Entrepreneurship Chap 6


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Entrepreneurship Chap 6

  1. 1. HisrichPetersShepherdChapter 6Protecting the IdeaandOther Legal Issues for theEntrepreneurCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 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.
  3. 3. 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.
  4. 4. 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.
  5. 5. 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. 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.)
  7. 7. 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.)
  8. 8. 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.)
  9. 9. 6-9Table 6.1 - Checklist for MinimizingPatent RisksTable 6.1
  10. 10. 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.
  11. 11. 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.
  12. 12. 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.)
  13. 13. 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.)
  14. 14. 6-14Table 6.2 - Benefits of a RegisteredTrademarkTable 6.2
  15. 15. 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.
  16. 16. 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.
  17. 17. 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.
  18. 18. 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.)
  19. 19. 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.
  20. 20. 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.
  21. 21. 6-21Table 6.4 - Types of Insurance andPossible Coverage
  22. 22. 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.
  23. 23. 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.)
  24. 24. 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.)
  25. 25. 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.
  26. 26. 6-26Table 6.5 - Contract Conditions andResults of a Breach of Contract
  27. 27. 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.)