Intellectual property

McGraw-Hill/Irwin
Entrepreneurship, 7/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Intellectual Property

 Includes:
 Patents.
 Trademarks.
 Copyrights.
 Trade secrets.

 Represents important assets to the Business.

 Should be understood even before engaging the services of an attorney.
Selecting a Lawyer

 Lawyer may work on a:

 Retainer basis.
 One-time fee.

 A good working relationship with a lawyer:

 Eases some of the risk in starting a new business.
 Gives the entrepreneur necessary confidence.

 Entrepreneur can offer lawyer stock in exchange for the services.

Types of Patents
 Patent: grants holder protection from others making, using, or selling similar
idea; issued by the PTO.

 Utility patent: grants owner protection from anyone else making,

using, and/or selling the identified invention.
 Design patent: provide inventor with a negative right excluding
others from making, using, or selling an article having the
ornamental appearance given in the drawings included in the
patent.
 Plant patent: given for new varieties of plants, represent a limited
area of interest.
International Patents

 The Patent Cooperation Treaty (PCT) was established to provide firms

protection in global markets.
 Has over 100 participants.
 Facilitates patent filings in multiple countries in one office.
 Administered by the World Intellectual Property Organization (WIPO) in
Geneva, Switzerland.
 Provides a preliminary search that assesses whether filing firm will face
infringements in any country.

 Significant differences may exists in patent laws in each of these countries.

The Disclosure Document

 Statement to U.S. Patent and Trademark Office by inventor disclosing intent to patent
idea.
 Establish a date of conception of the invention.
 Important when two entrepreneurs file patents on similar inventions.
 Relevant when foreign companies are involved.

 To file a disclosure document:

 Prepare a clear and concise description of the invention.
 Include photographs.
 Include a cover letter and a duplicate with the description.
The Patent Application (1 of 2)

 Introduction
 Background.
 Advantages of the invention and the nature of problems that it overcomes.
 States how the invention differs from existing offerings.

 Description of invention
 Description of the drawings that accompany it.
 Detailed description of the invention.
The Patent Application (2 of 2)

 Claims
 Serve to specify what the entrepreneur is trying to patent.
 Essential parts of the invention should be described in broad terms
 Claims must not be too general either.

 Application should contain a declaration or oath signed by the inventor or

inventors.
Patent Infringement

 Many businesses, inventions, or innovations are results of

improvements on, or modifications of, existing products.
 Copying and improving on a product:
 May be perfectly legal
 A good business strategy.

 Products can be licensed from the patent holder.

 Advisable to hire a patent attorney to ensure no possibility of patent
infringement.
Checklist for Minimizing Patent Risks
 Seek a patent attorney who has expertise in your product line.
 The entrepreneur should consider a design patent to protect the product design or
product look.
 Before making an external disclosure of an invention at a conference or to the
media, or before setting up a beta site, the entrepreneur should seek legal counsel
since this external disclosure may negate a subsequent patent application.
 Evaluate competitor patents to gain insight into what they may be developing.
 If you think your product infringes on the patent of another firm, seek legal
counsel.
 Verify that all employment contracts with individuals who may contribute new
products have clauses assigning those inventions or new products to the venture.
 Be sure to properly mark all products granted a patent. Not having products
marked could result in loss or damages in a patent suit.
 Consider licensing your patents. This can enhance the investment in a patent by
creating new market opportunities and can increase long-term revenue.

Table 6.2
Business Method Patents

 Growth of Internet use and software development has given rise to use of
business method patents.
 E.g. Amazon.com.

 Firms that hold these patents use them to assault competitors.

 Subsequently provide a steady stream of income from royalties or licensing fees.
Trademarks

 A distinguishing word, name, or symbol used to identify a product.

 Can last indefinitely.
 Can be filed solely on intent to use the trademark in interstate or foreign
commerce.
 Can also be filed with intent to use in the future.
 Categories:
 Coined marks.
 Arbitrary marks.
 Suggestive marks.
 Descriptive marks.
Registering the Trademark (1 of 2)

 Federal registration of trademarks – PTO.

 Filing must meet four requirements:
 Completion of the written form.
 A drawing of the mark.
 Five specimens showing actual use of the mark.
 The fee.

 Initial determination of suitability takes 3 months.

 Objections must be raise within six months, or application is considered abandoned.
 Right to appeal in case of refusal.
Registering the Trademark (2 of 2)

 Once accepted, trademark is published in the Trademark Official Gazette to

allow any party:
 30 days to oppose.
 Request an extension to oppose.
 Registration issued if no opposition is filed.
 Procedure takes about 13 months from initial filing.
Benefits of a Registered Trademark

 Seek a patent attorney who has expertise in your product line.

 It provides notice to everyone that you have exclusive rights to the use of the
mark throughout the territorial limits of the United States.
 It entitles you to sue in federal court for trademark infringement, which can result
in recovery of profits, damages, and costs.
 It establishes incontestable rights regarding the commercial use of the mark.
 It establishes the right to deposit registration with customs to prevent importation
of goods with a similar mark.
 It entitles you to use the notice of registration.
 It provides a basis for filing trademark application in foreign countries.

Table 6.2
Copyrights

 Right given to prevent others from printing, copying, or publishing any original
works of authorship
 Issues surrounding access to material on the Internet have led to major
legal battles for the entertainment industry.
 Example: Napster.

 Copyrights are registered with the Library of Congress

 Usually do not require an attorney.
 Term of the copyright is the life of the author plus 70 years.
Trade Secrets

 Protection against others revealing or disclosing information that

could be damaging to business.
 Have a life as long as the idea or process remains a secret.
 Not covered by any federal law but is recognized under a
governing body of common laws in each state.

 Entrepreneur needs to take proper precautions.

 Legal action can be taken only after the secret has been revealed.
Licensing (1 of 2)

 Contractual agreement giving rights to others to use intellectual property in

return for a royalty or fee. Type of licensing:
 Patent license agreement: specifies how the licensee would have access to the
patent.
 Trademark: involves a franchising agreement.
 Copyrights.

 Licensing has become a revenue boom for many Fortune 500 companies.
Licensing (2 of 2)

 Question to be considered by an entrepreneur:

 Will customers recognize licensed property?
 How well does the licensed property complement my products or services?
 How much experience do I have with the licensed property?
 What is the long-term outlook for the licensed property?
 What kind of protection does the licensing agreement provide?
 What commitment do I have in terms of payment of royalties, sales quotas, and so
on?
 Are renewal options possible and under what terms?
Product Safety and Liability (1 of 2)

 Responsibility of a company to meet any legal specifications regarding a new

product covered by the Consumer Product Safety Act.
 First passed in 1972.
 Created a five-member commission with:
 Power to prescribe safety standards.
 Responsibility and power to identify substantial hazards and bar products it considers
unsafe.
 Act was amended and signed into law in 1990.
 Establishes stricter guidelines for reporting product defects and any injury or death
resulting from such defects.
Product Safety and Liability (2 of 2)

 Claims regarding product liability usually fall under one of the following
categories:
 Negligence.
 Warranty.
 Strict liability.
 Misrepresentation.

 Best protection against product liability is to:

 Produce safe products.
 Warn consumers of any potential hazards.
Insurance

 Provides a means of managing risk in the new business.

 Entrepreneurs usually have limited resources in the beginning.

 Some insurances are required by law and cannot be avoided.
 Other insurances are not required but may be necessary to protect the financial net
worth of the venture.
Types of Insurance and Possible
Coverage

 <<Insert Table 6.4>>

Contracts (1 of 2)

 A legally binding agreement between two parties.

 Business deals are concluded with a handshake, but in case of

disagreements, entrepreneurs:
 May find that there is no deal.
 May be liable for something never intended.
 Rule is to not to rely on a handshake if deal cannot be completed
within one year.

 Courts insist on a written contract for all transactions over $500.

Contracts (2 of 2)

 Four essential items in an agreement to provide the best legal protection:

 All parties involved should be named and specific roles in the transaction specified.
 Transaction should be described in detail.
 Exact value of the transaction should be specified.
 Signature(s) of the person(s) involved in the deal should be obtained.