Political instability and corruptionWorld rank / Country1 New Zealand5 Singapore9 Australia14 United Kingdom15 Hong Kong18 Japan19 United States36 Taiwan46 South Korea53 Malaysia80 China94 India94 Philippines102 Thailand114 Indonesia116 VietnamEntrepreneurs need to be aware of the potential impact of political

instability and corruption. It is possible, but more difficult, to do business in a country with transitory governments or inconsistent policies.

Chapter 13

Legal and regulatory challenges for entrepreneurial ventures

Objectives1. To introduce the importance of legal and regulatory issues to entrepreneurs2. To consider the regulatory environments of the Asia–Pacific within which a

new venture must exist3. To examine intellectual property protection, including copyright, patents,

trademarks and domain names4. To recognise the important international protection regimes for intellectual

property5. To critically examine the IP practices of Asia–Pacific countries6. To compare the common legal forms of business organisation in the Asia–

Pacific, such as sole proprietorship, partnership and corporation7. To be aware of the signals that foreshadow insolvency and bankruptcy8. To examine the trend for environmental regulations that will affect business

entrepreneurship

But first

•Have you ever had to deal with legal or regulatory challenges in a business?

• If you have, what did you decide/do?• If you haven’t, what legal and regulatory challenges do you think that many entrepreneurs might face?

•Has anyone ever had to deal with local city councils, the tax office, or intellectual property authorites in your country?

•Has anyone ever applied for an internet domain name?•Has anyone had any IP nightmares?

?

Why is it location, location, location?

•Why makes an economy the home base for competitive globally oriented entrepreneurs?

•What makes Australia a global leader in wine exports? •What made Malaysia a world leader in palm oil production? •How did New Zealand become home for creative industries? •What propelled South Korea into the forefront in electronics?

Understanding regulatory

environments

World Bank’s yearly Doing business index

Ease of doing

business•a

• Being the ‘best country to do business in’ does not mean there is no regulation.

2015

Top andbottom

In the Asia-Pacific, Singapore, New Zealand and Hong Kong top the list followed by the Korean Republic, the US and Australia all occurring in the top ten.

Political instability and corruptionWorld rank / Country1 New Zealand5 Singapore9 Australia14 United Kingdom15 Hong Kong18 Japan19 United States36 Taiwan46 South Korea53 Malaysia80 China94 India94 Philippines102 Thailand114 Indonesia116 VietnamEntrepreneurs need to be aware of the potential impact of political

instability and corruption. It is possible, but more difficult, to do business in a country with transitory governments or inconsistent policies.

Intellectual property rights (IPR)

•Have you ever had your intellectual property stolen or violated?

•Have you ever used pirate software or movies?

?•How can you protect new products, services and innovations?

• The continuing growth of IPR theft and trade in fakes and pirated materials threatens innovative and creative economies worldwide.

IP theft and piracy•30% of medicines sold in developing countries are counterfeit.

•An astonishing 24% of all Internet bandwidth was devoted to copyright infringement

•Unauthorised copying of entire textbooks (including this one) is commonIP black market rankings

(US $ billions pa)

• Global piracy and counterfeiting thrive

• Thailand’s red zones include Panthip Plaza, Klong Thom, Saphan Lek and Baan Mor (Bangkok)

• Large marketplaces selling pirated and counterfeit goods.

IP theft and piracy

Panthip Plaza, Bangkok

IP and the entrepreneur

• Ideas and knowledge drive the economy. • IP protection a two-way street.

–You can legally obtain and exploit IP. Or you can protect it

• Asia–Pacific is net importer of intellectual property. • Entrepreneurs need to be knowledgeable about

intellectual property protection.

This image is the world famous coke bottle patent lodged with the New Zealand patent office in 1938.

Top Protectors of IP

Patents

•Contract between society and an inventor•A temporary monopoly on the invention•Exclusive rights to hold, transfer and license

•For products or processes that are ‘new, involve an inventive step and are capable of industrial application’

•Granted through registration under national laws

A general patent process

•One of the several benefits of the PCT system is that it essentially provides a buffer of up to 30 months during the ‘international phase’ before having to file in individual countries (the ‘national phase’).

•Figure 13.1, outlines the indicative timing of these phases.

‘an electric lamp for giving light by incandescence consisting of a filament of carbon of high resistance … enclosed in a receiver made entirely of glass . . . from which receiver the air has been exhausted …

‘a flying-machine, a normally flat aeroplane having lateral marginal portions capable of movement . . . so as to present to the atmosphere different angles of incidence, and means for so moving said lateral marginal portions, substantially described’.

Examples of apatent specification

Example of apatent specification

• ONLINE REVIEWERS CAN EARN REWARDS, POINTS AND MONEY FOR WRITING REVIEWS

• US 7,788,128 B2: A system for generating a reward for information rendered by a service provider to a user:

• means for identify the user,• operator of the system receives a query from the

user,• operator delivers a response to the query to the user,• voluntary reward means for allowing the user to

provide a first reward to the operator,• value determination means to provide a system

rating of the user based upon at least one of the first reward provided by the user, a history of rewards provided by the user, and an assessed value of previous queries made

Six rules of patent strategy

1. Create an IP-protective environment 2. Pursue patents that are broad, are

commercially significant and offer a strong position.

4. Prepare a patent plan in detail. 5. Take actions related to your original

patent plan.6. Establish an infringement budget.7. Evaluate the patent plan strategically.

Understanding copyright protection

•You cannot copyright an idea, but you can copyright the particular way that an idea is expressed.

•This expression can take many forms, including books, music, audio, film, and computer programs.

•Extends beyond the death of the author typically 50 or 70 years.

•Automatically granted •Each of these rights, or a portion of each, also may be transferred.

Understanding copyright protection

•Must be in a tangible form (written or recorded)•Must be the author’s own work •Before bringing a lawsuit, register with the National Copyright Office of the resident country

• ‘Fair use’ or ‘fair dealing’ provisions exist•Normal remedy is recovery of actual damages plus any profits the violator receives

•Always use the copyright notice (©), although you are automatically protected

Trademarks

•A distinctive name, mark, symbol or motto•Trademarks identify and distinguish goods.•Service marks identify and distinguish services.•Certification marks denote quality, materials of goods and services •Collective marks are trademarks used by members of groups or organisations to identify their goods and services.

•A trademark can be a design, like the Nike swoosh. It can be a colour like purple for Cadbury.

Levi’s jeans trademark and colour

MGM lion’s roar is trademarked

Types of trademarks• Fanciful: No meaning before they became

trademarks • Arbitrary: These are common words that have an

arbitrary relationship to the product• Suggestive: Suggestive trademarks indirectly

allude to a quality of the product

• Descriptive: Describe the goods or service they market

• Generic : Generic trademarks describe a whole class of products – examples include Personal computer (for a personal computer) and Milk (for milk).24

Advantages of trademarking•Gives notice of the owner’s right to use the mark–It is still recommended to mark the goods or services with the ® symbol.

•Protection against importers using the mark•Trademark registration lasts for 10 years. •You need to file in overseas countries

• If properly registered, you can obtain an injunction against abuser• A monetary award may be given to the trademark holder in the case of

violation.• See more guides in the book.

Who owns the copyright to a monkey’s selfie?

•Selfie shot by a cheeky black macaque

•What did the US Copyright Office rule in the “Monkey Selfie case? Why?

•Read the case on p. 471

?

Domain names

• Internet domain names are important business identifiers.

• ‘Cyber squatters’ offer domain names for sale back to the rightful owner

•Uniform Dispute Resolution Policy (UDRP) has been accused of favouring large corporations.

•Search entire USPTO Trademark Database to instantly secure your brand on the internet. Image: Visualization of routing

paths through the Internet

Trade secrets

•Business processes and information that are:–unpatentable–patentable but not enforceable–patentable but you do not wish to disclose them.

• Trade secrets, such as the formula for Coca-Cola, Kentucky Fried Chicken or WD-40 have been in effect for many years

• If the recipes had been copyrighted, the formula would have long been in the public domain.

Changing IP attitudes

•Advances in technology have opened up whole new areas of patentable products

•Technology development is making it increasingly difficult to enforce many conventional forms of intellectual property–e.g. MP3 file-sharing on the Internet.

•Responses:–Toughening protection to halt piracy and the decline in revenues and profits for established firms

–The creation of new business models such as Apple’s iTunes•Time for a radical rethink of traditional IP?

Legal structures for entrepreneurial ventures

Which legal form is best for start-ups? Why not start out as a sole trader?What are the advantages of a partnership?What is the difference between a proprietary limited and a corporation?Are there tax advantages?What other advantages and disadvantages might there be?

?

Legal structures for entrepreneurial ventures

•Choosing a legal structure is complicated and involves consideration of a range of factors.

Important factors

to consider •Asset protection–Risk to personal assets

•Limited liability–Personal liability for debts

•Distribution flexibility–Different types of payment to different participants

•Financing–Ease of future financing

•Taxation–Minimising tax burden

•Business environment–Regulatory approval systems and technological risks

•Personal and community relationships–Shared ownership

Incorporated companies• Has similar legal

rights and obligations to ‘a natural person’.

• Incorporation is the birth of a company; it means giving legal form to a company.

Abbrev. Where usedInc. Australia

United StatesLLC Worldwide (not Australia)LLP WorldwideLtd AustraliaPLC Commonwealth (not Australia)Pty Ltd AustraliaPT IndonesiaPT Tbk IndonesiaBhd MalaysiaSdn.Bhd MalaysiaHUF IndiaPVT.LTD IndiaPSU IndiaLTC New ZealandPTE LTD Singapore

•Private company (in Australia Pty Ltd) –As opposed to Public company (in Australia Ltd)

•Assets in the event of bankruptcy are limited to assets of the company. •Creditors cannot seize the private assets of the directors•Directors can start new business immediately afterwards. •A Pty Ltd is the opposite of a public company.

–Pty Ltd cannot invite the public to invest or deposit money with it, whereas a –Public company can raise capital by offering shares to the public by issuing a prospectus.

Private companies

Private companies

Advantages•Liabilities of shareholders and directors limited to capital share

•Company is a separate legal entity•Retained profits are taxed at the company income tax rate

•Ease of ownership change•Shares are transferable •Continuity– not dependent on the owners.

Disadvantages•Set-up, administrative and operating costs are high

• Increased statutory requirements for taxation and corporation law

•Revenue and capital losses must be retained by the company – these cannot offset the owners’ incomes.

Public companies•Shares may be offered for sale to the public. •Ltd or PLC status is roughly equivalent to a US corporation. •Many float (so shares can be traded)•Statutory requirements on public companies more rigorous than private.

Advantages

•Those of a private company, plus …• Increased potential for raising finance by share issues or through other investors

Disadvantages

•Most expensive to set up•More open to hostile takeover •Tighter levels of regulation •Minority shareholders have no control

Partnerships• Limited partnerships

–Capital investment–No responsibility for management and no liability for losses beyond initial investment

• Limited liability partnership–Liability of a partner limited to their financial contribution

–Common in oil exploration and motion picture ventures

• Incorporated limited partnership–Flexible investment vehicles for venture capital and private equity investors

Sole traderships•Because of its ease of formation, sole tradership is the most widely used legal form

•A business owned and operated by one person (also known as ‘sole proprietor’).

•No legal existence independent of its owner.• Individual has a right to all of the profits and liability for all the debts.

•Liability is unlimited.•Business and personal assets stand behind the operation.

Sole traderships

Disadvantages• Few tax concessions • Unlimited liability • Lack of continuity • Lack of personal freedom • Less available capital • Difficulty obtaining financing • Limited viewpoint and

experience

Advantages• Ease of formation • Losses reduce personal taxes • Less formality, fewer restrictions • Sole ownership of profits • Decision making in one owner • Flexibility respond quickly • Relative freedom from

governmental control • Freedom from corporate taxes • Easy to wind it up

‘Looking back on it, my judgement was often terribly wrong’, said one entrepreneur who had burned through more than $20 million trying to launch an Internet-based business. ‘Unfortunately, I was never in doubt.’

Regulating climate change

• ‘Asian brown cloud’• Trend of CO2 emissions

for these countries will continue to grow due to impact of increasing wealth in countries like China and India

• Governments have a key role to play in attempting to manage this situation

First regulated in 1987• 1987: Montreal Protocol on Substances that

Deplete the Ozone Layer. • Shows how business can benefit by taking up

the challenges imposed by regulations.• Tremendous impact on business

–refrigeration and air-conditioners–solvent to clean electronic equipment–a propellant in aerosol sprays – foaming agent in packaging.

The largest Antarctic ozone hole recorded as of September 2006

• DuPont alone produced one-quarter of the world’s CFC, which it marketed as Freon.

• There are signs that the ozone layer will recover within the next 100 years.

Just 90 companies caused two-thirds of man-made global warming emissions•The Kyoto Protocol caps greenhouse gas emissions.

•Was an important step, but a dramatic ramp-up is the next big thing that entrepreneurial businesses must tackle.

•Nearly two-thirds of historic carbon dioxide and methane emissions can be attributed to business such as Chevron, Exxon and BP.

Stay tuned for further developments•The United Nations Framework Convention on Climate Change and the Kyoto Protocol embody the principles of multilateral response to climate change

•All participating countries pledge action to reduce greenhouse gas emissions.

• Intergovernmental Panel on Climate Change (IPCC) confirms that climate change is a real concern and that human activities were likely to be contributing to it.

Stay tuned for further developments•Expect policy and regulatory environment to produce such policies –introduction of carbon pricing schemes–support for research and development in zero-carbon technologies and processes

–mandatory energy efficiency standards–raising investment in network infrastructure such as public transport systems and smart electricity grids.

Key concepts

(close your books)1. How can you protect your

intellectual property? 2. What are the legal forms

available for entrepreneurs structuring their ventures?

?