6-2What is Intellectual Property? It includes patents, trademarks, copyrights,and trade secrets. These represents important assets to theentrepreneur. Intellectual property should be understoodeven before engaging the services of anattorney.
6-3How to Select a Lawyer An entrepreneur needs to be aware of anyregulations that may affect a venture. A lawyer may work on a retainer basis ormay be hired for a one-time fee. A good working relationship with a lawyer: Eases some of the risk in starting a newbusiness. Gives the entrepreneur necessary confidence. Entrepreneur can offer the lawyer stock inexchange for services.
6-4Patents Patent - Grants holder protection fromothers making, using, or selling similaridea; issued by the Patent and TrademarkOffice (PTO). Utility patent – Protection of new, useful, andunobvious processes, machines, compositions ofmatter, and articles of manufacture; term of 20years. Design patent – Covers new, original,ornamental, and unobvious designs for articlesof manufacture; term of 14 years. Plant patent - Given for new varieties of plants.
6-5 International Patents The Patent Cooperation Treaty (PCT) wasestablished to facilitate patent filings in multiplecountries in one office. It is administered by the World IntellectualProperty Organization (WIPO) in Geneva,Switzerland; has over 100 participants. It provides a preliminary search that assesseswhether the filing firm will face infringements inany country. Differences may exists in the patent laws ofeach of these countries.Patents (cont.)
6-6 The Provisional Application It is the initial application to the PTO providingevidence of first to market. Replaces the disclosure document that waspreviously accepted by the PTO. Gives the rights to the patent based on theconcept of first to file. The actual filing of the patent in its final formmust occur no later than 12 months after theprovisional disclosure document if filed.Patents (cont.)
6-7 The Patent Application Introduction – Consists of the background andadvantages of the invention, the problems thatit overcomes, and how the invention differs fromexisting offerings. Description of invention – Includes a detaileddescription of the invention and of the drawingsthat accompany it. Claims - Specify what the entrepreneur is tryingto patent. The application should contain a declarationsigned by the inventor(s).Patents (cont.)
6-8 Patent Infringement Many businesses, inventions, or innovations areresults of improvements on, or modifications of,existing products. Copying and improving on a product may beperfectly legal and a good business strategy. If patent infringement is unavoidable, theentrepreneur may try to license the productfrom the patent holder. It is advisable to hire a patent attorney toensure there is no possibility of infringement.Patents (cont.)
6-9Table 6.1 - Checklist for MinimizingPatent RisksTable 6.1
6-10Business Method Patents The growth of Internet use and softwaredevelopment has given rise to businessmethod patents. Firms use these patents to assaultcompetitors and subsequently provideincome from royalties or licensing fees. Concerns have evolved regarding thesepatents. Not all start-ups will have a product orconcept that is patentable.
6-11Trademarks A distinguishing word, name, or symbolused to identify a product. It can last indefinitely. It can be filed solely on the intent to use thetrademark in interstate or foreign commerce;also with the intent to use in the future. Categories: Coined marks. Arbitrary marks. Suggestive marks. Descriptive marks.
6-12 Registering the Trademark 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 3months. Objections must be raise within six months, orapplication is considered abandoned. The entrepreneur has the right to appeal in caseof refusal.Trademarks (cont.)
6-13 Once accepted, trademark is published in theTrademark Official Gazette to allow any party 30days to oppose or request an extension tooppose. Registration is issued if no opposition is filed. Procedure takes about 13 months from initialfiling.Trademarks (cont.)
6-14Table 6.2 - Benefits of a RegisteredTrademarkTable 6.2
6-15Copyrights Right given to prevent others from printing,copying, or publishing any original works ofauthorship. Issues surrounding access to material onthe Internet have led to major legal battlesfor the entertainment industry. Copyrights are registered with the Libraryof Congress. Term of the copyright is the life of theauthor plus 70 years.
6-16Trade Secrets Provides protection against others revealingor disclosing information that could bedamaging to business. Trade secrets have a life as long as the idea orprocess remains a secret. It is not covered by any federal law but isrecognized under a governing body of commonlaws in each state. Employees may be asked to sign a confidentialinformation agreement. Entrepreneur needs to take proper precautions. Legal action is possible only after the secret hasbeen revealed.
6-17Licensing A contractual agreement giving rights toothers to use intellectual property in returnfor a royalty or fee. Types of licensing: Patent license agreements - Specify how thelicensee would have access to the patent. Trademark license agreements - Involve afranchising agreement. Copyright license agreements - Involve rights touse or copy books, software, music,photographs, plays, etc.
6-18 Factors to be considered: Customers’ recognition of licensed property. Whether licensed property complements existingproducts or services. Entrepreneur’s experience with the licensedproperty. Long-term outlook for the licensed property. Kind of protection provided by the agreement. Commitments in terms of payment of royalties,sales quotas, and so on. Renewal options.Licensing (cont.)
6-19Product Safety and Liability It is the responsibility of a company to meetany legal specifications regarding a newproduct covered by the Consumer ProductSafety Act. The Act created a commission with theresponsibility of prescribing safety standards. The development of stricter regulationsregarding labeling and advertising is also part ofthe commission’s responsibility. Large fines as well as product recalls are thetypical outcomes of any action enforced by thecommission.
6-20Insurance It provides a means of managing risk in thenew business. Some insurances are required by law andcannot be avoided while others are may benecessary to protect the financial net worthof the venture. Skyrocketing medical costs can have asignificant impact on insurance premiums. Entrepreneurs also have to consider healthcare coverage.
6-21Table 6.4 - Types of Insurance andPossible Coverage
6-22Sarbanes-Oxley Act Congress passed the Act in 2002. Provides a mechanism for greater control overthe financial activities of public companies. Under this law: CEOs need to vouch for financial statementsthrough a series of internal control mechanismsand reports. Directors must meet background, length ofservice, and responsibilities requirementsregarding internal auditing and control.
6-23 Attempts to influence or impede the internalauditing process is a criminal act. Law covers bank fraud, securities fraud, andfraud by wire, radio, or TV. There has been some concern as to theinterpretation of this law and subsequentdirectors’ liability. There are conflicts with the provisions ofthe new law and the laws of foreigncountries.Sarbanes-Oxley Act (cont.)
6-24 Though private companies are not included,they are subject to control if they: Consult with a public company. Influence that public company in anywrongdoing established by the Sarbanes-OxleyAct. Entrepreneurs can set up a board ofadvisors instead of an extended board ofdirectors.Sarbanes-Oxley Act (cont.)
6-25Contracts A legally binding agreement between twoparties. Often business deals are concluded with ahandshake. The rule is to not to rely on a handshake ifa deal cannot be completed within oneyear. Courts insist on a written contract for alltransactions over $500.
6-26Table 6.5 - Contract Conditions andResults of a Breach of Contract
6-27 Four essential items in an agreement toprovide the best legal protection: Understand the terms and conditions in thecontract. Cross out anything that you do not agree to. Do not sign if there are blank spaces (these canbe crossed out). Make a copy for your files after signing.Contracts (cont.)