CALIFORNIA STATUTES

INVENTION MARKETING COMPANIES

(As of 12/12/98)

NATIONAL INVENTOR FRAUD CENTER

www.inventorfraud.com

CALIFORNIA CODES

BUSINESS AND PROFESSIONS CODE

SECTION 22370-22371

22370.  (a) The Legislature finds that there are in the State of California members of the general public who have ideas or inventions that they believe have substantial commercial value but which members of the general public do not have the resources or expertise necessary to develop, manufacture or market these ideas or inventions; that these members of the general public are commonly referred to as "inventors"; that these inventors are generally not people who earn their livelihood from developing, manufacturing, promoting or marketing ideas or inventions, from manufacturing or marketing products, from publishing literary works or from owning, operating or controlling commercial enterprises; that their is a significant number of persons who have realized that inventors are willing to expend substantial sums for services represented to result in the development, manufacture, promotion, sale or general exploitation of the commercial value of their ideas or inventions; that these persons are frequently known as invention developers; that the invention developers' services are generally offered for sums ranging from $500 to $5,000 plus either a percentage of the income that may be derived from the sale or marketing of the idea or nvention or a partial ownership interest in the idea or invention; that the inventors generally have a very passive role in the
development, promotion, manufacture or sale of their ideas or inventions after the contract with the invention developer is executed, usually doing little more than receiving periodic reports from the invention developer; that an extremely small number of inventors to whom these invention developers offer their services ever have their products sold or marketed; that there exists in connection with invention development services, sales practices and
business methods which have worked a fraud, deceit, imposition, and financial hardship upon many people of this state; that existing legal protection to consumers is inadequate to prevent these abuses; that the invention development industry has a significant impact upon the economy and well-being of this state and its local communities; and that the provisions of this chapter relating to such services are necessary for the public welfare.
   (b) The Legislature declares that the purpose of this chapter is to safeguard the public against fraud, deceit, imposition, and financial hardship, and to foster and encourage competition, fair dealing, and prosperity in the field of invention development services by prohibiting or restricting false or misleading advertising, onerous contract terms, harmful financial practices, and other unfair, dishonest, deceptive, destructive, unscrupulous, fraudulent, and discriminatory practices by which the public has been injured in connection with invention development services but not to interfere with, or further regulate by this chapter, those persons who provide researching, marketing, surveying, or other kinds of consulting services to professional manufacturers, marketers, publishers or others purchasing such services as an adjunct to the
traditional commercial enterprises in which they engage as a livelihood.
 



 

22371.  As used in this chapter, the following words have the following meanings:
   (a) "Contract for invention development services" shall include a contract by which an invention developer undertakes to develop or
promote an invention for a customer.
   (b) "Customer" shall include any person, firm, corporation, or other entity that is solicited by, inquires about or seeks the services of, or enters into a contract for invention development services with an invention developer, except (1) any department or agency of the federal, state, or local government, (2) any charitable, scientific, educational, religious, or other organization
qualified under Section 501(c)(3) or described in Section 170(b)(1)(a) of the Internal Revenue Code of 1954, as amended, and (3) any
person, firm, corporation, or other entity regularly engaged in a trade, business, or profession which has either a net worth of one
hundred thousand dollars ($100,000) or more or gross receipts from any source of fifty thousand dollars ($50,000) or more during the
calendar year in which any contract for invention development services is signed.
   (c) "Invention" shall mean (1) an invention, (2) an idea, (3) a concept, or (4) any combination thereof.
   (d) "Invention developer" shall mean any person, firm, corporation, or association, and the agents, employees, or representatives of such person, firm, corporation, or association
that develops or promotes or offers to develop or promote an invention, except (1) any department or agency of the federal, state,
or local government, (2) any charitable, scientific, educational, religious, or other organization qualified under Section 501(c)(3) or described in Section 170(b)(1)(a) of the Internal Revenue of Code 1954, as amended, (3) any person, firm, corporation, association, or other entity whose gross receipts from contracts for invention development services, as defined in subdivision (a) of Section 22371,
do not exceed 10 percent of its gross receipts from all sources during the fiscal year preceding the year in which any contract for
invention development services is signed, or (4) any person, firm, corporation, association or other entity that does not charge a fee
for invention development services.  For the purposes of this paragraph, "fee" shall include any payment made by the customer to
such entity including reimbursements for expenditures made or costs incurred by such entity but shall not include any payment made from a portion of the income received by a customer by virtue of invention development services performed by such entity.
   (e) "Invention development services" shall include acts required or promised to be performed, or actually performed, or both, by an invention developer for a customer.
 


22372.  (a) Every contract for invention development services shall be in writing and shall be subject to the provisions of this chapter. A copy of the written contract shall be given to the customer at the time he signs the contract.
   (b) If one or more subsequent contracts are contemplated by the invention developer in connection with an invention, or if the
invention developer contemplates performance of services in connection with an invention in more than one phase with the performance of each phase covered in one or more subsequent contracts, the invention developer shall so state in a writing and shall supply to the customer such writing together with a copy of
such contract or a written summary of the general terms of each and every such subsequent contract, including the amount of any fees or other consideration required from the customer, at the time the customer signs the first contract.


22373.  (a) Notwithstanding any contractual provision to the contrary, the invention developer and the customer shall each have the right to cancel a contract for invention development services for any reason at any time within seven days of the date the invention developer and the customer sign the contract.  Cancellation shall be effected by written notice mailed or delivered to the invention developer or the customer.  If said notice is mailed, it must be postmarked by midnight of the last day of the cancellation period. If the notice is delivered, it must be delivered by the end of the invention developer's normal business day.  Within five business days after receipt of such notice of cancellation by the customer, the invention developer shall return to the customer, by mail, all moneys paid and all materials provided by the customer.
   (b) The provisions of subdivision (a) shall apply to every contract executed between an invention developer and a customer. Each such contract shall contain the following statement in 10-point boldface type immediately above the place at which the customer signs the contract:
   "The seven-day period during which you may cancel this contract for any reason by mailing or delivering written notice to the invention developer will expire on  .(Last date to mail or deliver notice) If you choose to mail your notice, it must be placed in the United States mail properly addressed first-class postage prepaid and postmarked before midnight of this date.  If you choose to deliver your notice to the invention developer directly, it must be delivered to him by the end of his normal business day on this date.  The invention developer also has the right to cancel this contract by notice similarly mailed or delivered."


22374.  Each and every contract for invention development services shall carry a distinctive and conspicuous cover sheet with the
following notice (and no other) imprinted thereon in boldface type of not less than 10-point size:
   "The following disclosures are required by law:
  You have the right to cancel this contract for any reason at any time within seven days from the date you and the invention developer sign the contract and you receive a fully executed copy of it.  To exercise this option you need only mail or deliver to this invention developer written notice of your cancellation.  The method and time for notification is set forth in this contract immediately above the place for your signature.  Upon cancellation, the invention developer must return by mail, within five business days, all money paid and
all materials provided by you.
   Your potential patent rights may be adversely affected by any attempt to commercialize your idea or invention before a patent application covering it is filed.  Nonconfidential disclosures of your idea or invention may also trigger certain statutory deadlines for filing a patent application in the United States and would prevent you from obtaining valid patent rights in countries whose law provides that patent applications must be filed before there is a public disclosure.
   This contract between you and the invention developer is regulated by law.  The invention developer is not qualified or permitted to advise you whether protection of your idea or invention is available under the patent, copyright or trademark laws of the United States or any other law.  This contract does not provide any patent, copyright or trademark protection for your idea or invention.
  If your idea or invention is patentable, copyrightable or subject to trademark protection, or infringes an existing valid patent, copyright or trademark or a patent, copyright or trademark for which application has been made, your failure to inquire into these matters
may affect your rights to your idea or invention."


22375.  No invention developer shall acquire any interest, partial or whole, in the title to the customer's invention, unless the invention developer contracts to manufacture the invention and acquires such interest for such purpose at or about the time the contract for manufacture is executed.  Nothing in this section shall be construed to prohibit an invention developer from contracting with
a customer to receive a portion of any proceeds accruing to the customer as a result of performance of invention development services by the invention developer.


22376.  No contract for invention development services shall require or entail the execution of any note or series of notes by the customer which, when separately negotiated, will cut off as to third parties any right of action or defense which the customer may have against the invention developer.


22377.  Any assignee of the invention developer's rights is subject to all equities and defenses of the customer against the invention
developer existing in favor of the customer at the time of the assignment.


22378.  With respect to each and every contract for invention development services, the invention developer shall deliver to the
customer, at the address specified in the contract at quarterly intervals throughout the term of the contract, a written statement of
the services performed to date; provided, however, the first such statement need not be delivered until 180 days after the contract is
executed.


22379.  Every contract for invention development services shall set forth in at least 10-point boldface type, or equivalent size if
handwritten, all of the following:
   (a) The terms and conditions of payment required by Section 22373.

   (b) A full and detailed description of the acts or services that the invention developer undertakes to perform for the customer.  To
the extent that the description of acts or services affords the invention developer discretion to decide what acts or services are to be performed by the invention developer, the invention developer shall exercise that discretion to promote the best interests of the
customer.
   (c) A statement whether the invention developer undertakes to construct one or more prototypes, models, or devices embodying the
customer's invention.
   (d) A statement whether the invention developer undertakes to sell or distribute one or more prototypes, models, or devices embodying the customer's invention.
   (e) The name of the person or firm contracting to perform the
invention development services, the name under which said person or firm is doing or has done business as an invention developer, and the name of any parent, subsidiary or affiliated company that may engage in performing the invention development services.
   (f) The invention developer's principal business address and the name and address of its agent in the State of California authorized
to receive service of process.
   (g) The business form of the invention developer, whether corporate, partnership, or otherwise.
   (h) A statement of the fee charged, a statement that a portion of the fee charged will be paid as a commmission or other similar
payment, if in fact it is intended to be so paid, to a person inducing, directly or indirectly, a customer to contract for the services of the invention developer, which statement shall specify the names of the person or persons receiving said payment; and a statement of the approximate portion of the fee charged, if any, that will be expended for services relating to patent matters.
   (i) A statement that the invention developer does not intend to expend more for the invention development services than the fee
charged the customer, if, in fact, it does not, and if it does, a statement of the estimated expenditures of the invention developer in
excess of the fee received from the customer.
   (j) If any oral or written representation of estimated or projected customer earnings is made, a statement of such estimation
or projection and the data upon which it is based.
   (k) A single statement setting forth both (1) the total number of customers who have contracted with the invention developer provided, however, that the number need not reflect those customers who have contracted within the last 30 days, and (2) the number of customers that have received, by virtue of the invention developer's performance of invention development services, an amount of money in
excess of the amount of money paid by such customers to the invention developer.
   (l) A statement that the invention developer is required to maintain all records and correspondence relating to performance of
the invention development services for that customer for a period not less than three years after expiration of the term of the contract
for invention development services.
   (m) The name and address of the custodian of all records and correspondence relating to the performance of the invention development services.
   (n) A statement that the records and correspondence required to be maintained by subdivision (m) above will be made available to the customer or his representative for review and copying at the customer's expense on the invention developer's premises during normal
business hours upon seven days' written notice, said time period to begin from the date the notice is placed in the United States mail
properly addressed first-class postage prepaid.
   (o) A statement of the expected date of completion of the invention development services.
   (p) A statement as follows:
   "Your potential patent rights may be adversely affected by any attempt to commercialize your idea or invention before a patent application covering it is filed. Nonconfidential disclosures of your idea or invention may also trigger certain statutory deadlines for filing a patent application in the United States and would prevent you from obtaining valid patent rights in countries whose law provides that patent applications must be filed before there is a public disclosure.
   This contract between you and the invention developer is regulated by law.  The invention developer is not qualified or permitted to advise you whether protection of your idea or invention is available under the patent, copyright or trademark laws of the United States or any other law.  This contract does not provide any patent, copyright or trademark protection for your idea or invention.
  If your idea or invention is patentable, copyrightable or subject to trademark protection, or infringes an existing valid patent, copyright or trademark or a patent, copyright or trademark for which application has been made, your failure to inquire into these matters may affect your rights to your idea or invention."



DISCLOSURE OF FEES IN ADVERTISEMENTS
22380.  Every invention developer who charges a fee or requires any consideration for his invention development services must clearly and conspicuously disclose such fact in every advertisement of such services.


22381.  In the first oral communication with a customer or in the first written response to an inquiry by a customer other than an oral
communication or written response, the primary purpose of which is to arrange an appointment with the invention developer for
presentation of his or her invention development services, the invention developer shall cause the following written disclosures to
be made and given to each customer at the time of the disclosure:
   (a) A statement of the fee charged, if known, or a statement of the approximate range of fees charged; a statement that a portion of the fee charged will be paid as a commission or other similar payment, if in fact it is intended to be so paid, to a person inducing, directly or indirectly, a customer to contract for the
services of the invention developer; and a statement of the approximate portion of the fee charged, if any, that will be expended for services relating to patent matters.
   (b) A statement that the invention developer does not intend to expend more for the invention development services than the fee
charged the customer, if, in fact, it does not, and if it does, a statement of the estimated expenditures of the invention developer in
excess of the fee received from the customer.
   (c) A single statement setting forth both (1) the total number of customers who have contracted with the invention developer; however, the number need not reflect those customers who have contracted within the last 30 days; and (2) the number of customers that have received by virtue of the invention developer's performance of invention development services an amount of money in excess of the amount of money paid by those customers to the invention developer.
   (d) A statement as follows:
   "Your potential patent rights may be adversely affected by any attempt to commercialize your idea or invention before a patent application covering it is filed.  Nonconfidential disclosures of your idea or invention may also trigger certain statutory deadlines for filing a patent application in the United States and would prevent you from obtaining valid patent rights in countries whose law provides that patent applications must be filed before there is a public disclosure.  Any contract for invention development services
between you and our firm will be regulated by law.  Our firm is not qualified or permitted to advise you whether protection of your idea or invention is available under the patent, copyright or trademark laws of the United States or any other law.  The contract does not provide any patent, copyright or trademark protection for your idea or invention.  If your idea or invention is patentable, copyrightable or subject to trademark protection, or infringes an existing valid patent, copyright or trademark or a patent, copyright or trademark for which application has been made, your failure to inquire into these matters may affect your rights to your idea or invention."


22382.  The provisions of this chapter are not exclusive and do not relieve the parties or the contract subject thereto from compliance
with all other applicable provisions of law.



VOIDING CONTRACT
 
22383.  Any contract for invention development services which does not comply with the applicable provisions of this chapter shall be void and unenforceable as contrary to public policy, provided that no contract shall be void and unenforceable if the invention developer proves that noncompliance was unintentional and resulted from a bona fide error notwithstanding the use of reasonable procedures adopted to avoid any such errors and makes an appropriate correction.



MISREPRESENTATIONS VOID CONTRACT

22384.  Any contract for invention development services entered into
in reliance upon any willful and false, fraudulent, or misleading representation by the invention developer shall be void and
unenforceable.


22385.  Any waiver by the customer of the provisions of this chapter shall be deemed contrary to public policy and shall be void and
unenforceable.


22386.  Any person who has been injured by a violation of this chapter by an invention developer, or by any false or fraudulent
statement, representation, or omission of material fact by an invention developer, or by failure of an invention developer to make
all the disclosures required by Section 22379, may bring a civil action against the invention developer for the greater of the following amounts:
   (1) Three thousand dollars ($3,000).
   (2) Three times the amount of the actual damages, if any, sustained by the plaintiff.
In addition to the greater of the preceding amounts, the court may award reasonable attorney's fees to the plaintiff.


22387.  Any invention developer who willfully violates any provision of this chapter, or willfully enters an invention development
contract which omits any duty or disclosure required by this chapter, is guilty of a misdemeanor.  Any superior court of this state shall have jurisdiction in equity to restrain and enjoin the violation of any of the provisions of this chapter relating to invention development services and contracts therefor.
   The duty to institute actions for violation of such provisions of this chapter, including equity proceedings to restrain and enjoin
such violations, is hereby vested in the Attorney General, district attorneys, county counsels, and city attorneys.  The Attorney
General, any district attorney, or city attorney may prosecute misdemeanor actions or institute equity proceedings or both.
   This section shall not be deemed to prohibit the enforcement by any person of any right provided by this or any other law.
  


22388.  Failure to make the disclosure required by Article 4 (commencing with Section 22380) shall render any contract
subsequently entered into between the customer and the invention developer voidable by the customer.
 



BOND REQUIREMENT

22389.  Every invention developer rendering or offering to render invention development services in this state shall maintain a bond
issued by a surety company admitted to do business in this state. The principal sum of the bond shall be 5 percent of the invention developer's gross income from the invention development business in this state duing the invention developer's last fiscal year, except
that the principal sum of the bond shall not be less than twenty-five thousand dollars ($25,000) in the first or any subsequent year of operations.  A copy of such bond shall be filed with the Secretary of State prior to the time the invention developer first commences business in this state.  The invention developer shall have 90 days after the end of each fiscal year within which to change the bond as may be necessary to conform to the requirements of this section.


22390.  The bond required by Section 22389 shall be in favor of the State of California for the benefit of any person who, after entering
into a contract for invention development services with an invention developer is damaged by fraud or dishonesty or failure to provide the services of the invention developer in performance of the contract.


22391.  (a) When a deposit has been made in lieu of bond pursuant to Section 22389 and Section 995.710 of the Code of Civil Procedure, the person asserting a claim against the deposit shall, in lieu of Section 996.430 of the Code of Civil Procedure, establish the claim by furnishing evidence to the Secretary of State of a money judgment entered by a court together with evidence that the claimant is a
person described in Section 22390.
   (b) When a person has established the claim with the Secretary of State, the Secretary of State shall review and approve the claim and
enter the date of approval thereon.  The claim shall be designated an "approved claim."
   (c) When the first claim against a particular deposit account has been approved, it shall not be paid until the expiration of a period
of 240 days after the date of its approval by the Secretary of State.
  Subsequent claims that are approved by the Secretary of State within the same 240-day period shall similarly not be paid until the
expiration of the 240-day period.  Upon the expiration of the 240-day period, the Secretary of State shall pay all approved claims from
that 240-day period in full unless the deposit is insufficient, in which case each approved claim shall be paid a pro rata share of the
deposit.
   (d) When the Secretary of State approves the first claim against a particular deposit account after the expiration of a 240-day period, the date of approval of that claim shall begin a new 240-day period to which subdivision (c) shall apply with respect to the amount remaining in the deposit account.
   (e) After a deposit account is exhausted, no further claims shall be paid by the Secretary of State.  Claimants who have had their
claims paid in full or in part pursuant to subdivisions (c) and (d) shall not be required to return funds received from the deposit for
the benefit of other claimants.
   (f) When a deposit has been made in lieu of bond, the amount of the deposit shall not be subject to attachment, garnishment, or
execution with respect to an action or judgment against the invention developer, other than as to an amount no longer needed or required
for the purpose of this chapter which would otherwise be returned to the invention developer by the Secretary of State.
   (g) The Secretary of State shall retain a cash deposit for two years from the date the Secretary of State receives written
notification from the assignor of the deposit that the assignor has ceased to engage in the business of an invention developer or has
filed a bond pursuant to Section 22389, provided that there are no outstanding claims against the deposit.  The written notice shall
include all of the following:  (1) name, address, and telephone number of the assignor; (2) name, address, and telephone number of
the bank at which the deposit is located; (3) account number of the deposit; and (4) a statement whether the assignor is ceasing to
engage in the business of an invention developer or has filed a bond with the Secretary of State.  The Secretary of State shall forward an acknowledgment of receipt of the written notification to the assignor at the address indicated therein, specifying the date of receipt of the written notice and anticipated date of release of the deposit.
   (h) This section shall apply to all deposits retained by the Secretary of State.  The Secretary of State shall notify each assignor of a deposit retained by the Secretary of State on January 1, 1997, of the applicability of this section on or before January 11, 1997.
   (i) A judge of a municipal or superior court may order the return of the deposit prior to the expiration of two years upon evidence
satisfactory to the judge that there are no outstanding claims against the deposit or order the Secretary of State to retain the
deposit for a sufficient period beyond the two years specified in subdivision (g) to resolve outstanding claims against the deposit.


22391.1.  (a) The Secretary of State shall enforce the provisions of this title that govern the filing and maintenance of bonds and
deposits in lieu of bonds.

(b) The Secretary of State shall charge and collect a filing fee not to exceed the cost of filing the bond or the deposit in lieu of a
bond pursuant to Section 995.710 of the Code of Civil Procedure.


22392.  Every invention developer shall maintain all records and correspondence relating to performance of each invention development service contract for a period of not less than three years after expiration of the term of each such contract.


22393.  No invention developer shall make, or authorize the making of, any reference to compliance by it with this act in any advertisement.


22394.  If any provision of this act or the application thereof to any person or circumstances is held unconstitutional, the remainder of the chapter and the application of such provision to other persons and circumstances shall not be affected thereby.


22395.  An invention developer shall maintain as confidential all disclosures made to it by a customer seeking invention development
services, except:
   (a) Information which at the time of disclosure is in the public domain.
   (b) Information which, after disclosure, becomes part of the public domain by  publication or otherwise, independently of any act or omission by the invention developer.
   (c) Information which the invention developer can establish by competent proof was in its possession at the time of disclosure by
the customer, and was not acquired, directly or indirectly, from the customer.
   (d) Information which the invention developer receives from a third party; provided, however, that such information was not obtained in confidence by said third party, directly or indirectly, from the customer.
   This duty of confidentiality includes the taking of reasonable steps by the invention developer to prevent disclosure of confidential information to third parties.  This confidential relationship cannot be waived by a customer without an express written waiver by the customer of the invention developer's obligation of confidentiality, and no waiver shall be entered into until after the disclosures described in Section 22381 have been made.




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