WHAT IS
INTELLECTUAL PROPERTY?
Intellectual property which includes patents,
trademarks, copyrights, and trade secrets represent important assets of
entrepreneur and should be understood even before engaging the services of an attorney.
Because entrepreneurs often don't understand intellectual property, they can
ignore steps that should be taken to protect these assets.
Need for a
Lawyer
All business is regulated by law. The entrepreneur
needs to be aware of regulations that affect the new venture. At different
stages the entrepreneur will need legal advice. The legal expertise required
will vary based on factors such as type of product and organizational status.
The entrepreneur should carefully evaluate his or her needs before hiring a
lawyer.
How to Select a
Lawyer
Why hire a lawyer?- The entrepreneur does not usually
have the expertise to handle possible risks associated with difficult laws. An
attorney is in a better position to understand all outcomes related to any
legal action. The lawyer may work on a retainer basis (stated amount per month,),
which provides office and consulting time. This does not include court time or
other legal fees. The lawyer may be hired for a one-time fee, i.e. filing for a
patent. Choosing a lawyer is like hiring an employee-The lawyer you work with
should be someone to whom you can relate personally. When resources are
limited, the entrepreneur may offer the lawyer stock in exchange for his or her
services
Legal Issues in
Setting up the Organization
There are many options an entrepreneur can choose in
setting up an organization. Legal advice is also needed to prepare the
agreements necessary to begin a partnership, franchise, or corporation.
PATENTS
A patent is a contract between the government and an
inventor. The government grants the inventor exclusivity for a specified amount
of time. At the end, the government publishes the invention, and it becomes
part of the public domain. The patent gives the owners a negative right,
preventing anyone from making, using, or selling the invention.
Types of Patents
1. Utility
Patents
A utility patent has a term of 17 years, beginning on
the date the Patent and Trademark Office (PTO) issues it. Patents on any
invention requiring Govt. approval are extended by the amount of time it takes
the Govt. to review the invention. The patent grants the owner protection from anyone
making, using, and/or selling the invention.
2. Design
Patents
Covering new, original, ornamental, and unobvious
designs for articles, a design patent reflects the appearance of an object.
These are for a 14-year term and provide a negative right, excluding others
from making an article having the same ornamental appearance. Filing fees are
lower than for utility patents.
3. Plant patents
Plant patents are issued for 17 years on new
varieties of plants. Patents are issued by the Patent and Trademark Office
(PTO.) This office also administers the Disclosure Document Program, in which
the inventor files disclosure of the invention, giving recognition that he or
she was the first to develop the idea. Another program is the Defensive
Publication Program, which lets the inventor protect an idea by preventing
anyone else from patenting this idea, but gives the public access to it.
4. International
Patents
With the new GATT (General Agreement on Tariffs and
Trade) that took effect on January 1, 1996, any application by a foreign
company will be treated equally to an American firm. Previously American firms
were given priority. Now the decision is totally based on when the filing
companies began work on the idea. The GATT pact has been signed by 124 countries.
An additional 144 are due to be included by the end of the century. China is excluded
because of issues related to piracy. The pact will mandate stronger protection
for entrepreneurs by requiring protection for the following terms:
·
Seven years for trademarks.
·
Twenty years for patents.
·
Fifty years for films, music, and software.
There are still some problems with international
patents, such as the attitudes in China and other Southeast Asian countries
toward "knock-offs."
The Disclosure
Document
The entrepreneur should first file a disclosure
document to establish a date of conception. To file, the entrepreneur must
prepare a clear description of the invention along with photos and a cover
letter. Upon receipt, the PTO stamps and returns a duplicate copy establishing
evidence of conception. Before actually applying for the patent, the
entrepreneur should retain a patent attorney to conduct a patent search.
The Patent
Application
The patent application must contain a complete
history and description of the invention as well as claims for its usefulness.
The application is divided into sections:
The Introduction Section contains the background and
advantages of the invention and the nature of problems it overcomes. The description
of Invention Section, this section contains a description of the drawings,
which must comply with PTO requirements. A detailed description of the
invention follows, including engineering specifications, materials, and
components. In Claims Section, Claims are the criteria by which any infringements
will be determined. Essential parts of the invention should be described in
broad terms. The claims must not be so general that they hide the invention's
uniqueness. The application should contain a declaration signed by the
inventor. When the application is sent, the status of the invention becomes
"patent pending," providing protection until the application is
approved. A carefully written patent should provide protection, but is also an
invitation to sue or be sued if there is any infringement.
Patent
Infringement
Many inventions are the result of improvements in
existing products. Copying and improving a product may be legal. If improvement
is impossible, it may be possible to license the product from the patent holder.
To ascertain the existence of a patent, the entrepreneur can now use the
Internet. If there is an existing patent that might involve infringement,
licensing may be considered. If there is any doubt on this issue, the
entrepreneur should hire a patent attorney.
ONLINE PATENT
ISSUES
The question of whether patents are applicable to
e-commerce has been raised lately by stamp.com and Pitney Bowes. Large
corporations, like Pitney Bowes, are suing start-up companies to get
compensation for their intellectual property such as research and development
and patents.
TRADEMARKS
A trademark may be a word, symbol, design, or some
combination that identifies the source of certain goods. A trademark can last
indefinitely, as long as it continues to perform its indicated function. The trademark
is given a 20-year registration with 20-year renewable terms. In the fifth to
sixth year, you must file an affidavit with the PTO indicating that the patent
is in commercial use. Today the law allows filing a trademark solely on the
intent to use the trademark in interstate commerce. There are benefits to registering
a mark that has already been in use.
Categories of
trademarks:
Coined marks denote no relationship between the mark
and the goods and afford the possibility of expansion. An arbitrary mark is one
that has another meaning in our language. A suggestive mark is used to suggest
certain features or characteristics of a product or service. A descriptive mark
must have become distinctive and gained recognition before it can be
registered.
Registering a trademark can offer significant
advantages to the entrepreneur.
Registering the
Trademark
The PTO is responsible for federal registration of
trademarks. To file, the entrepreneur must complete the application form, which
can be downloaded from the PTO website. Filing of the registration involves
four requirements:
a. Completion of the written form.
b. A drawing of the mark.
c. Five specimens showing actual use of the mark.
d. The fee.
An examining attorney at the PTO determines whether
the mark is suitable for registration. Once accepted, the trademark is
published in the Trademark Official Gazette to allow any party 30 days
opposing. If no opposition is filed, the registration is issued. The entire
process usually takes about 13 months.
COPYRIGHT
A copyright protects original works of authorship.
The protection does not protect the idea itself. It allows someone else to use
the idea in a different manner. In 1980 the Computer Software Copyright Act was
added to provide explanation of the nature of software protection under
copyright law. Authors of software are protected in a manner similar to authors
of artistic works. The idea is not eligible for protection, but the actual
software program is eligible. The PTO issues registration for software source codes
and object codes programs. Protection of material on the Internet has become an
important issue.
The New York Time recently claimed that Amazon.com
couldn't use its best-seller list without its permission. Ownership of stock
quotes, judicial decision, and real estate postings is also being questioned.
Copyrights are registered with the Library of
Congress. All that is needed is the form, two copies of the work, and the
appropriate fee sent to the Register of Copyrights. The term of the copyright
is the life of the author plus 50 years. In some instances, several forms of
protection may be available: trademark, patent, and copyright.
TRADE SECRETS
A trade secret is not covered by any federal law but
is recognized under common laws in each state.
Employees may be asked to sign a confidential
information agreement. The holder of the trade secret has the right to sue any
signee who breaks the agreement. Non-protected ideas could become a serious problem
in the future unless the entrepreneur takes precautions.
To maintain
secrecy-
·
Train employees to refer sensitive questions to one
person.
·
Provide escorts for all office visitors.
·
Avoid discussing business in public places.
·
Control information that might be presented by employees
at conferences or in journals.
·
Use simple security such as locked file cabinets and
shredders.
·
Have employees and consultants sign non-disclosure
agreements.
·
Debrief departing employees.
·
Avoid faxing any sensitive information.
·
Mark documents "confidential" that need to
be.
Protection against the leaking of trade secrets is
difficult to enforce, and legal action can be taken only after the secret has
been revealed.
LICENSING
Licensing is an arrangement between two parties,
where one party has proprietary rights protected by a patent, trademark, or
copyright. This requires the licensee to pay a royalty to the holder of the
proprietary rights in return for permission to copy the patent. Licensing has
significant value as a marketing strategy to holders of patents.
Procedure
A patent license agreement specifies how the licensee
would have access to the patent. Licensing a trademark usually involves an
agreement where the entrepreneur operates a business using the trademark and
agrees to specific requirements. The agreement must be carefully worded and
should involve a lawyer.
·
Licensing a trademark generally involves a
franchising agreement. The entrepreneur operates a business using the trademark
and agrees to pay a fixed sum for use of the trademark.
·
The franchisee also pays a royalty based on sales
volume, buys supplies from the franchiser, or some combination of these.
·
Copyrights are also popular licensed property. They
involve the right to use or copy books, software, music, photos, and plays.
Celebrities will often license the right to use his or her name or image in a product.
Hit movies can also result in new products. Licensing is also popular around
special sports events.
·
Licensing opportunities are plentiful but should be
carefully considered and planned.
·
A significant player in licensing is Walt Disney,
which has been actively engaged in licensing for 65 years.
·
Licensing can be valuable for a firm that lacks
resources to conduct R&D to develop a product.
·
Technology licensing entails an agreement by which a
firm (licensee) acquires rights to product technology from another firm
(licensor.)
·
Two reasons for licensing are to gain competitive
advantage and to improve technical skills.
Benefits
Licensing can increase revenues, without the risk and
costly start-up investment. Licensing can also be a way to start a new venture
when the idea may infringe.
PRODUCT SAFETY
AND LIABILITY
The Consumer Product Safety Act, passed in 1972,
created a five-member commission that has the power to prescribe safety standards
for products. The commission also has the power to identify what it considers to
be substantial hazards and bar products it considers unsafe. The act was
amended in 1990 to establish stricter guidelines for reporting product defects
and resulting injuries and deaths. Manufacturers could be subject to fines of
$1.25 million for not reporting product liability settlements or court awards.
Any new product should be assessed as to whether it
falls under the law. If it does, the entrepreneur has to follow appropriate
procedures. Product liability problems are complex.
Recent attempts to reform the legislation passed in
Congress but were vetoed by the President. Claims regarding product safety and
liability usually fall under one of these categories:
1. Negligence extends to all parts of the production
and marketing process.
2. Warranty Consumers may sue when advertising
overstates the benefits of a product or when the product does not perform as
stated.
3. Strict Liability. A consumer can sue on the basis
that the product was defective prior to its receipt.
4. Misrepresentation occurs when advertising or other
information misrepresents material facts concerning the quality of the product.
The best protection against product liability is to
produce safe products and to warn consumers of any potential hazards.
INSURANCE
The entrepreneur should purchase insurance in the
event that problems do occur. Most firms should consider coverage in specific
areas as a means of managing risk in the business.
Common types of insurance
include:
·
Property insurance.
·
Casualty insurance.
·
Life insurance.
·
Worker's compensation.
·
Bonding.
Each of these types of insurance provides a means of
managing risk in the new business. Some insurance, such as disability and
vehicle coverage, is required by law and cannot be avoided. Life insurance of
key employees is not required but may be necessary to protect the venture. The
entrepreneur should consider the increasing insurance premiums in cost
projections. The entrepreneur should determine what kind of insurance to
purchase, how much to purchase, and from what company. Skyrocketing medical
costs have significant impact on insurance premiums, especially workers'
compensation. Insurance companies calculate the premium for workers'
compensation as a percentage of payrolls, type of business, and prior claims.
Some states are undertaking reforms in this coverage.
Promoting safety through comprehensive guidelines and
being personally involved with safety will help the entrepreneur control costs.
Health care coverage is an important benefit to employees and a significant
cost to businesses. A self-employed entrepreneur has limited options. If you
are leaving a corporate position, consider extending your health care benefits
with a COBRA, which allows you to continue on the same health policy for about
three years. Individual health care policies hare available. One rule is to
never rely on a handshake if the deal cannot be completed within one year.
The courts insist that a written contract exist for
all transactions over $500. The safest way to conduct business deals is with a
written contract. Any deal involving real estate must be in writing to be
valid. Leases, rentals, and purchases all need written agreements.
Four essential
items in an agreement to provide the best legal protection:
1. All parties involved should be named and their
roles specified.
2. The transaction should be described in detail.
3. The exact value of the transaction should be
specified.
4. Obtain signatures of the persons involved in the
deal
KEY TERMS
Intellectual
property- Any patents, trademarks, copyright, or trade secrets
held by the entrepreneur
Patent- Grants
holder protection from others making, using, or selling similar idea
Disclosure
document- Statement to U.S. Patent and Trademark Office by
inventor disclosing intent to patent idea
Trademark- A
distinguishing word, name, or symbol used to identify a product
Copyright- Right
given to prevent others from printing, copying, or publishing any original
works of authorship
Trade secret- Protection
against others revealing or disclosing information that could be damaging to
business
Licensing- Contractual
agreement giving rights to others to use intellectual property in return for a
royalty or fee
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