEY OF YOUR OWN CHOOS12 ING BEFORE SIGNING THIS CONTRACT. BY

13 PROCEEDING WITHOUT THE ADVICE OF A

14 QUALIFIED ATTORNEY, YOU COULD LOSE

15 ANY RIGHTS YOU MIGHT HAVE IN YOUR

16 IDEA OR INVENTION.’.

17 ‘‘(b)(1) In addition to the requirements of subsection

18 (a), every contract for invention development services shall

19 contain the appropriate matter under paragraph (2) or

20 (3).

21 ‘‘(2) For invention developers who are enrolled the

22 contract shall contain the following:

23 ‘‘ ‘(NAME OF INVENTION DEVELOPER)

24 IS ENROLLED WITH THE COMMISSIONER

25 OF PATENTS AND TRADEMARKS AND
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1 BEARS ENROLLMENT NUMBER ll. THE

2 FACT THAT AN INVENTION DEVELOPER IS

3 ENROLLED WITH THE COMMISSIONER OF

4 PATENTS AND TRADEMARKS AS REQUIRED

5 BY LAW IS NOT AN ENDORSEMENT OF THE

6 INVENTION DEVELOPER NOR IS IT AN INDI7 CATOR THAT THEY ARE AUTHORIZED BY

8 THE COMMISSIONER TO REPRESENT APPLI9 CANTS OR OTHER PARTIES BEFORE THE

10 PATENT AND TRADEMARK OFFICE IN PAT11 ENT, TRADEMARK, OR OTHER MATTERS.’.

12 ‘‘(3) For invention developers who are not enrolled

13 the contract shall contain the following:

14 ‘‘ ‘(NAME OF INVENTION DEVELOPER)

15 IS NOT ENROLLED WITH THE COMMIS16 SIONER OF PATENTS AND TRADEMARKS AS

17 AN INVENTION DEVELOPER. BY NOT SO

18 ENROLLING, (NAME OF INVENTION DEVEL19 OPER) HAS INDICATED THAT IT WILL NOT

20 OFFER TO PERFORM OR PERFORM FOR A

21 CUSTOMER ANY ACT INVOLVED IN FILING

22 FOR AND OBTAINING PATENT, TRADE23 MARK, OF DESIGN PROTECTION.’ ’’.

24 ‘‘(c) The cover notice shall contain the items required

25 under subsections (a) and (b) and the name, primary of-
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1 fice address, and local office address of the invention de2 veloper, and may contain no other matter.

3 ‘‘§ 54. Reports to customer required

4 ‘‘With respect to every contract for invention develop5 ment services, the invention developer shall deliver to the

6 customer at the address specified in the contract, at least

7 at quarterly intervals throughout the term of the contract,

8 a written report that identifies the contract and includes—

9 ‘‘(1) a full, clear, and concise description of the

10 services performed to the date of the report and of

11 the services yet to be performed and names of all

12 persons who shall perform the services; and

13 ‘‘(2) the name and address of each person,

14 firm, or corporation to whom the subject matter of

15 the contract has been disclosed, the reason for each

16 and every disclosure, the nature of the disclosure,

17 and copies of all responses received as a result of

18 those disclosures.

19 ‘‘§ 55. Mandatory contract terms

20 ‘‘(a) Each contract for invention development services

21 shall include in boldface type of not less than 12-point

22 size—

23 ‘‘(1) the terms and conditions of payment and

24 contract termination rights required under section

25 52;
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1 ‘‘(2) a statement that the customer may avoid

2 entering into the contract by not making a payment

3 to the invention developer;

4 ‘‘(3) a full, clear, and concise description of the

5 specific acts or services that the invention developer

6 undertakes to perform for the customer;

7 ‘‘(4) a statement as to whether the invention

8 developer undertakes to construct, sell, or distribute

9 one or more prototypes, models, or devices embody10 ing the invention of the customer;

11 ‘‘(5) the full name and principal place of busi12 ness of the invention developer and the name and

13 principal place of business of any parent, subsidiary,

14 agent, independent contractor, and any affiliated

15 company or person that may perform any of the

16 services or acts that the invention developer under17 takes to perform for the customer;

18 ‘‘(6) if any oral or written representation of es19 timated or projected customer earnings is given by

20 the invention developer (or any agent, employee, offi21 cer, director, partner, or independent contractor of

22 such invention developer) a statement of that esti23 mation or projection and a description of the data

24 upon which such representation is based;
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1 ‘‘(7)(A) the name and address of the custodian

2 of all records and correspondence relating to the

3 contracted for invention development services, and a

4 statement that the invention developer is required to

5 maintain all records and correspondence relating to

6 performance of the invention development services

7 for that customer for a period of not less than 2

8 years after expiration of the term of the contract for

9 invention development services; and

10 ‘‘(B) a statement that before destruction or dis11 posal of the records and correspondence, the inven12 tion developer is required to notify the customer and

13 make such records and correspondence available to

14 the customer at a reasonable cost; and

15 ‘‘(8) a statement setting forth a time schedule

16 for performance of the invention development serv17 ices, including an estimated date by which perform18 ance of the invention development services is ex19 pected to be completed.

20 ‘‘(b) To the extent that the description of the specific

21 acts or services affords discretion to the invention devel22 oper as to what specific acts or services shall be per23 formed, the invention developer shall be deemed a fidu24 ciary.
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1 ‘‘(c) Records and correspondence described under

2 subsection (a)(7) shall be made available to the customer

3 or the representative of the customer for review and copy4 ing at the customer’s reasonable expense on the invention

5 developer’s premises during normal business hours upon

6 7 days written notice.

7 ‘‘§ 56. Remedies

8 ‘‘(a)(1) Any contract for invention development serv9 ices that does not comply with the applicable provisions

10 of this chapter shall be voidable at the option of the cus11 tomer.

12 ‘‘(2) Any contract for invention development services

13 entered into in reliance upon any false, fraudulent, or mis14 leading information, representation, notice, or advertise15 ment of the invention developer (or any agent, employee,

16 officer, director, partner or independent contractor of such

17 invention developer) shall be voidable at the option of the

18 customer.

19 ‘‘(3) Any waiver by the customer of any provision of

20 this chapter shall be deemed contrary to public policy and

21 shall be void and unenforceable.

22 ‘‘(4) Any contract for invention development services

23 made by an unenrolled invention developer, as provided

24 under section 57, shall be voidable at the option of the

25 customer.
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1 ‘‘(b)(1) Any customer who is injured by a violation

2 of this chapter by an invention developer or by any false

3 or fraudulent statement, representation, or omission of

4 material fact by an invention developer (or any agent, em5 ployee, director, officer, partner or independent contractor

6 of such invention developer) or by failure of an invention

7 developer to make all the disclosures required under this

8 chapter, may recover in a civil action against the invention

9 developer (or the officers, directors, or partners of such

10 invention developer) in addition to reasonable costs and

11 attorneys’ fees, the greater of—

12 ‘‘(A) $5,000; or

13 ‘‘(B) the amount of actual damages sustained

14 by the customer.

15 ‘‘(2) Notwithstanding paragraph (1), the court may

16 increase damages up to 3 times the amount awarded.

17 ‘‘(c) For the purpose of this section, substantial viola18 tion of any provision of this chapter by an invention devel19 oper or execution by the customer of a contract for inven20 tion development services in reliance on any false or fraud21 ulent statements, representations, or material omissions

22 shall establish a rebuttable presumption of injury.

23 ‘‘§ 57. Enrollment of invention developers

24 ‘‘(a) The Commissioner of Patents and Trademarks

25 shall require invention developers that offer to perform or
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1 perform for a customer any act involved in filing for and

2 obtaining utility, design, or plant patent or trademark pro3 tection to enroll annually with the Patent and Trademark

4 Office. Invention developers that offer to perform or per5 form such acts through an agent, employee, officer, part6 ner, or independent contractor shall also enroll.

7 ‘‘(b) The enrollment required under subsection (a)

8 shall include disclosure of—

9 ‘‘(1)(A) the names and addresses of all prin10 cipal officers of the invention developer; and

11 ‘‘(B) the names and principal place of business

12 of all invention developers with which the principal

13 officers have been affiliated during the 10-year pe14 riod before the date of enrollment; and

15 ‘‘(2) require disclosure of any administrative,

16 civil, or criminal action taken against the invention

17 developer (or any officer, director, or partner of such

18 invention developer) by any agent of Federal, State,

19 or local government.

20 ‘‘(c) Subject to the approval of the Secretary of Com21 merce, the Commissioner may prescribe regulations that—

22 ‘‘(1) govern the conduct of invention developers

23 and may require an invention developer, before en24 rollment, to demonstrate good reputation and nec25 essary qualifications to render to customers or other
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1 persons valuable service, advice, and assistance in

2 the invention development process;

3 ‘‘(2) provide which agents, employees, officers,

4 partners, independent contractors or other individ5 uals of an invention developer are required to enroll

6 under subsection (a); and

7 ‘‘(3) provide—

8 ‘‘(A) what information and records held or

9 retained by the invention developer shall be re10 quired to be made available to the Commis11 sioner; and

12 ‘‘(B) the conditions under which such in13 formation and records shall be made available.

14 ‘‘§ 58. Records of complaints

15 ‘‘(a) The Commissioner shall make all complaints re16 ceived by the Patent and Trademark Office involving in17 vention developers publicly available.

18 ‘‘(b) The Commissioner may request complaints re19 lating to invention development services from any Federal

20 or State agency and include such complaints in the records

21 maintained under subsection (a).

22 ‘‘§ 59. Enrollment fee

23 ‘‘The Commissioner may establish reasonable fees to

24 cover all costs and expenses to carry out the provisions

25 of this chapter.
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1 ‘‘§ 60. Suspension or exclusion from enrollment

2 ‘‘(a) The Commissioner may, after notice and oppor3 tunity for a hearing, suspend or exclude, either generally

4 or in any particular case, from enrollment as an invention

5 developer, any person, firm, partnership, or corporation—

6 ‘‘(1) demonstrated to be—

7 ‘‘(A) incompetent;

8 ‘‘(B) disreputable;

9 ‘‘(C) liable for gross misconduct; or

10 ‘‘(D) not in compliance with the regula11 tions established under this chapter; or

12 ‘‘(2) who shall in any manner deceive, mislead,

13 defraud, or threaten any customer.

14 ‘‘(b) The reasons for any such suspension or exclu15 sion shall be duly recorded.

16 ‘‘(c) The United States District Court for the District

17 of Columbia under such conditions and upon such proceed18 ings as by rule determined by such court, may review the

19 action of the Commissioner upon the petition of the inven20 tion developer so suspended or excluded.

21 ‘‘§ 61. Unenrolled representation as invention devel22 oper

23 ‘‘Whoever, not being enrolled as an invention devel24 oper with the Patent and Trademark Office, holds himself

25 out or permits himself to be held out as so enrolled, or

26 as being qualified to provide invention development serv-
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1 ices, or provides invention development services shall be

2 guilty of a misdemeanor and fined not more than $10,000

3 for each offense.

4 ‘‘§ 62. Rule of construction

5 ‘‘Except as expressly provided in this chapter, no pro6 vision of this chapter shall be construed to affect any obli7 gation, right, or remedy provided under any other Federal

8 or State law.’’.

9 SEC. 3. TECHNICAL AND CONFORMING AMENDMENT.

10 The table of chapters for part I of title 35, United

11 States Code, is amended by adding after the item relating

12 to chapter 4 the following:

‘‘5. Invention development services ........................................... 51’’.

13 SEC. 4. EFFECTIVE DATE.

14 (a) IN GENERAL.—Except as provided in subsection

15 (b), this Act and the amendments made by this Act shall

16 take effect 60 days after the date of the enactment of this

17 Act.

18 (b) CERTAIN REQUIREMENTS.—The provisions of

19 sections 53(b), 56(a)(4), 57, 59, 60, and 61 of title 35,

20 United States Code (as added by section 2 of this Act)

21 shall take effect 1 year after the date of the enactment

22 of this Act.

Æ

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