Entrepreneurship and New Venture Creation - (ERCBM206)

The Importance of Intellectual

Property
Chris Paget
[email protected]
 Learning Objectives
1) Define the term intellectual property and describe its importance.
2) Explain what a patent is and describe different types of patents.
3) Describe a trademark and explain the process entrepreneurs use to
obtain one.
4) Describe a copyright and identify what a copyright can protect.
5) Describe a trade secret and understand the common causes of trade
secret disputes.
6) Explain what an intellectual property audit is and identify the two
primary reasons entrepreneurial business’s should complete this type
of audit.
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.
Common Mistakes Businesses Make in Regard
to Protecting Their Intellectual Property
• Not properly identifying all of their intellectual property.
• Not fully recognizing the value of their intellectual property.
• Not using their intellectual property as part of their overall plan for
success.
• Not taking sufficient steps to protect it.
Determining What Intellectual Property to
Legally Protect
Criteria 1
• Determine whether the intellectual property in question is
directly related to the firm’s competitive advantage.
Criteria 2
• Decide whether the intellectual property in question has
value in the marketplace.
The Four Key Forms of Intellectual Property
• Patents
• Trademarks
• Copyrights
• Trade Secrets
 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.
• 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 9.6 million patents.
• The patent office is strained. It takes an average of 25.3 months from
the date of first filing to receive a U.S. patent.
Patents
• 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.
Patents
Growth in patent applications in the united states

Blank 2014 2015 2016

Applications received 618,457 618,062 650,411
Patents issued 329,612 322,449 334,107
Patent applications pending 1,127,701 1,099,468 1,070,163
Average time for approval 27.4 months 26.6 months 25.3 months

Source: United States Patent and Trademark Office, Performance and Accountability Report for
Fiscal Year 2016, available at www.uspto.gov.
Patents
Three basic requirements for a patent
Types of Patents
Type Type of Invention Covered Duration
Utility New or useful process, machine, manufacture, 20 years from the date of the original
or composition of material or any new and application.
useful improvement thereof.

Design Invention of new, original, and ornamental 14 years from the date of the original
design for manufactured products. application.

Plant Any new varieties of plants that can be 20 years from the date of the original
reproduced asexually. application.
Business Method Patents (Special Utility 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.
The Process of Obtaining a Patent
 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.
 Trademarks
• 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.
 The Four Types of Trademarks
Type Types of Marks Covered Duration

Trademark Any word, name, symbol, or device used to identify and Renewable every 10 years, as long as the
distinguish one company’s goods from another’s. mark remains in use.
Examples: Apple, d.light, GoPro, Athletic Propulsion Labs,
3Derm

Service mark Similar to trademarks; are used to identify the services or Renewable every 10 years, as long as the
intangible activities of a business, rather than a business’s mark remains in use.
physical products.
Examples: 1-800-FLOWERS, Amazon.com, IndieU, Real Time
Cases, CoachUp, Dropbox
 The Four Types of Trademarks
Type Types of Marks Covered Duration

Collective mark Trademarks or service marks used by the members of a Renewable every 10 years, as long as the
cooperative, association, or other collective group. mark remains in use.
Examples: Information Technology Industry Council,
International Franchise Association, Rotary International

Certification mark Marks, words, names, symbols, or devices used by a person Renewable every 10 years, as long as the
other than the owner to certify a particular quality about a mark remains in use.
good or service.
Examples: 100% Napa Valley, Florida Oranges, National
Organic Program, Underwriters Laboratories
 What is Protected Under Trademark Law?
Item Example(s)

Words Birchbox, Rent the Runway, National Football League

Numbers and letters 3M, Boeing 787, AT&T

Designs and logos Nike swoosh logo

Sounds MGM’s lion’s roar

What is Protected Under Trademark Law?
Item Example

Fragrances Stationery treated with a special fragrance

Shapes Unique shape of the Apple iPod

Colors Nexium—the “purple pill”

Trade dress The layout and décor of a restaurant

Exclusions From Trademark Protection
Item Example

Immoral or scandalous matter Profane words

Deceptive matter Labeling oranges “Fresh Florida Oranges” that aren’t

grown in Florida

Descriptive marks Phrases like “golf ball” and “fried chicken” are
descriptive and can’t be trademarked

Surnames Common surnames like “Anderson” or “Smith” can’t be

trademarked
The Process of Obtaining a Trademark
 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.
• The work must be in a tangle form, such as a book, operating manual,
musical score, or computer software program.
• 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.
 What is Protected by a Copyright?
Item Example(s)

Literary works Books, poetry, reference works, speeches

Musical compositions Musical score, CD, MP3 file

Computer software All forms of computer programs

Dramatic works Play, comedy routine, newscast, movie, television show

 What is Protected by a Copyright?
Item Example(s)

Pantomimes and choreographic Arrangements of dance movements, including ballets and mime works
works

Pictorial, graphic, and sculptural Photographs, prints, art reproductions, cartoons, maps, globes,
works jewelry, fabrics, games, technical drawings, diagrams, posters, toys,
sculptures, charts
 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 football-
themed restaurant. The idea itself is not eligible for copyright
protection. However, if the entrepreneur writes down specifically
what his or her football-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.
 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.
Copyright Infringement
Copyright Infringement
• Copyright infringement occurs when one work derives from another, 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.
Copyright Infringement

• The illegal downloading of music is an example of copyright

infringement.
• Copyright infringement costs the owners of copyrighted material an
estimated $25 billion per year.
 Fair Use
• Copyright law permits limited infringement of copyrighted material under
certain circumstances.
• The certain circumstances are called fair use. Fair use allows one to use
copyrighted material for purposes such as criticism, comment, news
reporting, teaching or scholarship.
• This provision is what allows movie critics to show clips from movies.
 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.
 What Qualifies for Trade Secret Protection?
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.
 What Qualifies for Trade Secret Protection?
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 Secrets
• Restricting access
• Password protecting confidential computer files
• Maintaining logbooks for access to sensitive material
• Labeling documents
• Maintaining logbooks for visitors
• Maintaining adequate overall security measures
Conducting an Intellectual Property Audit
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.
Conducting an Intellectual Property Audit
The Process of Conducting an Intellectual Property Audit
• The first step is to develop an inventory of a business’s existing
intellectual property. The inventory should include the business’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.
 Learning Objectives
1) Define the term intellectual property and describe its importance.
2) Explain what a patent is and describe different types of patents.
3) Describe a trademark and explain the process entrepreneurs use to
obtain one.
4) Describe a copyright and identify what a copyright can protect.
5) Describe a trade secret and understand the common causes of trade
secret disputes.
6) Explain what an intellectual property audit is and identify the two
primary reasons entrepreneurial firms should complete this type of
audit.
Questions?