TexLawThursday

TexLawThursday: Invention Development Services

Texas law provides protection for inventors seeking assistance in marketing their inventions.  If you are an inventor or a service provider, its important to familarize yourself with the statute’s requirements because any “substantial violation” of the statute or a customer’s execution of an invention-development services contract in reliance on a false or fradulent statement, representation, or omission of a material fact, creates a rebuttable presumption of injury.  Although I present the material generally below, if you are an inventor or service provider, make sure that you read the statute in detail (provided via the link above) and consult with an attorney to make sure you’re in compliance.

INVENTIONS & COVERED INVENTION SERVICE PROVIDERS

Inventions are defined as a “discovery, process, machine, design, formulation, product, concept, idea, or any combination [thereof], regardless of whether patentable.”  The statute applies to any non-exempt* individual, firm, or partnership that performs acts related to the procurement or attempted procurement of a licensee or buyer of an intellectual property right in an invention, including;

  • evaluating, perfecting, marketing, or brokering an invention;
  • performing a patent search; and
  • preparing or prosecuting a patent application.

*Exempt parties include: (1) parties working for free or under a commission-based service agreement, (2) Attorneys acting within the scope or their professional license, (3) government departments or agencies, (4) nonprofit, charitable, scientific, or educational entity organized under Texas Non-Profit Act, Title 1 Chapter 22 Texas Business Organizations Code, or described by section 170(b)(1)(A) of the Internal Revenue Code of 1986, (5) person registered to practice before the US Patent & Trademark Office and who is acting within the scope of that persons professional license.

BOND REQUIRED

Before providing invention development services, non-exempt invention-service providers must post and maintain a bond and file a copy of the bond with the Secretary of State.

INVESTMENT DEVELOPMENT CONTRACT REQUIREMENTS

Invention-development service contracts must be in writing, create a fiduciary relationship to the extent of the services promised, and, among other items, must contain (1) payment terms, (2) contract termination rights, (3) full, clear, and concise description of the services to be rendered, (4) statement re. any intent of the service provider to construct  distribute, or sell one or more prototypes, models, or devices embodying the invention, (5) a description of the data on which any oral or written earnings estimations made by the service provider are based, (6) a time schedule for service performance, including an estimated completion date.

The contract must also provide the name and address of the custodian of the records pertaining to the services described by the contract and a statement that (1) the service provider is required to maintain all records and correspondence relating to the services until the second anniversary of the contract-expiration date and (2) that on seven days’ written notice, the service provider will make the records and correspondence available to the inventor/customer.

If the service provider utilizes multiple contracts in its service-provision (through a phased approach) this practice must be outlined in a document provided to the inventor/customer a the time the customer signs the first contract.  The document must also contain a written summary of the service provider’s normal terms for subsequent contracts (including the approximate amount of the service provider’s normal fees or other consideration required from the customer).

The contract must be accompanied by an attached cover sheet containing the service provider’s name, home address, office address, and local office address of the service provider and four statutorily required paragraphs.

A copy of the contract must be provided to the inventor (customer) at time of signing.

PAYMENT DELAY

Regardless of any contract provisions, a service provider cannot require payment before the fourth working day after the date the customer receives a copy of the contract signed by both the service provider and the customer. 

OPTION TO TERMINATE THE CONTRACT

Until payment is made, the parties to the contract have the option to terminate the contract.  Customers/inventors exercise this option by not making any payments.  Service providers may exercise this option by giving the customer written notice of termination, which becomes effective when it is received by the customer.

QUARTERLY PROGRESS REPORTS REQUIRED

At least once during each calendar quarter during the contract term, service providers are required to provide customers with a written report that identifies the contract and contains:

  • a full, clear, and concise description of the services performed to date; and
  • the name and address of each person to whom the subject matter of the contract has been disclosed, the reason for and nature of the disclosure, and copies of all responses received as a result of the disclosure.

ENFORCEMENT & REMEDIES

Non-exempt parties failing to adhere to the statutory requirements could result in (1) the inventor/customer opting to void the contract, (2) private cause of action resulting in minimum damages of $1,000 or actual damages and court costs and attorneys fees, and (3) violation of the Texas Deceptive Trade Practices, which provides for treble damages in some cases.  Both parties to the contract and the Attorney General may pursue actions related to the statute.

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