entrepreneurship (chapter 7)

7/13/2019 Entrepreneurship (Chapter 7)

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Copyright 2008 by Nelson, a division of Thomson Canada Limited

ENTREPRENEURSHIP

A PROCESS PERSPECTIVERobert A. BaronScott A. Shane

A. Rebecca Reuber

Slides Prepared by:

Sandra Malach, University of Calgary


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7Intellectual Property:Protecting Your Ideas

1


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LEARNING OBJECTIVES1. Explain why product development in new firms is

difficult, but why new firms tend to be better thanestablished firms at product development in mostindustries.

2. Explain why established firms find it easy to imitateentrepreneurs intellectual property quickly and at alow cost.

3. Define a patent, explain what conditions arenecessary for an inventor to patent an invention,and outline the pros and cons of patenting.


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LEARNING OBJECTIVES4. Define an industrial design, explain what conditions

are necessary for an invention to be an industrialdesign.

5. Define a trade secret, explain what conditions arenecessary for an invention to be a trade secret, andoutline the pros and cons of trade secrets.

6. Define a trademark, describe why trademarks areuseful to entrepreneurs, and explain how anentrepreneur can obtain a trademark.


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LEARNING OBJECTIVES7. Define a copyright, and describe how it protects an

entrepreneurs intellectual property.

8. Describe a first-mover advantage and explain theconditions under which it provides a useful form ofintellectual property protection.

9. Describe complementary assets, and explain whenit is better for an entrepreneur to obtain controlover complementary assets than to be innovative.


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Every man with an idea has at leasttwo or three followers.

--Brooks Atkinson

Once Around the Sun, 1951


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INTELLECTUAL PROPERTY The core ideas about a

new product or service

The only majoradvantage (most of thetime) new ventures have

over established firms


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THE PRODUCT DEVELOPMENT

PROCESSA difficult and uncertain process

Solution must be produced andmarketed for less than the customer iswilling to pay

May result in something different than

people set out to produce


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ESTABLISHED FIRM

ADVANTAGES Better at manufacturing

Better access to capital

Tacit knowledge from experience

Economies of scale

Better at marketing Established reputations

Established customers


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NEW FIRM ADVANTAGES Superior product development

Develop new products cheaper andeasier

No bureaucratic structures and rules inplace

Better incentives for employees

Greater flexibility


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WHY NEW FIRMS LOSE AT

PRODUCT DEVELOPMENTThe typical unpatented processinnovation can be copied at less than

50% of the cost of developing theoriginal innovation more than 40% ofthe time.

(Richard Levin)


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WHY IS IMITATION SO EASY?Competitors have a variety of methodsfor imitating intellectual property:

Reverse engineering

Hiring employees or suppliers from theentrepreneur

Assigning staff to copy the new product


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PATENTSTo obtain a patent, an invention must:

Be novel

Not be obvious to a person in the field

Be useful

Not publicly disclosed for more than 1year prior to the date of filing.


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WHAT CAN YOU PATENT?YES

Process

Method

Machine

Chemical formula

Design

NO

Business method

Something thatdoesnt work

Most software

Life Form


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THE PATENT PROCESS File an Initial Application with CIPO

Determine prior art (novelty)

Determine claims carefully Submit a full application

Application becomes public 18 months afterinitial filing date.

Patent valid for 20 years from applicationdate

www.cipo.gc.ca
http://www.cipo.gc.ca/http://www.cipo.gc.ca/


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ADVANTAGES OF PATENTS

Helps to raise capital by demonstratingcompetitive advantage

Raises the cost of imitation

Provides a monopoly right

Prevents a second party from using theinvention as a trade secret


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DISADVANTAGES OFPATENTS

Cost (min. approx $15K)

Requires disclosure of the invention

Provides only a 20 year monopoly

Can be circumvented

Difficult and costly to defend

Less effective for most types of technology Can be irrelevant if technology is fast moving

Requires patents for each individual country


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INDUSTRIAL DESIGN

Features of shape, configuration,pattern or ornamental design

Purely decorative in nature

Term 10 years

Application must be submitted within 12months of disclosure.

Mark with (D), name of owner


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TRADE SECRETS

A piece of knowledge that confers an advantageon a firm and is protected by non-disclosure

agreements and processes. Protect a competitive advantage without

disclosing how an underlying technology works


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DISADVANTAGES OFTRADE SECRETS

Must be kept hidden to remain valuable

Doesnt provide a monopoly right

To enforce and claim damages in court,must show a loss of competitiveadvantage or breach of contract


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TRADEMARKS

A word, phrase, symbol, design thatdistinguishes the goods and services of

one company from those of another Obtained by using the mark or filing an

application

Term 15 years, renewable

Application to CIPO.


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COPYRIGHTS

A form of intellectual property protectionprovided to the authors of original works

of authorship Protect the right to reproduce, further

derive, copy, or display the protected item

Advantages to filing but not required.

Term: life of the author + 50 years.


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FIRST MOVER ADVANTAGE:The Advantage of Speed and Timing

The first to offer a productin a particular market

Lead-time advantage

Locations

Suppliers

Learning curve advantage


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FIRST MOVER ADVANTAGE

Conditions for First Mover advantage:

They control scarce or intangible assets

More customers result in increased value Switching costs

People are content with the status quo

Reputations are important The learning curve for production is

proprietary


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WILL A NEW COMPANY PROFIT?

Three factors determine whether a newcompany will profit from introducing a

new product: The ability to secure a strong patent

The absence of a dominant design

The presence of complementary assetsin marketing and distribution


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WHICH IS MOST IMPORTANT?

Complementary Assets AreMore Important

Being Innovative Is MoreImportant

When patents are not very

effective

When patents are very effective

When a dominant design exists Before a dominant design exists

When learning curves areshallow or not proprietary

When learning curves are steepor proprietary

When knowledge is codified When knowledge is tacit

When products are observable When products are notobservable

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