UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION v. NATIONAL INVENTION SERVICES, INC., a corporation ("NISI") and CIVIL ACTION NO. 97-3459 (MTB) STIPULATED ORDER FOR PERMANENT INJUNCTION AND FINAL RELIEF REGARDING DEFENDANTS NATIONAL INVENTION SERVICES, INC. ("NISI"), AND JOHN F. LEE. On July 14, 1997, plaintiff Federal Trade Commission ("Commission" or "FTC"), commenced this action by filing its complaint against defendants National Invention Services, Inc. ("NISI"), and John F. Lee ("Lee") (collectively, the "defendants"). The complaint alleges that the defendants engaged in unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45, and seeks a permanent injunction and monetary relief pursuant to Section 13(b) of the FTC Act. The Commission and defendants NISI and Lee have agreed to the settlement of this action upon the following terms and conditions, without adjudication of any issue of fact or law, and without the defendants admitting liability or wrong doing for the offenses alleged in the Complaint. Being advised of the premises, the Court accordingly finds:
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED as follows: DEFINITIONS For purposes of this Final Order, the following definitions shall apply:
PROHIBITION AGAINST MISREPRESENTATIONS I. (A) IT IS HEREBY ORDERED that defendants, and their officers, agents, servants, employees, attorneys (excepting any patent attorney who contracts with defendants' customers to do patent work for those customers who are not in active concert or participation with defendants), corporations, subsidiaries, successors, assigns, and independent contractors, and those persons or entities in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, in connection with the advertising, promotion, offer for sale, or sale of defendants' invention promotion services, are hereby permanently restrained and enjoined from making or assisting others in making, directly or by implication, any material false representation or material omission, including, but not limited to:
AFFIRMATIVE DISCLOSURES II. (A) IT IS FURTHER ORDERED that defendants and their officers, agents, servants, employees, attorneys (excepting any patent attorney who contracts with defendants' customers to do patent work for those customers who are not in active concert or participation with defendants), corporations, subsidiaries, successors, assigns, and independent contractors, and those persons or entities in active concert or participation with either of them who receive actual notice of this Order by personal service or otherwise, in connection with the advertising, promotion, offer for sale, or sale of invention promotion services shall:
(B) IT IS FURTHER ORDERED that the Disclosure Statement, in the exact form and type-size as set forth in Appendix C, shall contain no other information and shall reflect information that is current as of a date no more than 90 days prior to the date the Disclosure Statement is furnished to the client or prospective client. (C) IT IS FURTHER ORDERED that the Disclosure Statement(s) shall be retained under the provision of Part III, Record Keeping. RECORD-KEEPING AND DOCUMENT RETENTION III. IT IS FURTHER ORDERED that, for a period of five years from the date of entry of this Order, each of the defendants, and their officers, agents, servants, employees, corporations, subsidiaries, successors, and assigns, and those persons or entities in active concert or participation with either of them who receive actual notice of this Order by personal service or otherwise, in connection with any business where
is hereby restrained and enjoined from failing to create, and from failing to retain for a period of three years following the date of such creation, unless otherwise specified: (A) Books, records and accounts that, in reasonable detail, accurately and fairly reflect the cost of goods or services sold, revenues generated, and the disbursement of such revenues; (B) Records accurately reflecting: the name, address, and phone number of each person that any of the above-referenced businesses employ in any capacity, including as an independent contractor; that person's job title or position; the date upon which the person commenced work; and the date and reason for the person's termination, if applicable. The businesses subject to this Paragraph shall retain such records for any such person who was terminated for a period of three years following the date of termination; (C) Records containing the names, addresses, phone numbers, dollar amounts paid, quantity of items purchased, and description of items purchased, for all customers to whom any of the above-referenced businesses have sold, invoiced or shipped any goods or services, or from whom any of the above-referenced businesses accepted money or other items of value; (D) Records that reflect, for every customer complaint or refund request, however received:
(E) Copies of all sales scripts, training packets, advertisements, or other marketing materials utilized; and (F) Records reflecting all contracts, agreements or correspondence with any advertising company, or customer lead provider. (G) It is understood that these provisions do not require defendants to maintain multiple copies where single records satisfy the requirements of (D), (E) and (F). ORDER DISTRIBUTION IV. IT IS FURTHER ORDERED that, for a period of five years from the date of entry of this Order, defendants shall: (A) Provide a copy of this Order to, and obtain a signed and dated acknowledgement of receipt of same from, each officer or director, each individual serving in a management capacity, all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, immediately upon employing or retaining such persons, for any business where
(B) Maintain for a period of three years after creation, and upon reasonable notice make available to representatives of the Commission, the original signed and dated acknowledgements of the receipt of copies of this Order, as required in the above Subsection (A) of this Paragraph. ACCESS AND MONITORING V. IT IS FURTHER ORDERED that, for a period of five years from the date of entry of this Order, for purposes of determining or securing compliance with this Order, defendants shall permit representatives of the Commission, within ten business days of receipt of written notice from the Commission: (A) Access during normal office hours to any office, or facility storing documents, of any business where
In providing such access, each defendant shall permit representatives of the Commission to inspect and copy at Commission expense all documents relevant to any matter contained in this Order; and (B) To interview or depose the officers, directors, and employees, including all personnel involved in responding to consumer complaints or inquiries, and all sales personnel, whether designated as employees, consultants, independent contractors or otherwise, of any business to which Subsection (A) of this Paragraph applies, relating to compliance with the terms of this Order. Each defendant agrees not to interfere with these interviews or depositions. The Commission may otherwise monitor the compliance of any defendant with this Order by all lawful means available, including the taking of depositions, the use of compulsory process seeking production of documents, and the use of investigators posing as consumers. (C) Defendant may, in writing, designate an attorney to whom the notice referred to above shall be served. It is further understood that defendants have the right to have counsel present whenever the Commission or its representatives seeks to exercise any right set forth in Part V, Access And Monitoring. RESIDENTIAL AND EMPLOYMENT NOTIFICATION VI. IT IS FURTHER ORDERED that for a period of five years from the date of entry of this Order, in order that compliance with the provisions of this Order can be monitored: (A) Defendant Lee shall notify the Commission by registered mail, within ten days of the date of entry of this Order, of his current residence address and employment status, including the names, business addresses, and telephone numbers of any current employers, and, thereafter, shall notify the Commission by registered mail of any changes in his residence address within 30 days of such changes. (B) In the event that defendant Lee is or becomes affiliated in any capacity with any business that engages in, or assists others who are engaged in, the business of selling invention promotion services, defendant Lee shall notify the Commission by registered mail of the business's address and telephone number, the nature of its activities, and the nature of his own duties, management authority, and ownership interest in connection with the business. Defendant Lee shall comply with the requirements imposed in this subsection: (1) within 30 days of entry of this Order, if the defendant is affiliated with a business to which this subsection applies on the date that this Order is entered; and (2) within 30 days of the defendant's becoming affiliated with any business to which this subsection applies, if he becomes affiliated with such a business after the date that this Order is entered; (C) For the purposes of this Order, written notifications to the Commission shall be mailed to: Associate Director, Division of Service Industry Practices (D) For the purposes of this Paragraph VI, "employment" includes the performance of services as an employee, consultant, or independent contractor; and "employers" include any individual or business for which defendant Lee performs services as an employee, consultant, or independent contractor. However, the "employment" and "employer" must involve the invention promotion services as defined in Definitions, Part (B). PROHIBITION ON THE SALE OF CLIENT NAMES VII. IT IS FURTHER ORDERED that defendants, and their officers, agents, servants, employees, attorneys, corporations, subsidiaries, successors, assigns, and independent contractors, and those persons or entities in active concert or participation with them who receive actual notice of this Order by personal service or otherwise, are hereby permanently restrained and enjoined from selling, renting, leasing, transferring, or disclosing to a company, individual, or entity engaged in invention promotion services the name, address, telephone number, or other identifying information of any person who paid any monies to defendants at any time prior to entry of this Order in exchange for research, patent, marketing, and/or invention promotion services from defendants. MONETARY RELIEF VIII. IT IS FURTHER ORDERED that the Commission's claims for monetary relief shall be satisfied as follows: (A) Within five (5) days after the entry of the Order the Commission will provide proper documents from the financial institution(s), wherein NISI assets have been frozen pursuant to the consent order of the Court, releasing from said account(s) to the Federal Trade Commission an amount of $68,000. (B) Within five (5) days after the entry of the Order the Commission and defendant Lee, by their attorneys, shall agree upon the equity value of the entire stock portfolio contained in the Quick & Reilly account, as set forth in Schedule "B" of the Financial Statement executed by defendant Lee on July 30, 1997. The equity value of said portfolio shall be determined by the stated closing of each stock contained in said portfolio as of the close of business on the date of entry of this Order. Within ten (10) business days after establishing the equity value of each stock contained in the aforesaid portfolio, defendants, jointly and /or severally, shall transfer to the Federal Trade Commission an amount equal to the total stated equity value of the portfolio. Said amount may be satisfied by properly executed transfers of stock certificates, a properly issued check from Quick & Reilly, or a certified check from the defendants. (C) The amount of said portfolio shall be reduced by the amount owed Lee under the provisions of Part IV(C) of the order entered by the Court on September 5, 1997, as of the date this Order is entered. (D) The transfer of an amount equal to the amount specified in VIII(A) and the total stated value of the portfolio, reduced by VIII(C), shall be made in the following manner: [Amount] payable by wire transfer to the United States in accordance with the wire transfer instructions on Attachment A. (E) All amounts paid by defendants and collected by the Commission pursuant to VIII(A) & (B) constitute equitable relief solely remedial in nature for purposes of redress and are not a fine, penalty, punitive assessment, or forfeiture. All amounts paid and collected shall be used to establish a consumer redress fund, which, in accordance with a plan submitted by the Commission or its agents and approved by the Court, shall be (i) distributed to consumers of NISI, who purchased NISI's services prior to July 16, 1997 and have not executed a Disclosure Statement pursuant to Part II(B) of the Consent Order issued on August 15, 1997, and used to pay any attendant expenses of administering said fund; and (ii) any funds not so distributed shall, with sole discretion of the Commission or its agents, be paid over to the United States Treasury. (F) Any monies distributed under the provisions of VIII(D)(i) shall contain on the back of the checks the following general release language: Release: Consistent with the letter [client, or "I"] received in [date of letter], by my endorsement of this check I affirm that I am the claimant entitled to make a claim under the FTC v. National Invention Services, Inc. ("NISI"), et al. Settlement and I hereby relinquish and forever discharge NISI and John F. Lee individually for any and all claims that I have against NISI, its officers, agents including sales consultants, and employees. (G) Within five (5) days of compliance with Part VIII(A), the Commission shall execute proper documents releasing the frozen assets of NISI at all financial institutions that it knows about for which NISI's assets were frozen. Within five (5) days of compliance with Part VIII(B)-(D), the Commission shall execute proper documents releasing the frozen assets of John F. Lee at all financial institutions that it knows about for which John F. Lee's assets were frozen. LIFTING THE ASSET FREEZE IX. IT IS FURTHER ORDERED that upon transfer of all the funds as described in Paragraph VIII, the freeze of the assets of defendants NISI and Lee, as ordered in the Consent Order entered by the Court on August 20, 1997 and the Preliminary Injunction entered by the Court on September 5, 1997, respectively, is dissolved. RIGHT TO REOPEN X. IT IS FURTHER ORDERED that, within five days of receiving notice that this Order has been entered, defendant Lee shall submit to the Commission a truthful sworn statement, in the form shown on Appendix A, that shall reaffirm and attest to the truth, accuracy, and completeness of his personal financial statement, which statement shall have been previously submitted to the Commission on July 30, 1997. In addition, defendants shall submit to the Commission a truthful sworn statement, in the form shown on Appendix B, that shall reaffirm and attest to the truth, accuracy, and completeness of the financial statement of defendants which statements shall have been previously submitted to the Commission on July 29, 1997, and July 30, 1997. The Commission's agreement to this Order is expressly premised upon the truthfulness, accuracy, and completeness of defendants' financial condition as represented in the financial statements referenced above, which contain material information upon which the Commission relied in negotiating and agreeing to this Order. If, upon motion by the Commission, the Court finds that any of the above-referenced financial statements failed to disclose any material asset, materially misrepresented the value of any asset, or made any other material misrepresentation or omission of fact, the Commission may request that the Order herein be reopened to allow the Commission to modify the monetary liability of any defendant. Provided, however, that in all other respects this Order shall remain in full force and effect unless otherwise ordered by the Court; and provided further that proceedings instituted under this provision would be in addition to and not in lieu of any other civil or criminal remedies as may be provided by law, including any other proceedings that the Commission may institute to enforce the Order. Solely for the purposes of this Paragraph, defendants waive any right to contest any of the allegations in the Complaint filed in this matter. RETENTION OF JURISDICTION XI. IT IS FURTHER ORDERED that the Court retains jurisdiction of this matter for all purposes including the construction, modification, and enforcement of this Order. STIPULATED AND AGREED TO BY: DATED: DATED: DATED: Attorneys for Plaintiff FOR THE DEFENDANTS: DATED: DATED: DATED: Attorney for the defendants IT IS SO ORDERED. Dated: ___________________ ___________________________ Appendix A PETER W. LAMBERTON 0914 JEROME M. STEINER, JR. 5574 KIMBERLEY GUADAGNO 5323 Attorneys for the Plaintiff UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION v. NATIONAL INVENTION SERVICES, INC., a corporation ("NISI") and CIVIL ACTION NO. 97-3459 (MTB) DECLARATION OF JOHN F. LEE 1. My name is John F. Lee. I am a citizen of the United States and am over the age of 18. I reside in Pawley's Island, SC. I have knowledge of the matters discussed in this declaration. 2. I am a defendant in FTC v. National Invention Services, Inc., et. al., CIVIL ACTION NO. 97-3459 (MTB). 3. I have received a copy of the Final Order entered by the Court in the above-captioned action. 4. The information contained in the financial statements executed by me on July 29, 1997, and July 30, 1997, and previously provided to the Federal Trade Commission, was true, accurate, and complete when executed. I hereby declare under penalty of perjury that the foregoing is true and correct. Dated: John F. Lee Appendix B PETER W. LAMBERTON 0914 JEROME M. STEINER, JR. 5574 KIMBERLEY GUADAGNO 5323 Attorneys for the Plaintiff UNITED STATES DISTRICT COURT FEDERAL TRADE COMMISSION v. NATIONAL INVENTION SERVICES, INC., a corporation ("NISI") and CIVIL ACTION NO. 97-3459 (MTB) DECLARATION OF NISI 1. My name is John F. Lee. I am a citizen of the United States and am over the age of 18. I reside in Pawley's Island, SC. I have knowledge of the matters discussed in this declaration. I am the sole corporate officer and sole shareholder of National Invention Services, Inc. ("NISI"), a New Jersey corporation. 2. NISI is a defendant in FTC v. National Invention Services, Inc., et. al., CIVIL ACTION NO. 97-3459 (MTB). 3. NISI has received a copy of the Final Order entered by the Court in the above-captioned action. 4. The information contained in the financial statements executed by NISI on July 29, 1997, and July 30, 1997, and previously provided to the Federal Trade Commission, was true, accurate, and complete when executed. I hereby declare under penalty of perjury that the foregoing is true and correct. Dated: John F. Lee, President, NISI Appendix C AFFIRMATIVE DISCLOSURE STATEMENT You should be aware that since its inception in January, 1994, National Invention Services, Inc. ("NISI"), has selected and recommended for further invention promotion services the vast majority of all invention ideas submitted to it for a preliminary assessment. NISI does not, at any stage, perform any evaluation or assessment of the market potential, patentability, technical feasibility, or merit of the ideas submitted to it. As of 12/1/97, 1087 NISI clients have signed representation agreements with NISI. 0 NISI clients have made more money from their invention as a result of using NISI's services than they paid NISI for its services. Dated: Dated: |