Entrepreneurship

Chapter 6
Protecting the Idea and Other Legal Issues for the Entrepreneur

10th Edition Hisrich Peters Shepherd

 Protecting the Idea and Other Legal Issues for the Entrepreneur

• What is Intellectual Property?

• Need for a Lawyer
• How to select a Lawyer
• Legal issues in setting up the Organization
• Patents (Utility, Design, Plant Patents)
-- International Patents
-- The Provisional Application (Introduction, Description of invention,
Claims
--The Patent Application
--Patent Infringement
 Protecting the Idea and Other Legal Issues for the Entrepreneur

• Business Method Patents

• Startup without a Patent
• Trademarks
--- International Patents Registering the Trademark
• Copyrights
• Trade Secrets
• Licensing
Protecting the Idea and Other Legal Issues for the Entrepreneur

• Product Safety and Liability

• Insurance
• Sarbanes-Oxley Act
• Contracts
What is Intellectual Property?
• It includes patents, trademarks, copyrights, and trade secrets.
• These represents important assets to the entrepreneur.
• Intellectual property should be understood even before
engaging the services of an attorney
How to Select a Lawyer
• An entrepreneur needs to be aware of any regulations that may affect
a venture.
• A lawyer may work on a retainer basis or may be hired for a one-time
fee.
• A good working relationship with a lawyer:
• Eases some of the risk in starting a new business.
• Gives the entrepreneur necessary confidence.
• Entrepreneur can offer the lawyer stock in exchange for services.
 Patents
• Patent - Grants holder protection from others making, using, or
selling similar idea; issued by the Patent and Trademark Office
(PTO).
• Utility patent – Protection of new, useful, and unobvious processes,
machines, compositions of matter, and articles of manufacture; term of 20
years.
• Design patent – Covers new, original, ornamental, and unobvious designs
for articles of manufacture; term of 14 years.
• Plant patent - Given for new varieties of plants.
Patents (cont.)
• International Patents
• The Patent Cooperation Treaty (PCT) was established to facilitate patent
filings in multiple countries in one office.
• It is administered by the World Intellectual Property Organization
(WIPO) in Geneva, Switzerland; has over 100 participants.
• It provides a preliminary search that assesses whether the filing firm will
face infringements in any country.
• Differences may exists in the patent laws of each of these countries.
Patents (cont.)
• The Provisional Application
• It is the initial application to the PTO providing evidence of first to
market.
• Replaces the disclosure document that was previously accepted by the
PTO.
• Gives the rights to the patent based on the concept of first to file.
• The actual filing of the patent in its final form must occur no later than
12 months after the provisional disclosure document if filed.
 Patents (cont.)
• The Patent Application
• Introduction – Consists of the background and advantages of the invention,
the problems that it overcomes, and how the invention differs from existing
offerings.
• Description of invention – Includes a detailed description of the invention and
of the drawings that accompany it.
• Claims - Specify what the entrepreneur is trying to patent.
• The application should contain a declaration signed by the inventor(s).
 Patents (cont.)
• Patent Infringement
• Many businesses, inventions, or innovations are results of
improvements on, or modifications of, existing products.
• Copying and improving on a product may be perfectly legal and a good
business strategy.
• If patent infringement is unavoidable, the entrepreneur may try to
license the product from the patent holder.
• It is advisable to hire a patent attorney to ensure there is no possibility
of infringement.
Table 6.1 - Checklist for Minimizing Patent Risks
 Business Method Patents
• The growth of Internet use and software development has given
rise to business method patents.
• Firms use these patents to assault competitors and subsequently
provide income from royalties or licensing fees.
• Concerns have evolved regarding these patents.
• Not all start-ups will have a product or concept that is patentable.
Trademarks
• A distinguishing word, name, or symbol used to identify a
product.
• It can last indefinitely.
• It can be filed solely on the intent to use the trademark in interstate or
foreign commerce; also, with the intent to use in the future.
• Categories:
• Coined marks.
• Arbitrary marks.
• Suggestive marks.
• Descriptive marks.
Trademarks (cont.)
• 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 3 months.
• Objections must be raise within six months, or application is
considered abandoned.
• The entrepreneur has the right to appeal in case of refusal.
Trademarks (cont.)
• Once accepted, trademark is published in the Trademark Official
Gazette to allow any party 30 days to oppose or request an
extension to oppose.
• Registration is issued if no opposition is filed.
• Procedure takes about 13 months from initial filing.
Table 6.2 - Benefits of a Registered
Trademark
 Copyrights
• Right given to prevent others from printing, copying, or
publishing any original works of authorship.
• Issues surrounding access to material on the Internet have led to
major legal battles for the entertainment industry.
• Copyrights are registered with the Library of Congress.
• Term of the copyright is the life of the author plus 70 years.
 Trade Secrets
• Provides protection against others revealing or disclosing
information that could be damaging to business.
• Trade secrets have a life as long as the idea or process remains a secret.
• It is not covered by any federal law but is recognized under a governing
body of common laws in each state.
• Employees may be asked to sign a confidential information agreement.
• Entrepreneur needs to take proper precautions.
• Legal action is possible only after the secret has been revealed.
Licensing
• A contractual agreement giving rights to others to use intellectual
property in return for a royalty or fee.
• 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, etc.
Licensing (cont.)
• Factors to be considered:
• Customers’ recognition of licensed property.
• Whether licensed property complements existing products or services.
• Entrepreneur’s experience with the licensed property.
• 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.
Product Safety and Liability
• It is the responsibility of a company to meet any legal specifications
regarding a new product covered by the Consumer Product Safety
Act.
• The Act created a commission with the responsibility of prescribing safety
standards.
• The development of stricter regulations regarding labeling and advertising
is also part of the commission’s responsibility.
• Large fines as well as product recalls are the typical outcomes of any
action enforced by the commission.
Insurance
• It provides a means of managing risk in the new business.
• Some insurances are required by law and cannot be avoided while
others are may be necessary to protect the financial net worth of
the venture.
• Skyrocketing medical costs can have a significant impact on
insurance premiums.
• Entrepreneurs also must consider health care coverage.
Table 6.4 - Types of Insurance and Possible Coverage
Sarbanes-Oxley Act
• Congress passed the Act in 2002.
• Provides a mechanism for greater control over the financial activities of
public companies.
• Under this law:
• CEOs need to vouch for financial statements through a series of internal
control mechanisms and reports.
• Directors must meet background, length of service, and responsibilities
requirements regarding internal auditing and control.
Sarbanes-Oxley Act (cont.)
• Attempts to influence or impede the internal auditing process is a criminal
act.
• Law covers bank fraud, securities fraud, and fraud by wire, radio, or TV.
• There has been some concern as to the interpretation of this law and
subsequent directors’ liability.
• There are conflicts with the provisions of the new law and the laws of
foreign countries.
Sarbanes-Oxley Act (cont.)
• Though private companies are not included, they are subject to
control if they:
• Consult with a public company.
• Influence that public company in any wrongdoing established by the
Sarbanes-Oxley Act.
• Entrepreneurs can set up a board of advisors instead of an
extended board of directors.
Contracts
• A legally binding agreement between two parties.
• Often business deals are concluded with a handshake.
• The rule is to not to rely on a handshake if a deal cannot be
completed within one year.
• Courts insist on a written contract for all transactions over
$500.
 Contracts (cont.)
• Four essential items in an agreement to provide the best legal
protection:
• Understand the terms and conditions in the contract.
• Cross out anything that you do not agree to.
• Do not sign if there are blank spaces (these can be crossed out).
• Make a copy for your files after signing.

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