CH 06 Leagal Issues

7/21/2019 CH 06 Leagal Issues

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Hisrich

Peters

Shepherd

Chapter 6

Protecting the Idea

and

Other Legal Issues for theEntrepreneur

Copyright © 2010 by The McGraw-Hill Companies, Inc. ll rights reser!e". McGraw-Hill#Irwin



6-2

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.



6-3

Ho to Select a !ayer

"n entrepreneur needs to be aare of anyregulations that may affect a venture.

" layer may ork on a retainer basis or

may be hired for a one#time fee. " good orking relationship ith a layer$

%ases some of the risk in starting a nebusiness.

&ives the entrepreneur necessary confidence.

%ntrepreneur can offer the layer stock ine'change for services.



6-4

Patents

Patent # &rants holder protection from othersmaking, using, or selling similar idea( issuedby the Patent and Trademark )ffice *PT)+.

tility patent - Protection of ne, useful, andunobvious processes, machines, compositions ofmatter, and articles of manufacture( term of /years.

0esign patent - 1overs ne, original, ornamental,and unobvious designs for articles ofmanufacture( term of 23 years.

Plant patent # &iven for ne varieties of plants.



6-5

International Patents The Patent 1ooperation Treaty *P1T+ as

established to facilitate patent filings in multiplecountries in one office.

It is administered by the World IntellectualProperty )rgani4ation *WIP)+ in &eneva,Sit4erland( has over 2// participants.

It provides a preliminary search that assesseshether the filing firm ill face infringements inany country.

0ifferences may e'ists in the patent las of eachof these countries.

Patents *cont.+



6-6

The Provisional "pplication It is the initial application to the PT) providing

evidence of first to market.

5eplaces the disclosure document that aspreviously accepted by the PT).

&ives the rights to the patent based on theconcept of first to file.

The actual filing of the patent in its final form

must occur no later than 2 months after theprovisional disclosure document if filed.

Patents *cont.+



6-7

The Patent "pplication Introduction - 1onsists of the background and

advantages of the invention, the problems thatit overcomes, and ho the invention differs from

e'isting offerings. 0escription of invention - Includes a detailed

description of the invention and of the draingsthat accompany it.

1laims # Specify hat the entrepreneur is tryingto patent.

The application should contain a declarationsigned by the inventor*s+.

Patents *cont.+



6-8

Patent Infringement 6any businesses, inventions, or innovations are

results of improvements on, or modifications of,

e'isting products. 1opying 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 productfrom the patent holder.

It is advisable to hire a patent attorney toensure there is no possibility of infringement.

Patents *cont.+



6-9

Table 7.2 # 1hecklist for 6inimi4ingPatent 5isks

Table 6.1



6-10

8usiness 6ethod Patents

The groth of Internet use and softaredevelopment has given rise to businessmethod patents.

9irms use these patents to assaultcompetitors and subse:uently provideincome from royalties or licensing fees.

1oncerns have evolved regarding thesepatents.

;ot all start#ups ill have a product orconcept that is patentable.



6-11

Trademarks

" distinguishing ord, 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 ith the intent to use in the future.

1ategories$

1oined marks. "rbitrary marks.

Suggestive marks.

0escriptive marks.



6-12

5egistering the Trademark 9iling must meet four re:uirements$

1ompletion of the ritten form.

" draing of the mark.

9ive specimens shoing actual use of the mark.

The fee.

Initial determination of suitability takes < months.

)b=ections must be raise ithin si' months, orapplication is considered abandoned.

The entrepreneur has the right to appeal in caseof refusal.

Trademarks *cont.+



6-13

)nce accepted, trademark is published in theTrademark )fficial &a4ette to allo any party </days to oppose or re:uest an e'tension tooppose.

5egistration is issued if no opposition is filed.

Procedure takes about 2< months from initialfiling.

Trademarks *cont.+



6-14

Table 7. # 8enefits of a 5egisteredTrademark

Table 6.2



6-15

1opyrights

5ight given to prevent others from printing,copying, or publishing any original orks ofauthorship.

Issues surrounding access to material onthe Internet have led to ma=or legal battlesfor the entertainment industry.

1opyrights are registered ith the !ibraryof 1ongress.

Term of the copyright is the life of theauthor plus >/ years.



6-16

Trade Secrets

Provides protection against others revealing ordisclosing information that could be damagingto business. Trade secrets have a life as long as the idea or

process remains a secret. It is not covered by any federal la but is

recogni4ed under a governing body of commonlas in each state.

%mployees may be asked to sign a confidentialinformation agreement.

%ntrepreneur needs to take proper precautions.

!egal action is possible only after the secret hasbeen revealed.



6-17

!icensing

" contractual agreement giving rights toothers to use intellectual property in returnfor a royalty or fee.

Types of licensing$ Patent license agreements # Specify ho the

licensee ould have access to the patent.

Trademark license agreements # Involve a

franchising agreement. 1opyright license agreements # Involve rights to

use or copy books, softare, music,photographs, plays, etc.



6-18

9actors to be considered$ 1ustomers recognition of licensed property.

Whether licensed property complements e'isting

products or services. %ntrepreneurs e'perience ith the licensed

property.

!ong#term outlook for the licensed property.

@ind of protection provided by the agreement.

1ommitments in terms of payment of royalties,sales :uotas, and so on.

5eneal options.

!icensing *cont.+



6-19

Product Safety and !iability

It is the responsibility of a company to meetany legal specifications regarding a neproduct covered by the 1onsumer Product

Safety "ct. The "ct created a commission ith the

responsibility of prescribing safety standards.

The development of stricter regulations regardinglabeling and advertising is also part of thecommissions responsibility.

!arge fines as ell as product recalls are thetypical outcomes of any action enforced by thecommission.



6-20

Insurance

It provides a means of managing risk in thene business.

Some insurances are re:uired by la and

cannot be avoided hile others are may benecessary to protect the financial net orthof the venture.

Skyrocketing medical costs can have asignificant impact on insurance premiums.

%ntrepreneurs also have to consider healthcare coverage.



6-21

Table 7.3 # Types of Insurance andPossible 1overage



6-22

Sarbanes#)'ley "ct

1ongress passed the "ct in //. Provides a mechanism for greater control over

the financial activities of public companies.

nder this la$ 1%)s need to vouch for financial statements

through a series of internal control mechanismsand reports.

0irectors must meet background, length ofservice, and responsibilities re:uirementsregarding internal auditing and control.



6-23

"ttempts to influence or impede the internalauditing process is a criminal act.

!a covers bank fraud, securities fraud, andfraud by ire, radio, or TA.

There has been some concern as to theinterpretation of this la and subse:uentdirectors liability.

There are conflicts ith the provisions ofthe ne la and the las of foreigncountries.

Sarbanes#)'ley "ct *cont.+



6-24

Though private companies are not included,they are sub=ect to control if they$ 1onsult ith a public company.

Influence that public company in anyrongdoing established by the Sarbanes#)'ley"ct.

%ntrepreneurs can set up a board of

advisors instead of an e'tended board ofdirectors.

Sarbanes#)'ley "ct *cont.+



6-25

1ontracts

" legally binding agreement beteen toparties.

)ften business deals are concluded ith a

handshake. The rule is to not to rely on a handshake if

a deal cannot be completed ithin one year.

1ourts insist on a ritten contract for alltransactions over BC//.



6-26

Table 7.C # 1ontract 1onditions and5esults of a 8reach of 1ontract



6-27

9our essential items in an agreement toprovide the best legal protection$ nderstand the terms and conditions in the

contract. 1ross out anything that you do not agree to.

0o not sign if there are blank spaces *these canbe crossed out+.

6ake a copy for your files after signing.

1ontracts *cont.+

Documents

CH 06 Leagal Issues