Chapter 6
Intellectual Property and Other
Legal Issues for the Entrepreneur
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Learning Objectives
• To identify and distinguish intellectual
property assets of a new venture including
software and Web sites
• To understand the nature of patents, the
rights they provide, and the filing process
• To understand the purpose of a trademark
and the procedure for filing
6-2
Learning Objectives
• To learn the purpose of a copyright and how
to file for one
• To identify procedures that can protect a
venture’s trade secrets
• To understand the value of licensing to either
expand a business or start a new venture
6-3
Learning Objectives
• To recognize the implications of new
legislation that affects the board of directors
and internal auditing processes for public
companies
• To illustrate important issues related to
contracts, insurance, and product safety and
liability
6-4
Intellectual Property
• Patents, trademarks, copyrights, or trade
secrets held by the entrepreneur
• Important assets to the entrepreneur
• Need for lawyer
• Solicit legal advice in accordance with the type of
venture
6-5
Intellectual Property
• A lawyer can:
• Work on a retainer basis
• Be hired for a one-time fee
• Be offered stock in exchange of services
6-6
Patents
• Contract between the government and an
inventor
• Grants protection from others making, using,
or selling a similar idea
• Issued by the Patent and Trademark Office
(PTO)
• Utility patent - For duration of 20 years
6-7
Patents
• Design patent
• For duration of 14 years
• Reflects appearance of an object
• Plant patent
6-8
Patents
• International patents
• Patent Cooperation Treaty (PCT) - Facilitates
patent filings in multiple countries
• Administered by the World Intellectual Property
Organization (WIPO) in Geneva
6-9
Patents
• The provisional application
• Provides evidence of being first to market
• Establishes date of conception of invention
• Determines rights to the patent based on the
concept of first to file
• The patent application
• Complete history and description of the invention
• Lists claims for the product’s usefulness
6-10
Patents
• Must constitute of:
• Introduction
• Background and advantages of the invention
• Problems that it overcomes
• How it differs from existing offerings
• Description of invention
• Claims
• Criteria by which any infringements will be determined
6-11
Figure 6.1 - Options to Avoid
Infringement
6-12
Table 6.1- Checklist for Minimizing
Patent Risks
6-13
Trademarks
• Distinguishing word, name, or symbol used to
identify a product
• Can last indefinitely
• Can be filed solely on the basis intent to use
• Registering the trademark
•
•
•
•
Completion of the written form
A drawing of the mark
Five specimens showing actual use of the mark
The fee
6-14
Table 6.2 - Benefits of a Registered
Trademark
6-15
Copyrights
• Prevent others from printing, copying, or
publishing any original works of authorship
• Increasingly relevant due to growth in use of
Internet
• Registered with the Library of Congress
• Applicable for duration of 70 years
6-16
Trade Secrets And Non-Competition
Agreements
• Protection against disclosing information that
could be damaging to business
• Applicable as long as the idea or process
remains a secret
• Not covered by federal law but recognized
under a governing body of common laws
6-17
Trade Secrets And Non-Competition
Agreements
• To protect competitive information employers
should:
• Train employees to refer sensitive questions to one
person
• Provide escorts for all office visitors
• Control information presented by employees in public
6-18
Trade Secrets And Non-Competition
Agreements
• Use simple security procedures
• Have nondisclosure agreements
• Debrief departing employees on any confidential
information
• Avoid faxing and e-mailing any sensitive information
6-19
Licensing
• Contractual agreement giving rights to others
to use intellectual property in return for a
royalty or fee
• Useful when firms:
• Intend to grow their business in new markets but
lack resources
• Need permission to copy or incorporate the
patent, trademark, or copyright with their ideas
6-20
Licensing
• Types of licensing
• Patent license agreements - Specify how the
licensee would have access to the patent
• Trademark license agreements - Involve a
franchising agreement
• Copyright license agreements - Involve rights to
use or copy books, software, music, photographs,
plays
6-21
Licensing
• Factors to be considered
• Customers’ recognition of licensed property
• Whether licensed property complements existing
products or services
• Entrepreneur’s experience with the licensed
property
6-22
Licensing
• Long-term outlook for the licensed property
• Kind of protection provided by the agreement
• Commitments in terms of payment of royalties
and sales quotas
• Renewal options
6-23
Product Safety and Liability
• Responsibility of a company to meet legal
specifications regarding a new product
• The Consumer Product Safety Act - Created a
commission responsible for:
• Prescribing safety standards
• Regulating labeling and advertising
• Determining fines as well as product recalls
6-24
Insurance
• Means of managing risk in the new business
• Depending on the type, an insurance:
• May be legally mandatory
• May be necessary to protect the financial net
worth of the venture
6-25
Types of Insurance and Possible
Coverage
•
•
•
•
•
Property
Casualty
Life
Workers’ compensation
Bonding
6-26
Sarbanes-Oxley Act
• Provides a mechanism for greater control over
the financial activities of public companies
• Under this law:
• CEOs vouch for financial statements through
internal control mechanisms and reports
• Directors must meet certain criteria regarding
internal auditing and control
6-27
Sarbanes-Oxley Act
• Attempts to influence or impede the internal
auditing process are regarded criminal
• Private companies are subject to control if
they:
• Consult with a public company
• Influence that public company in any wrongdoing
6-28
Contracts
• Legally binding agreement between two
parties
• Courts insist on a written contract for all
transactions over $500
6-29
Table 6.5 - Contract Conditions and
Results of a Breach of Contract
6-30