The New Business Venture MGT 2230

Chapter 6

Intellectual Property & Other Legal Issues for Entrepreneurs

Opening Profile: Steve Lipscomb, Page 169 & 70.

Intellectual Property is any patent, trademarks, copyrights, or trade secrets held by the

entrepreneur.

These represent important assets to the entrepreneur and should be understood.

Ignoring these important steps may cause a loss of these assets.

Need for Lawyer

The entrepreneur should be aware of all regulations that may affect the new

venture.

At different stages you will need legal advice.

Most lawyers have developed a special expertise; the entrepreneur should

carefully evaluate the need before hiring an attorney.

You can save time and money knowing when you will need legal advice.

HOW TO SELECT A LAWYER

1. Lawyers specialize in specific areas of the law.

2. A competent attorney is in better position to understand (and explain) all

possible circumstances and outcomes related to any legal action.

3. In today’s environment, lawyers are much more up front about their fees.

4. You can pay for a retainer (stated amount each month) and have access to

the attorney as needed without being charged hourly.

5. In many cases, there can be a one time fee for specific work to be

completed. (Ex. Real Estate Closing)

6. The lawyer with whom you work should be someone you can relate to

personally. You should meet and see if there is compatibility.

LEGAL ISSUES IN SETTING UP THE ORGANIZATION

Patents

1. Grants holder protection from others making, using, or selling similar ideas.

2. It is a contract between the government and inventor for exclusively using the

invention over a period of time.

3. Utility Patents.

Term of 20 years beginning on the date of filing with the patent office.

Inventions requiring FDA approval extend the term of the patent to

include the time it takes the FDA to review the patent.

$790.00 filing fee.

Additional fees may occur depending upon the amount of claims.

Grants protection from anyone else making, using or selling the invention.

Generally reflects protection of new, useful and unobvious processes that

may enhance the product.

4. Design Patents.

Covering the appearance of an object.

14year term.

$200.00 filing fee.

Renewed interest in these patents because Nike & Reebok protecting their

ornamental designs.

Molded plastic and container configuration businesses find these important.

5. Plant Patents.

Issued under the same provisions as utility patents and are for varieties of new

plants.

Limited area of interest and very few are issued.

6. International Patents

World Trade Organization (WTO) global free trade has been encouraged, thus

needing protection internationally for patents.

Patent Cooperation Treaty (PCT) has over 100 countries participating.

Administered by the World Intellectual Property Organization (WIPO) in

Switzerland will search whether the filing firm will face any possible

infringements in any country.

The Disclosure Statement

A statement to the U.S. Patent Office and Trademark Office by the inventor disclosing

intent to patent idea.

This establishes a date of conception for the invention.

It is important if two entrepreneurs have similar inventions.

Must be a clear and concise description of the invention.

The Disclosure Statement is held for two years and then destroyed if no patent

application is filed.

It is advisable to hire a patent attorney to conduct a patent search to see if this idea

is patentable.

The Patent Application

1. Introduction provides the background and advantages of the invention.

2. Description of the invention with drawings containing engineering

specifications, materials, components and anything vital to making the

invention.

3. Claims. The most difficult part of the application. Broad terms describing

the invention but not to broad so that they hide the inventions’ uniqueness.

Should refer to a patent attorney for this process.

4. Should contain an oath by the inventor that this is all an original idea.

5. A carefully written patent should provide protection and prevent

competitors from working around it.

Patent Infringement

The entrepreneur should be sensitive whether he/she is infringing on another’s

patent.

This is not the end of the idea because many businesses have been started by the

results of improvements and modifications.

Improving a product is not necessarily patent infringement.

Page 176, Table 6.1.

Business Method Patents

The growth of the internet and software development has emerged the use of

business method patents.

Whether these types of patents will hold up over a long period is still being

debated.

Many firms holding these types of patents have used them to assault their

competitors and create a steady stream of income through royalties or licensing

fees.

Trademarks

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

The trademark can last indefinitely as long as the mark continues to perform its

indicated function.

Starting November 16, 1989, a trademark is given a ten year initial registration

with ten year renewable terms.

In the fifth to sixth year you must file an affidavit indicating the mark is currently

in commercial use.

Four categories;

1. Coined marks denote no relationship between the mark and the goods or

services and afford the possibility of expansion to a wide range of

products. (Ex. Mercedes, Kodak)

2. An arbitrary mark has another meaning in our language and is applied to a

product. (Ex Apple)

3. A suggestive mark is used to suggest certain features or qualities of a

product. ( Ex. Halo shampoo)

4. A descriptive mark must have become distinctive over a significant period

of time and gained consumer recognition before it can be registered. The

mark then is considered to have a secondary meaning, (Ex Rubberoid is

applied to roofing materials containing rubber.)

Copyrights

The right given to prevent others from printing, copying, or publishing and

original works of authorship.

It does not protect the idea so the concept can be used by others.

With the Internet, music and software downloads are major issues today.

In 2005 the Supreme Court ruled that file sharing for music was a copyright

violation.

Copyrights are filed with the Library of Congress and do not require an attorney.

Copyrights are also important to sculptures, maps, blueprints, board games, etc.

Trade Secrets

Protection against others revealing or disclosing information that could be

damaging to a business.

Trade secrets are not covered under federal laws but by common law in each

state.

Employees working with a new idea might be asked to sign a confidential

information agreement preventing them from passing the information outside the

group while working for the firm and after leaving. (Page 182, Table 6.3)

Sometimes it is difficult to share with employees but we now know that they will

be more creative and effective if they share in the big picture.

To protect from competitive information leaving the firm, use the following ideas;

1. Train employees to refer sensitive questions to one person.

2. Provide escorts for all office visits.

3. Avoid discussing business in public places.

4. Keep important travel plans secret.

5. Use simple security such as locked file cabinets, passwords on computers

and shredders.

6. Have employees and consultants sign nondisclosure agreements.

7. Debrief departing employees on confidential information.

8. Avoid faxing sensitive information.

9. Mark documents confidential when needed.

Licensing

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

for a royalty or fee.

Licensing has significant value as a marketing strategy.

A patent license agreement specifies how the licensee would have access to the

patent.

Licensing a trademark usually requires a franchise agreement.

Copyrights can be licensed.

Product Safety & Liability

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

product covered by the Consumer Product Safety Act. (Ex Lead paint in toys)

There a strict guidelines for reporting product defects.

Claims will under one of the following categories;

1. Negligence in how the product is presented to the consumer through the

use of labeling, false advertising, etc.

2. Warranty is the coverage of the product for overstating the benefits or

does not perform as stated.

3. Strict liability is when the product was found to be defective prior to the

consumer receiving it.

4. Misrepresentation is when material facts concerning the character or

quality of the product are not accurate. (Ex Minnesota Vikings taking

diuretics)

Insurance

Page 187 Table 6.4

Sarbanes-Oxley Act 2002

Created in response to Enron and Arthur Anderson misconduct.

Mechanism for financial activities of companies as it relates to their public

reporting.

It has been argued the cost of compliance has limited many start ups.

CEO’s are required to vouch personally for financial statements.

Directors must meet background checks regarding internal auditing history.

At present private companies are not included in this act.

Contracts

A legally binding agreement between two parties.

Page 189, Table 6.5

HOMEWORK

Answer the following questions;

1) Provide a real life example (you, or a friend or family member) for each of

the following different types of product liability:

a) Negligence.

b) Warranty.

c) Strict Liability.

d) Misrepresentation.

Report the details and the cost if known.