Chapter 14

Trademarks,
Copyrights,
Patents, and Trade
14-1
Secrets
CHAPTER OBJECTIVES
1 OF 2

1. Define the term “intellectual property” and

describe its importance.
2. Specify the rules of thumb for determining
whether a particular piece of intellectual
property is worth the time and expense of
protecting.
3. Discuss the four major forms of intellectual
property – patents, trademarks, copyrights,
and trade secrets.
4. Describe the six-step process for obtaining a
patent.
5. Identify the four types of trademarks. 12-2

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CHAPTER OBJECTIVES

6. Identify the types of material that are eligible for

copyright protection.
7. Discuss the legal environment that facilitates trade
secret protection.
8. Identify the most common types of trade secret
disputes.
9. Describe some of the physical measures that firms
take to protect their trade secrets.
10. Explain the two primary reasons for conducting an
intellectual property audit.
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THE IMPORTANCE OF INTELLECTUAL PROPERTY
 Intellectual Property
 Is any product of human intellect that is intangible but
has value in the marketplace.
 It is called “intellectual” property because it is the
product of human imagination, creativity, and
inventiveness.
 Importance
 Traditionally, businesses have thought of their
physical assets, such as land, buildings, and
equipment as the most important.
 Increasingly, however, a company’s intellectual assets
are the most important. 14-4

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DETERMINING WHAT INTELLECTUAL
PROPERTY TO PROTECT

Criteria 1 Criteria 2

Determine whether the Decide whether the

intellectual property in intellectual property in
question is directly question has value in
related to the firm’s the marketplace.
competitive advantage.

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COMMON MISTAKES FIRMS MAKE IN REGARD TO
PROTECTING THEIR INTELLECTUAL PROPERTY

Not properly identifying Not fully recognizing

all of their the value of their
intellectual property. intellectual property.

Not using their

Not legally protecting the
intellectual property as
intellectual property
part of their overall
that needs protecting.
plan for success.
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THE FOUR KEY FORMS OF INTELLECTUAL
PROPERTY

Patents Trademarks

Copyrights Trade Secrets

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PATENTS
 Patents
 A patent is a grant from the federal government conferring
the rights to exclude others from making, selling, or using
an invention for the term of the patent. (See the next slide
for a full explanation.)
 Increasing Interest in Patents
 There is increasing interest in patents.
 Since Patent #1 was granted in 1790, the U.S. Patent & Trademark
Office has granted over six million patents.
 The patent office is strained. It now takes an average of 35.3 months
from the date of first filing to receive a U.S. patent.
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 PROPER UNDERSTANDING FOR WHAT A
PATENT MEANS

A patent does not give its owner the right to make, use, or sell an invention;
rather, the right granted is only to exclude others from doing so.
As a result, if an inventor obtains a patent for a new kind of computer chip,
and the chip would infringe on a prior patent owned by Intel, the inventor has
no right to make, use, or sell the chip.
To do so, the inventor would need to obtain permission from Intel. Intel may
refuse permission, or ask that a licensing fee be paid for the rights to infringe
on its patent.
While this system may seem odd, it is really the only way the system could
work. Many inventions are improvements on existing inventions, and the
system allows the improvements to be (patented) and sold, but only with the
permission of the original inventors, who usually benefit by obtaining
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licensing income in exchange for their consent.
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GROWTH IN PATENT APPLICATIONS IN THE
UNITED STATES

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THREE BASIC REQUIREMENTS FOR OBTAINING A
PATENT

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TYPES OF PATENTS
Type Type of Invention Covered Duration

New or useful process, machine, 20 years from

Utility manufacturer, or composition of material or the date of the
any new and useful improvement thereof. original
application.
14 years from
Invention of new, original, and ornamental the date of the
Design design for manufactured products. original
application.

20 years from
Any new varieties of plants that can be
Plant the date of the
reproduced asexually.
original
application.12-12
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BUSINESS METHOD PATENTS
(SPECIAL UTILITY PATENT)

 Business Method Patent

 A business method patent is a patent that protects an
invention that is or facilitates a method of doing
business.
 The most notable business method patents that have
been awarded:
 Amazon.com’s one-click ordering system.
 Priceline.com’s “name-your-price” business model.

 Netflix’s method for allowing customers to set up a rental list

of movies to be mailed to them.

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THE PROCESS OF OBTAINING A PATENT

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PATENT INFRINGEMENT
 Patent Infringement
 Takes place when one party engages in the
unauthorized use of another party’s patent.
 The tough part (particularly from a small
entrepreneurial firm’s point of view) is that patent
infringement cases are costly to litigate.
 A typical patent infringement case costs each side at least
$500,000 to litigate.

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TRADEMARKS
 Trademark
 A trademark is any word, name, symbol, or device
used to identify the source or origin of products or
services and to distinguish those product or services
from others.
 Trademarks also provide consumers with useful
information.
 For example, consumers know what to expect when they see a
Macy’s store.
 Think how confusing it would be if any retail store could use
the name Macy’s.
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TYPES OF TRADEMARKS
1 OF 2

Type Types of Marks Covered Duration

Any word, name, symbol, or device

used to identify and distinguish one Renewable every
Trademark 10 years, as long
company’s goods from another.
as the mark
Examples: Apple, d.light, Dry Soda,
remains in use.
ModCloth, and Zeo.

Similar to trademarks; are used to Renewable every

Service mark identify the services or intangible
10 years, as long
activities of a business, rather than a
business’s physical products. as the mark
remains in use.
Examples: 1-800-FLOWERS,
Amazon.com, Mint.com, and Zipcar.
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TYPES OF TRADEMARKS
2 OF 2

Type Types of Marks Covered Duration

Trademarks or service marks used by

the members of a cooperative, Renewable every
Collective 10 years, as long
association, or other collective group.
mark as the mark
Examples: Rotary International and
remains in use.
International Franchise Association

Marks, words, names, symbols, or Renewable every

Certification devices used by a person other than
10 years, as long
mark the owner to certify a particular
quality about a good or service. as the mark
remains in use.
Examples: 100% Napa Valley and
Underwriters Laboratories
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WHAT IS PROTECTED UNDER TRADEMARK LAW
1 OF 2

Item Example(s)

Words YouTern, PledgeMusic, GiftZip

Numbers 3M, MSNBA, 1-800-FLOWERS

and letters

Designs Nike swoosh logo

and logos

Sounds MGM’s lion’s roar

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WHAT IS PROTECTED UNDER TRADEMARK LAW
2 OF 2

Item Example

Fragrances Stationery treated with a special fragrance

Shapes Unique shape of the Apple iPhone

Colors Nexium—the “purple pill”

Trade dress The layout and décor of a restaurant

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EXCLUSIONS FROM TRADEMARK PROTECTION

Item Example
Immoral or Profane words
scandalous matter
Labeling oranges “Fresh Florida
Deceptive matter Oranges” that aren’t grown in Florida

Phrases like “golf ball” and “fried chicken”

Descriptive marks are descriptive and can’t be trademarked

Common surnames like “Anderson” or

Surnames
“Smith” can’t be trademarked 12-21

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THE PROCESS OF OBTAINING A TRADEMARK

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COPYRIGHTS
 Copyrights
 A copyright is a form of intellectual property
protection that grants to the owner of a work of
authorship the legal right to determine how the work
is used and to obtain the economic benefits from the
work.
 A work does not have to have artistic merit to be
eligible for copyright protection.
 As a result, things such as operating manuals and sales
brochures are eligible for copyright protection.

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WHAT IS PROTECTED BY A COPYRIGHT?

Literary works Musical compositions

Computer software Dramatic works

Pantomimes and Pictorial, graphic, and

choreographic works sculptural works
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EXCLUSIONS FROM COPYRIGHT PROTECTION

 The Idea-Expression Dichotomy

 The main exclusion is that copyright laws cannot
protect ideas.
 For example, an entrepreneur may have the idea to open a
soccer-themed restaurant. The idea itself is not eligible for
copyright protection. However, if the entrepreneur writes
down specifically what his or her soccer-themed restaurant
will look like and how it will operate, that description is
copyrightable.
 The legal principle describing this concept is called the idea-

expression dichotomy.
 An idea is not copyrightable, but the specific expression of an

idea is. 12-25

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OBTAINING A COPYRIGHT
 How to Obtain a Copyright
 Copyright law protects any work of authorship the moment
it assumes a tangible form.
 Technically, it is not necessary to provide a copyright notice
or register work with the U.S. Copyright Office.
 The following steps can be taken, however, to enhance
copyright protection.
 Copyright protection can be enhanced by attaching the copyright
notice, or “copyright bug” to something.
 Further protection can be obtained by registering the work with the
U.S. Copyright Office.
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COPYRIGHT INFRINGEMENT
1 OF 2

 Copyright Infringement
 Copyright infringement occurs when one work derives from
another or is an exact copy or shows substantial similarity to
the original work.
 To prove infringement, a copyright owner is required to
show that the alleged infringer had prior access to the
copyrighted work and that the work is substantially similar
to the owner’s.

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COPYRIGHT INFRINGEMENT
2 OF 2

• The illegal downloading of

music is an example of
copyright infringement.
• Copyright infringement costs
the owners of copyrighted
material an estimated $20
billion per year in the U.S.
alone.

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TRADE SECRETS
 Trade Secrets
 A trade secret is any formula, pattern, physical device,
idea, process, or other information that provides the
owner of the information with a competitive
advantage in the marketplace.
 Trade secrets include marketing plans, product
formulas, financial forecasts, employee rosters, logs
of sales calls, and similar types of proprietary
information.
 The Federal Economic Espionage Act, passed in
1996, criminalizes the theft of trade secrets.
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WHAT QUALIFIES FOR TRADE SECRET
PROTECTION?
1 OF 2

 Trade Secret Protection

 Not all information qualifies for trade secret
protection.
 In general, information that is know to the public or
that competitors can discover through legal means
doesn’t qualify for trade secret protection.
 Companies protect trade secrets through physical
measures and written documents.

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WHAT QUALIFIES FOR TRADE SECRET
PROTECTION?
2 OF 2

The strongest case for trade secret protection is

information that is characterized by the following.

• Is not known outside the company.

• Is known only inside the company on a “need-to-know” basis.
• Is safeguarded by stringent efforts to keep the information
confidential.
• Is valuable and provides the company a competitive advantage
• Was developed at great cost, time, and effort.
• Cannot be easily duplicated, reverse engineered, or discovered.

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PHYSICAL MEASURES FOR PROTECTING TRADE
SECRETS

Restricting access Labeling documents

Password protecting
Maintaining logbooks
confidential computer
for visitors
files

Maintaining logbooks for Maintaining adequate

access to sensitive overall security
material measures
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CONDUCTING AN INTELLECTUAL PROPERTY
AUDIT
1 OF 2

 Intellectual Property Audit

 The first step a firm should take to protect its
intellectual property is to complete an intellectual
property audit.
 An intellectual property audit is conducted to
determine the intellectual property a firm owns.
 There are two reasons for conducting an intellectual
property audit:
 First, it is prudent for a company to periodically determine
whether its intellectual property is being properly protected.
 Second, it is important for a firm to remain prepared to justify

its valuation in the event of a merger or acquisition. 12-33

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CONDUCTING AN INTELLECTUAL PROPERTY
AUDIT
2 OF 2

 The Process of Conducting an Intellectual

Property Audit
 The first step is to develop an inventory of a firm’s
existing intellectual property. The inventory should
include the firm’s present registrations of patents,
trademarks, and copyrights.
 The second step is to identify works in progress to
ensure that they are being documented and protected
in a systematic, orderly manner.

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INTELLECTUAL PROPERTY RIGHTS IN
FRANCHISING
 The Franchisor has rights to the trademarks, copyrights,
patents, and trade secrets.
 The Franchisees must use them in limited fashion and
only during the term of agreement.
 Intellectual Property Rights of the Franchisor:
 Trademarks: EX: McDonalds, Subway, KFC, Pizza Hut, etc.
 Know-how transferred to the Franchisees in forms of training
 Trade Secrets of the Franchisor
 Printed Operation Manuals  the Copyrights of the
Franchisor
 Unique products distributed  Patent of the Franchisor.
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ANTI-TRUST LAW AND FRANCHISING
 Franchise Relationship involves two businesses
(franchisor and franchisee) that are independent of one
another, and are linked to each other only by contract.
Franchisor and Franchisee must follow the Anti-Trust
Laws
 The Sherman Act:
 Passed in 1890
 Aimed at eliminating problems caused by Monopoly Power.
 Prohibits business monopolization and combination and
conspiracies to monopolize
 Prohibits Franchise Business monopolization and
combination and conspiracies to monopolize 12-36

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ANTI-TRUST LAW AND FRANCHISING
 Per Se Rule
 Prohibits two or more competitors/franchisees having
collusion as oligopoly.
 Rule of Reason
 Prohibits franchisor and franchisee having collusion as
oligopoly on price.
 Clayton Act
 Prohibits a seller/ franchisor from conditioning sales of one
product on the purchase of another product (tying
arrangement).

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HOME ASSIGNMENT
 The students are to read chapter 16, “Financing Your
Franchises Business”.
 Prepare a Financial Package mentioned in point 16-7.

 Think of necessary information that you need to

complete the Package.
 Dead line: one week after final exam.

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DISCUSSION ON CASE STUDIES
 READ 3 CASE STUDIES OF IPR.
 WHAT PROBLEMS DOES EACH CASE POSE
RELATING TO THE IPR?
 SUGGEST YOUR SOLUTIONS TO SOLVE
THESE PROBLEMS.

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