abdm4223 lecture week 5 010612 part 2
DESCRIPTION
Business Ownership, Regulations & IPTRANSCRIPT
Business Ownership, Business Ownership, Regulations Regulations
& & Intellectual PropertyIntellectual Property
Business Ownership, Business Ownership, Regulations Regulations
& & Intellectual PropertyIntellectual Property
ABDM4233 ENTREPRENEURSHIPABDM4233 ENTREPRENEURSHIP
byStephen OngStephen Ong
Principal Lecturer (Specialist)Principal Lecturer (Specialist)Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen University
Forms of Forms of Business OwnershipBusiness Ownership
Forms of Forms of Business OwnershipBusiness Ownership
Choosing a Form of OwnershipChoosing a Form of Ownership
There is no one “best” form of ownership.There is no one “best” form of ownership. The best form of ownership depends on The best form of ownership depends on
an entrepreneur’s particular situation.an entrepreneur’s particular situation. Key: Understanding the characteristics of Key: Understanding the characteristics of
each form of ownership and how well they each form of ownership and how well they match an entrepreneur’s business and match an entrepreneur’s business and personal circumstances. personal circumstances.
5 - 3Ch, 5: Forms of Business Ownership
Factors Affecting the ChoiceFactors Affecting the Choice Tax considerationsTax considerations Liability exposureLiability exposure Start-up and future capital requirementsStart-up and future capital requirements ControlControl Managerial abilityManagerial ability Business goalsBusiness goals Management succession plansManagement succession plans Cost of formationCost of formation
5 - 4Ch, 5: Forms of Business Ownership
Major Forms of OwnershipMajor Forms of Ownership
Sole ProprietorshipSole Proprietorship PartnershipPartnership CorporationCorporation S CorporationS Corporation Limited Liability CompanyLimited Liability Company Joint VentureJoint Venture
5 - 5Ch, 5: Forms of Business Ownership
5 - 6Ch, 5: Forms of Business Ownership
FIGURE 5.1 (A)
Forms of Business Ownership – Percentage of Business
5 - 7Ch, 5: Forms of Business Ownership
FIGURE 5.1 (B)
Forms of Business Ownership - Percentage of Sales
5 - 8Ch, 5: Forms of Business Ownership
FIGURE 5.1 (C)
Forms of Business Ownership - Percentage of Sales
Advantages of the Advantages of the Sole ProprietorshipSole Proprietorship
Simple to createSimple to create Least costly form to beginLeast costly form to begin Profit incentiveProfit incentive Total decision making authorityTotal decision making authority No special legal restrictionsNo special legal restrictions Easy to discontinueEasy to discontinue
5 - 9Ch, 5: Forms of Business Ownership
Disadvantages of the Disadvantages of the Sole ProprietorshipSole Proprietorship
Unlimited personal liabilityUnlimited personal liability
5 - 10Ch, 5: Forms of Business Ownership
Liability Features of the Basic Liability Features of the Basic Forms of OwnershipForms of Ownership
5 - 11Ch, 5: Forms of Business Ownership
Sole ProprietorshipSole Proprietorship
Claims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s Creditors
Sole Proprietor’s Personal Sole Proprietor’s Personal AssetsAssets
Sole Proprietor’s Personal Sole Proprietor’s Personal AssetsAssets
5 - 12Ch, 5: Forms of Business Ownership
Disadvantages of the Disadvantages of the Sole ProprietorshipSole Proprietorship
Unlimited personal liabilityUnlimited personal liability Limited skills and capabilitiesLimited skills and capabilities Feelings of isolationFeelings of isolation Limited access to capitalLimited access to capital Lack of continuity of the businessLack of continuity of the business
PartnershipPartnership
An association of two or more people An association of two or more people who co-own a business for the who co-own a business for the purpose of making a profit.purpose of making a profit.
AlwaysAlways wise to create a partnership wise to create a partnership agreement.agreement.
The best partnerships are The best partnerships are built on trust and respect. built on trust and respect.
5 - 13Ch, 5: Forms of Business Ownership
Advantages of the PartnershipAdvantages of the Partnership
Easy to establishEasy to establish Complementary skills of partnersComplementary skills of partners Division of profitsDivision of profits Larger pool of capitalLarger pool of capital Ability to attract limited partnersAbility to attract limited partners
5 - 14Ch, 5: Forms of Business Ownership
Types of PartnersTypes of Partners General partnersGeneral partners
Take an active role in managing a business.Take an active role in managing a business. Have unlimited liability for the partnership’s Have unlimited liability for the partnership’s
debts.debts. Every partnership must have at least one Every partnership must have at least one
general partner.general partner. Limited partnersLimited partners
Cannot participate in the day-to-day Cannot participate in the day-to-day management of a company. management of a company.
Have limited liability for the partnership’s Have limited liability for the partnership’s debts. debts.
5 - 15Ch, 5: Forms of Business Ownership
Advantages of the PartnershipAdvantages of the Partnership Easy to establishEasy to establish Complementary skills of partnersComplementary skills of partners Division of profitsDivision of profits Larger pool of capitalLarger pool of capital Ability to attract limited partnersAbility to attract limited partners Minimal government regulationMinimal government regulation FlexibilityFlexibility TaxationTaxation
5 - 16Ch, 5: Forms of Business Ownership
Disadvantages of the Disadvantages of the PartnershipPartnership
Unlimited liability of at least one Unlimited liability of at least one partnerpartner
5 - 17Ch, 5: Forms of Business Ownership
Liability Features of the Basic Liability Features of the Basic Forms of OwnershipForms of Ownership
5 - 18Ch, 5: Forms of Business Ownership
PartnershipPartnership
Claims of Partnership’s CreditorsClaims of Partnership’s CreditorsClaims of Partnership’s CreditorsClaims of Partnership’s Creditors
Partnership’s AssetsPartnership’s AssetsPartnership’s AssetsPartnership’s AssetsGeneralGeneralPartner’sPartner’sPersonalPersonalAssetsAssets
GeneralGeneralPartner’sPartner’sPersonalPersonalAssetsAssets
GeneralGeneralPartner’sPartner’sPersonalPersonalAssetsAssets
GeneralGeneralPartner’sPartner’sPersonalPersonalAssetsAssets
5 - 19Ch, 5: Forms of Business Ownership
Disadvantages of the Disadvantages of the PartnershipPartnership
Unlimited liability of at least one partnerUnlimited liability of at least one partner Capital accumulationCapital accumulation Difficulty in disposing of partnership Difficulty in disposing of partnership
interest without dissolving the partnershipinterest without dissolving the partnership Lack of continuityLack of continuity Potential for personality and authority Potential for personality and authority
conflictsconflicts Partners bound by law of agencyPartners bound by law of agency
Limited PartnershipLimited Partnership
A partnership composed of at least A partnership composed of at least one general partner and one or more one general partner and one or more limited partners.limited partners.
A general partner in this partnership A general partner in this partnership is treated exactly as in a general is treated exactly as in a general partnership.partnership.
A limited partner has limited A limited partner has limited liability and is treated as an liability and is treated as an investor in the business. investor in the business.
5 - 20Ch, 5: Forms of Business Ownership
CorporationCorporation
A separate legal entity from its owners.A separate legal entity from its owners. Types of corporations:Types of corporations:
DomesticDomestic – a corporation doing business – a corporation doing business in the state in which it is incorporated.in the state in which it is incorporated.
ForeignForeign – a corporation doing business in – a corporation doing business in a state other than the state in which it is a state other than the state in which it is incorporated. incorporated.
AlienAlien – a corporation formed in another – a corporation formed in another country but doing business in the United country but doing business in the United States. States.
5 - 21Ch, 5: Forms of Business Ownership
CorporationCorporation
Types of corporations:Types of corporations: Publicly held Publicly held – a corporation that has – a corporation that has
a large number of shareholders and a large number of shareholders and whose stock usually is traded on one whose stock usually is traded on one of the large stock exchanges.of the large stock exchanges.
Closely held Closely held – a corporation in which – a corporation in which shares are controlled by a relatively shares are controlled by a relatively small number of people, often family small number of people, often family members, relatives, or friends. members, relatives, or friends.
5 - 22Ch, 5: Forms of Business Ownership
Advantages of the CorporationAdvantages of the Corporation
Limited liability of stockholdersLimited liability of stockholders
5 - 23Ch, 5: Forms of Business Ownership
Liability Features of the Basic Liability Features of the Basic Forms of OwnershipForms of Ownership
5 - 24Ch, 5: Forms of Business Ownership
Corporation
Claims of Corporation’s CreditorsClaims of Corporation’s Creditors
Corporation’s AssetsCorporation’s Assets
Shareholder’sPersonal AssetsShareholder’s
Personal AssetsShareholder’s
Personal AssetsShareholder’s
Personal Assets
barrier barrier barrier
barrier
5 - 25Ch, 5: Forms of Business Ownership
Advantages of the CorporationAdvantages of the Corporation
Limited liability of stockholdersLimited liability of stockholders Ability to attract capitalAbility to attract capital Ability to continue indefinitelyAbility to continue indefinitely Transferable ownershipTransferable ownership
Disadvantages of the Disadvantages of the CorporationCorporation
Cost and time of incorporation processCost and time of incorporation process Double taxationDouble taxation Potential for diminished managerial Potential for diminished managerial
incentivesincentives Legal requirements and regulatory “red Legal requirements and regulatory “red
tape”tape” Potential loss of control by founder(s)Potential loss of control by founder(s)
5 - 26Ch, 5: Forms of Business Ownership
S CorporationS Corporation No different from any other corporation No different from any other corporation
from a legal perspective.from a legal perspective. An S corporation is taxed like a An S corporation is taxed like a
partnership, passing all of its profits (or partnership, passing all of its profits (or losses) through to individual shareholders.losses) through to individual shareholders.
To elect “S” status, all shareholders must To elect “S” status, all shareholders must consent, and the corporation must file with consent, and the corporation must file with the IRS within the first 75 days of its tax the IRS within the first 75 days of its tax year.year.
5 - 27Ch, 5: Forms of Business Ownership
Liability Features of the Basic Liability Features of the Basic Forms of OwnershipForms of Ownership
5 - 28Ch, 5: Forms of Business Ownership
S-Corporation
Claims of S-Corporation’s CreditorsClaims of S-Corporation’s Creditors
S-Corporation’s AssetsS-Corporation’s Assets
Shareholder’sPersonal AssetsShareholder’s
Personal AssetsShareholder’s
Personal AssetsShareholder’s
Personal Assets
barrier barrier barrier
barrier
Limited Liability Company Limited Liability Company (LLC)(LLC)
Resembles an S Corporation but is Resembles an S Corporation but is notnot subject to the same restrictions. subject to the same restrictions.
Two documents required: Two documents required: Articles of organizationArticles of organization Operating agreementOperating agreement
5 - 29Ch, 5: Forms of Business Ownership
Limited Liability Company Limited Liability Company (LLC)(LLC)
An LLC cannot have more than An LLC cannot have more than twotwo of of these four corporate characteristics:these four corporate characteristics:
1.1. Limited liabilityLimited liability
2.2. Continuity of lifeContinuity of life
3.3. Free transferability of interestFree transferability of interest
4.4. Centralized managementCentralized management
5 - 30Ch, 5: Forms of Business Ownership
Liability Features of the Basic Liability Features of the Basic Forms of OwnershipForms of Ownership
5 - 31Ch, 5: Forms of Business Ownership
Limited Liability Company - LLCLimited Liability Company - LLC
Claims of LLC’s CreditorsClaims of LLC’s Creditors
LLC’s AssetsLLC’s Assets
Member’sPersonal Assets
Member’sPersonal Assets
Member’sPersonal Assets
Member’sPersonal Assets
barrier barrier barrier
barrier
5 - 32Ch, 5: Forms of Business Ownership
The Professional CorporationThe Professional Corporation
Designed for professions – lawyers, Designed for professions – lawyers, doctors, dentists, accountants and other doctors, dentists, accountants and other professionalsprofessionals
Created in the same manner as a Created in the same manner as a corporationcorporation
Identified by the abbreviations: Identified by the abbreviations: P.C. – Professional CorporationP.C. – Professional Corporation
P.A. – Professional AssociationP.A. – Professional Association
S.C. – Service CorporationS.C. – Service Corporation
Ch, 5: Forms of Business Ownership
The Joint VentureThe Joint Venture
Much like a partnership, but it: Much like a partnership, but it:
Is formed for a specific purposeIs formed for a specific purpose
Has a beginning and an endHas a beginning and an end
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ConclusionConclusion
The “right” choice of the form of The “right” choice of the form of ownership is unique to every ownership is unique to every entrepreneur and their business. entrepreneur and their business.
Each form has advantages and Each form has advantages and disadvantages.disadvantages.
The entrepreneur must be thoughtful The entrepreneur must be thoughtful and strategic about this important and strategic about this important decision.decision.
IntellectualIntellectualPropertyProperty
IntellectualIntellectualPropertyProperty
The Importance of Intellectual PropertyThe Importance of Intellectual Property
Intellectual PropertyIntellectual Property Is any product of human intellect that is intangible but has Is any product of human intellect that is intangible but has
value in the marketplace.value in the marketplace. It is called “intellectual” property because it is the product It is called “intellectual” property because it is the product
of human imagination, creativity, and inventiveness.of human imagination, creativity, and inventiveness. ImportanceImportance
Traditionally, businesses have thought of their physical Traditionally, businesses have thought of their physical assets, such as land, buildings, and equipment as the most assets, such as land, buildings, and equipment as the most important.important.
Increasingly, however, a company’s intellectual assets are Increasingly, however, a company’s intellectual assets are the most important.the most important.
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SPOT the DIFFERENCESPOT the DIFFERENCE
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Patent LitigationPatent Litigation
Source: bbc.co.uk 30th August 2005
Creative wins MP3 player patent
One of Apple's main rivals, Creative Technology, hasbeen awarded a patent in the US for the interface
used on many digital music players.
"The first portable media player based upon the user interface covered in our Zen Patent was our Nomad Jukebox MP3 player," said Creative CEO Sim
Wong Hoo. "The Apple iPod was only announced in October 2001, 13 months after we
had been shipping the Nomad Jukebox based upon the user interface covered by our Zen Patent."
In its press release, Creative said Apple had filed for a patent for a user interface in a multimedia player in late 2002, but its application had been
recently rejected.On 24 August 2006, Apple and Creative announced a broad settlement to end their legal disputes. Apple will pay Creative US$100 million for a paid-up license, to use Creative's awarded patent in all Apple products. As part
of the agreement, Apple will recoup part of its payment, if Creative is successful in licensing the patent.
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Automatic hierarchical categorization of music by metadata
Patent number: 6928433Filing date: Jan 5, 2001Issue date: Aug 9, 2005
Application number: 9/755,723
A method, performed by software executing on the processor of a portable music playback device, that automatically files tracks
according to hierarchical structure of categories to organize tracks in a logical order. A user interface is utilized to change the hierarchy, view
track names, and...Inventors: Ron Goodman, Howard N. Egan
Assignee: Creative Technology LTD
Apple pays US$100m for use of PatentApple pays US$100m for use of Patent
Source: bbc.co.uk 30th August 2005
SPOT the DIFFERENCESPOT the DIFFERENCE
NASDAQ AAPL
Market Cap : US$308.8 B
PINK CREAFMarket Cap : US$0.150 B
CREATIVE vs APPLECREATIVE vs APPLE
Determining What Intellectual Determining What Intellectual Property to ProtectProperty to Protect
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Criteria 1 Criteria 2
Determine whether the intellectual property in
question is directly related to the firm’s
competitive advantage.
Decide whether the intellectual property in question has value in
the marketplace.
Common Mistakes Firms Make in Common Mistakes Firms Make in Regard to Protecting Their Intellectual Regard to Protecting Their Intellectual
PropertyProperty
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Not properly identifyingall of their
intellectual property.
Not legally protecting theintellectual property
that needs protecting.
Not fully recognizing the value of their
intellectual property.
Not using theirintellectual property as
part of their overallplan for success.
The Four Key Forms of Intellectual The Four Key Forms of Intellectual PropertyProperty
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Patents
Copyrights
Trademarks
Trade Secrets
FIGURE 2.4 Patent Applications and Patents Issued
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FIGURE 2.6 Trademark Applications and Trademarks and Renewals Issued
Protecting Your IdeasProtecting Your Ideas
PatentPatent – a grant from the Patent and – a grant from the Patent and Trademark Office to the inventor of Trademark Office to the inventor of product, giving the exclusive right to product, giving the exclusive right to make, use, or sell the invention for make, use, or sell the invention for 20 years from the date of 20 years from the date of filing the patent application.filing the patent application.
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PatentsPatents
PatentsPatents A patent is a grant from the federal government A patent is a grant from the federal government
conferring the rights to exclude others from making, conferring the rights to exclude others from making, selling, or using an invention for the term of the patent. selling, or using an invention for the term of the patent. (See the next slide for a full explanation.)(See the next slide for a full explanation.)
Increasing Interest in PatentsIncreasing Interest in Patents There is increasing interest in patents.There is increasing interest in patents.
Since Patent #1 was granted in 1790, the U.S. Patent & Since Patent #1 was granted in 1790, the U.S. Patent & Trademark Office has granted over six million patents.Trademark Office has granted over six million patents.
The patent office is strained. It now takes an average of 35.3 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.months from the date of first filing to receive a U.S. patent.
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Proper Understanding for What a Proper Understanding for What a Patent MeansPatent Means
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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 licensing income in exchange for their consent.
Growth in Patent Applications in the Growth in Patent Applications in the United StatesUnited States
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Three Basic Requirements for Obtaining Three Basic Requirements for Obtaining a Patenta Patent
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Types of PatentsTypes of Patents
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Type Type of Invention Covered Duration
Utility
Design
Plant
20 years from the date of the
original application.
20 years from the date of the
original application.
14 years from the date of the
original application.
New or useful process, machine, manufacturer, or composition of material or any new and useful improvement thereof.
Invention of new, original, and ornamental design for manufactured products.
Any new varieties of plants that can be reproduced asexually.
Business Method Patents Business Method Patents (Special Utility Patent)(Special Utility Patent)
Business Method PatentBusiness Method Patent A business method patent is a patent that protects an A business method patent is a patent that protects an
invention that is or facilitates a method of doing invention that is or facilitates a method of doing business.business.
The most notable business method patents that have The most notable business method patents that have been awarded:been awarded:
Amazon.com’s one-click ordering system.Amazon.com’s one-click ordering system. Priceline.com’s “name-your-price” business model.Priceline.com’s “name-your-price” business model. Netflix’s method for allowing customers to set up a rental list Netflix’s method for allowing customers to set up a rental list
of movies to be mailed to them.of movies to be mailed to them.
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The Six Steps to a PatentThe Six Steps to a Patent
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1. Establish the invention’s novelty
2. Document the device
3. Search existing patents
5. Complete the patent application
6. File the patent application
4. Study search results
The Process of Obtaining a PatentThe Process of Obtaining a Patent
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Patent InfringementPatent Infringement
Patent InfringementPatent Infringement Takes place when one party engages in the Takes place when one party engages in the
unauthorized use of another party’s patent.unauthorized use of another party’s patent. The tough part (particularly from a small The tough part (particularly from a small
entrepreneurial firm’s point of view) is that patent entrepreneurial firm’s point of view) is that patent infringement cases are costly to litigate.infringement cases are costly to litigate.
A typical patent infringement case costs each side at least A typical patent infringement case costs each side at least $500,000 to litigate.$500,000 to litigate.
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Protecting Your IdeasProtecting Your Ideas
TrademarkTrademark – any distinctive word, – any distinctive word, symbol, design, name, logo, slogan, or symbol, design, name, logo, slogan, or trade dress a company uses to identify trade dress a company uses to identify the origin of a product or to distinguish the origin of a product or to distinguish it from other goods on the market. it from other goods on the market.
ServicemarkServicemark – the same as a trademark – the same as a trademark except that it identifies the source of a except that it identifies the source of a service rather than a product. service rather than a product.
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TrademarksTrademarks
TrademarkTrademark A trademark is any word, name, symbol, or device used A trademark is any word, name, symbol, or device used
to identify the source or origin of products or services to identify the source or origin of products or services and to distinguish those product or services from and to distinguish those product or services from others.others.
Trademarks also provide consumers with useful Trademarks also provide consumers with useful information.information.
For example, consumers know what to expect when they see a For example, consumers know what to expect when they see a Macy’s store.Macy’s store.
Think how confusing it would be if any retail store could use Think how confusing it would be if any retail store could use the name Macy’s.the name Macy’s.
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Types of TrademarksTypes of Trademarks1 of 21 of 2
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Type Types of Marks Covered
Trademark
Duration
Renewable every 10 years, as long
as the mark remains in use.
Service markRenewable every 10 years, as long
as the mark remains in use.
Any word, name, symbol, or device used to identify and distinguish one company’s goods from another.
Examples: Apple, d.light, Dry Soda, ModCloth, and Zeo.
Similar to trademarks; are used to identify the services or intangible activities of a business, rather than a business’s physical products.
Examples: 1-800-FLOWERS, Amazon.com, Mint.com, and Zipcar.
Types of TrademarksTypes of Trademarks2 of 22 of 2
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Type Types of Marks Covered
Collective mark
Duration
Renewable every 10 years, as long
as the mark remains in use.
Certification mark
Renewable every 10 years, as long
as the mark remains in use.
Trademarks or service marks used by the members of a cooperative, association, or other collective group.
Examples: Rotary International and International Franchise Association
Marks, words, names, symbols, or devices used by a person other than the owner to certify a particular quality about a good or service.
Examples: 100% Napa Valley and Underwriters Laboratories
What is Protected Under Trademark What is Protected Under Trademark LawLaw1 of 21 of 2
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Item Example(s)
Words
Numbers and letters
Designs and logos
Sounds
YouTern, PledgeMusic, GiftZip
3M, MSNBA, 1-800-FLOWERS
Nike swoosh logo
MGM’s lion’s roar
What is Protected Under Trademark What is Protected Under Trademark LawLaw2 of 22 of 2
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Item Example
Fragrances
Shapes
Colors
Trade dress
Stationery treated with a special fragrance
Unique shape of the Apple iPhone
Nexium—the “purple pill”
The layout and décor of a restaurant
Exclusions From Trademark ProtectionExclusions From Trademark Protection
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Item Example
Immoral or scandalous matter
Deceptive matter
Descriptive marks
Surnames
Profane words
Labeling oranges “Fresh Florida Oranges” that aren’t grown in Florida
Phrases like “golf ball” and “fried chicken” are descriptive and can’t be trademarked
Common surnames like “Anderson” or “Smith” can’t be trademarked
The Process of Obtaining a TrademarkThe Process of Obtaining a Trademark
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Protecting Your IdeasProtecting Your Ideas
CopyrightCopyright – an exclusive right that – an exclusive right that protects the creators of original works protects the creators of original works of authorship such as literary, of authorship such as literary, dramatic, musical, and artistic works. dramatic, musical, and artistic works.
Copyrighted material is denoted by Copyrighted material is denoted by the symbol the symbol ©. ©.
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CopyrightsCopyrights
CopyrightsCopyrights A copyright is a form of intellectual property protection A copyright is a form of intellectual property protection
that grants to the owner of a work of authorship the that grants to the owner of a work of authorship the legal right to determine how the work is used and to legal right to determine how the work is used and to obtain the economic benefits from the work.obtain the economic benefits from the work.
A work does not have to have artistic merit to be A work does not have to have artistic merit to be eligible for copyright protection.eligible for copyright protection.
As a result, things such as operating manuals and sales As a result, things such as operating manuals and sales brochures are eligible for copyright protection.brochures are eligible for copyright protection.
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What is Protected By a Copyright?What is Protected By a Copyright?
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Literary works Musical compositions
Computer software Dramatic works
Pantomimes andchoreographic works
Pictorial, graphic, andsculptural works
Exclusions From Copyright ProtectionExclusions From Copyright Protection
The Idea-Expression DichotomyThe Idea-Expression Dichotomy The main exclusion is that copyright laws cannot The main exclusion is that copyright laws cannot
protect ideas.protect ideas. For example, an entrepreneur may have the idea to open a For example, an entrepreneur may have the idea to open a
soccer-themed restaurant. The idea itself is not eligible for soccer-themed restaurant. The idea itself is not eligible for copyright protection. However, if the entrepreneur writes copyright protection. However, if the entrepreneur writes down specifically what his or her soccer-themed restaurant will down specifically what his or her soccer-themed restaurant will look like and how it will operate, that description is look like and how it will operate, that description is copyrightable.copyrightable.
The legal principle describing this concept is called the idea-The legal principle describing this concept is called the idea-expression dichotomy. expression dichotomy.
An idea is not copyrightable, but the specific expression of an An idea is not copyrightable, but the specific expression of an idea is.idea is.
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Obtaining a CopyrightObtaining a Copyright
How to Obtain a CopyrightHow to Obtain a Copyright Copyright law protects any work of authorship the Copyright law protects any work of authorship the
moment it assumes a tangible form. moment it assumes a tangible form. Technically, it is not necessary to provide a copyright Technically, it is not necessary to provide a copyright
notice or register work with the U.S. Copyright Office.notice or register work with the U.S. Copyright Office. The following steps can be taken, however, to enhance The following steps can be taken, however, to enhance
copyright protection.copyright protection. Copyright protection can be enhanced by attaching the Copyright protection can be enhanced by attaching the
copyright notice, or “copyright bug” to something.copyright notice, or “copyright bug” to something. Further protection can be obtained by registering the work Further protection can be obtained by registering the work
with the U.S. Copyright Office.with the U.S. Copyright Office.
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Copyright InfringementCopyright Infringement1 of 21 of 2
Copyright InfringementCopyright Infringement Copyright infringement occurs when one work derives Copyright infringement occurs when one work derives
from another or is an exact copy or shows substantial from another or is an exact copy or shows substantial similarity to the original work.similarity to the original work.
To prove infringement, a copyright owner is required to To prove infringement, a copyright owner is required to show that the alleged infringer had prior access to the show that the alleged infringer had prior access to the copyrighted work and that the work is substantially copyrighted work and that the work is substantially similar to the owner’s.similar to the owner’s.
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Copyright InfringementCopyright Infringement2 of 22 of 2
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• 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.
Trade SecretsTrade Secrets
Trade SecretsTrade Secrets A trade secret is any formula, pattern, physical device, A trade secret is any formula, pattern, physical device,
idea, process, or other information that provides the idea, process, or other information that provides the owner of the information with a competitive advantage owner of the information with a competitive advantage in the marketplace.in the marketplace.
Trade secrets include marketing plans, product Trade secrets include marketing plans, product formulas, financial forecasts, employee rosters, logs of formulas, financial forecasts, employee rosters, logs of sales calls, and similar types of proprietary information.sales calls, and similar types of proprietary information.
The Federal Economic Espionage Act, passed in 1996, The Federal Economic Espionage Act, passed in 1996, criminalizes the theft of trade secrets.criminalizes the theft of trade secrets.
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What Qualifies for Trade Secret What Qualifies for Trade Secret Protection?Protection?
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Trade Secret ProtectionTrade Secret Protection Not all information qualifies for trade secret protection.Not all information qualifies for trade secret protection. In general, information that is know to the public or In general, information that is know to the public or
that competitors can discover through legal means that competitors can discover through legal means doesn’t qualify for trade secret protection.doesn’t qualify for trade secret protection.
Companies protect trade secrets through physical Companies protect trade secrets through physical measures and written documents.measures and written documents.
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What Qualifies for Trade Secret What Qualifies for Trade Secret Protection?Protection?
2 of 22 of 2
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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.
Physical Measures for Protecting Trade Physical Measures for Protecting Trade SecretsSecrets
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Restricting access Labeling documents
Password protecting confidential computer
files
Maintaining logbooksfor visitors
Maintaining logbooks foraccess to sensitive
material
Maintaining adequate overall security
measures
Conducting an Intellectual Property Conducting an Intellectual Property AuditAudit
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Intellectual Property AuditIntellectual Property Audit The first step a firm should take to protect its The first step a firm should take to protect its
intellectual property is to complete an intellectual intellectual property is to complete an intellectual property audit.property audit.
An intellectual property audit is conducted to An intellectual property audit is conducted to determine the intellectual property a firm owns.determine the intellectual property a firm owns.
There are two reasons for conducting an intellectual There are two reasons for conducting an intellectual property audit:property audit:
First, it is prudent for a company to periodically determine First, it is prudent for a company to periodically determine whether its intellectual property is being properly protected.whether its intellectual property is being properly protected.
Second, it is important for a firm to remain prepared to justify Second, it is important for a firm to remain prepared to justify its valuation in the event of a merger or acquisition. its valuation in the event of a merger or acquisition.
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Conducting an Intellectual Property Conducting an Intellectual Property AuditAudit
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The Process of Conducting an Intellectual The Process of Conducting an Intellectual Property AuditProperty Audit The first step is to develop an inventory of a firm’s The first step is to develop an inventory of a firm’s
existing intellectual property. The inventory should existing intellectual property. The inventory should include the firm’s present registrations of patents, include the firm’s present registrations of patents, trademarks, and copyrights.trademarks, and copyrights.
The second step is to identify works in progress to The second step is to identify works in progress to ensure that they are being documented and protected in ensure that they are being documented and protected in a systematic, orderly manner.a systematic, orderly manner.
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Protecting Your IdeasProtecting Your IdeasType of Type of
ProtectionProtectionWhat It What It Covers Covers
Time Time RequiredRequired
CostCost
CopyrightCopyright Works of Works of original original authorshipauthorship
About 2 weeksAbout 2 weeks About $35About $35
TrademarkTrademark Logos, names, Logos, names, phrasesphrases
6 – 12 months6 – 12 months $900 - $1,500$900 - $1,500
Design patentDesign patent Look of an Look of an original productoriginal product
Up to 2 yearsUp to 2 years $5,000 - $20,000$5,000 - $20,000
Utility patentUtility patent How an original How an original product worksproduct works
2 – 5 years2 – 5 years $5,000 - $20,000$5,000 - $20,000
Business Business method patentmethod patent
A business A business processprocess
2 – 5 years2 – 5 years $5,000 - $20,000$5,000 - $20,000
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Source: Anne Field, Source: Anne Field, ““How to Knock Out Knock Offs,How to Knock Out Knock Offs,”” Business WeekBusiness Week, March 14, 2005., March 14, 2005.
Conclusion The creative process is a tenant of the The creative process is a tenant of the
entrepreneurial experience. entrepreneurial experience. Success, and even survival itself, requires Success, and even survival itself, requires
entrepreneurs to tap their creativity. entrepreneurs to tap their creativity. The seven steps of the creative process The seven steps of the creative process
transform an idea into a business reality. transform an idea into a business reality. Creativity results in value, and value Creativity results in value, and value
provides a competitive advantage. provides a competitive advantage. Entrepreneurs protect their creative ideas Entrepreneurs protect their creative ideas
with patents, trademarks, servicemarks, and with patents, trademarks, servicemarks, and copyrights to sustain a competitive edge. copyrights to sustain a competitive edge.
2 - 79Ch. 2: Inside the Entrepreneurial Mind
Further ReadingFurther Reading Scarborough, Norman, M. 2011. Scarborough, Norman, M. 2011. Essentials of Essentials of
Entrepreneurship and Small Business Management.Entrepreneurship and Small Business Management. 66thth edition. Pearson. edition. Pearson.
Brooks, Arthur C. (2006) Social Entrepreneurship : A Brooks, Arthur C. (2006) Social Entrepreneurship : A Modern Approach to Social Value Creation. Pearson Modern Approach to Social Value Creation. Pearson
Barringer, Bruce R. & Ireland, R. Duane, 2011 Barringer, Bruce R. & Ireland, R. Duane, 2011 Entrepreneurship – Successfully launching new Entrepreneurship – Successfully launching new ventures ventures 44thth edition, Pearson. edition, Pearson.
Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. Entrepreneurship and Small Business.Entrepreneurship and Small Business. 3 3rdrd Asia Asia Pacific edition. John Wiley.Pacific edition. John Wiley.