ENTR 452ENTR 452Intellectual Property andIntellectual Property and

Other Legal IssuesOther Legal Issues(Chapter 6 Material)(Chapter 6 Material)

Intellectual property (IP) can be a significant source of sustainable competitive advantage (SCA).

IP includes any patents, trademarks, copyrights, or trade secrets held by the entrepreneur.

Depending on the type of intellectual property you may need to hire a lawyer.

INTELLECTUAL PROPERTYINTELLECTUAL PROPERTY(BE ABLE TO IDENTIFY “PROS” (BE ABLE TO IDENTIFY “PROS”

AND “CONS”)AND “CONS”)

- A new product

- A new method

- A process

- A new service

- A new promotional or merchandising approach

- New packaging

- A new design

ESTABLISHING LEGAL ESTABLISHING LEGAL PROTECTIONPROTECTION

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.

SELECTING A LAWYERSELECTING A LAWYER

A contract between the government and the inventor which gives the inventor an exclusive right to produce and market a product (creates a legal monopoly for a set period of time).

Apply to the U.S. Patent and Trademark Office (PTO) (before trying to patent a product, do a search on the PTO website).

Patent holders are responsible for defending them – not the government. Can sell or license patented technology.

You have international protection through GATT.

PATENTSPATENTS

Utility Patents are the most common form of patent (20 years).

Design Patents cover only the new design of an object – its ornamental appearance (last 14 years). Examplesinclude designs for shoes by Nike and Reebok

Plant Patents are used for biotechnology inventions

Provisional Patent Applications are less expensive ways to quickly protect your concept. Must then file a full application within the next year.

OTHER PATENTSOTHER PATENTS

Many businesses, inventions, or innovations are results of improvements on, or modifications of, existing products.

Copying and improving on a product: May be perfectly legalA good business strategy.

Products can be licensed from the patent holder.

Advisable to hire a patent attorney to ensure no possibility of patent infringement.

PATENT INFRINGEMENTPATENT INFRINGEMENT

Protection is obtainable for any word, name, symbol, or combination thereof that is used on goods to indicate their source (music tones/jingles can also be trademarked)

Four types:1. Coined marks denote not relationship between the mark

and the goods or services (e.g., Polaroid, Kodak).

2. An arbitrary mark (e.g., Apple Computer)

3. A suggestive mark (e.g., Pampers)

4. A descriptive mark (e.g., Rollerblade)

TRADEMARKSTRADEMARKS

Technically, you do not have to formally register trademark; however, must keep using it (3 year nonuse constitutes abandonment)

Can register trademark in a state or with the Federal government (must use mark across State lines).

Registering it gives you greater legal recourse and protection

Cannot sell trademark w/out selling company or goodwill associated with the trademark

TRADEMARKSTRADEMARKS

Protects original works of authorship. Cover writings – “writings” broadly defined

Includes: books, ads, brochures, spec sheets, catalogs, manuals, parts lists, promotional materials, packaging, and decorative graphics, fabric designs, photographs, pictures, film and video presentations, audio recordings, architectural designs, and software and databases

COPYRIGHTSCOPYRIGHTS

Utilitarian object (physical invention) cannot receive a copyright

Term of copyright extends for the life of the author plus 70 years. For works made for hire or by institutions , The period is 75 years from first publication or 100 years from creation, whichever is shorter

Copyright owner can recover $500,000 w/out proof of deliberate copyright infringement

COPYRIGHTSCOPYRIGHTS

Knowledge which may include business or technical knowledge that is kept secret for the purpose of gaining an advantage in business over competitors.

Covers everything that patents cover but are protected eternally. (example: Coke formula)

Disadvantage is that there is no protection against discovery by fair means (accident, independent inventions, reverse engineering).

TRADE SECRETSTRADE SECRETS

4 PRIMARY STEPS FOR ENSURING SECRECY:

1. Confidential disclosure agreements

2. Security precautions to prevent outside parties from gaining information

3. Stamp specific documents dealing with trade secrets as confidential and limit access

4. Make sure that everyone concerned knows that they are trade secrets

TRADE SECRETSTRADE SECRETS

Contractual agreement giving rights to others to use intellectual property in return for a royalty or fee.

Some questions to be considered by an entrepreneur: Will customers recognize licensed property? 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?

LICENSINGLICENSING

PRODUCT SAFETY & LIABILITYPRODUCT SAFETY & LIABILITY

It is the responsibility of a company to meet any legal specifications regarding a new product covered by the Consumer Product Safety Act.

– The Act created a commission with the responsibility of prescribing safety standards.

– The development of stricter regulations regarding labeling and advertising is also part of the commission’s responsibility.

– Large fines as well as product recalls are the typical

INSURANCEINSURANCE

Helps manage risk.

Some insurances are required by law and cannot be avoided while others are used to protect the financial net worth of the venture.

Skyrocketing medical costs can have a significant impact on insurance premiums.

Entrepreneurs also have to consider health care coverage.

SARBANES-OXLEY ACTSARBANES-OXLEY ACT

Congress passed the Act in 2002. – Provides a mechanism for greater control over the

financial activities of public companies.

Under this law:– CEOs need to vouch for financial statements through

a series of internal control mechanisms and reports. – Directors must meet background, length of service,

and responsibilities requirements regarding internal auditing and control.

Though private companies are not included, they are subject to control if they:

– Consult with a public company.– Influence that public company in any

wrongdoing established by the Sarbanes-Oxley Act.

Entrepreneurs can set up a board of advisors instead of an extended board of directors.

SARBANES-OXLEY ACT SARBANES-OXLEY ACT (CONT.)(CONT.)

CONTRACTS CONTRACTS

A legally binding agreement between two parties.

Often business deals are concluded with a handshake.

The rule is to not to rely on a handshake if a deal cannot be completed within one year.

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

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

– Understand the terms and conditions in the contract.

– Cross out anything that you do not agree to.– Do not sign if there are blank spaces (these can

be crossed out).– Make a copy for your files after signing.

CONTRACTS CONTRACTS