CHAPTER 6

INTELLECTUAL PROPERTY AND

OTHER LEGAL ISSUES
FOR THE
ENTREPRENEUR
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.
How to Select a Lawyer
 An entrepreneur needs to be aware of any
regulations that may affect a venture.
 A lawyer may work on a retainer basis or may
be hired for a one-time fee.
 A good working relationship with a lawyer:
 Eases some of the risk in starting a new business.
 Gives the entrepreneur necessary confidence.
 Entrepreneur can offer the lawyer stock in
exchange for services.
 PATENT
Patent - Grants holder protection from others
making, using, or selling similar idea; issued by
the Patent and Trademark Office (PTO).
 Utility patent – Protection of new, useful, and
unobvious processes, machines, compositions of
matter, and articles of manufacture; term of 20
years.
 Design patent – Covers new, original, ornamental,
and unobvious designs for articles of manufacture;
term of 14 years.
 Plant patent - Given for new varieties of plants.
International Patents
 International Patents
 The Patent Cooperation Treaty (PCT) was established
to facilitate patent filings in multiple countries in one
office.
 It is administered by the World Intellectual Property
Organization (WIPO) in Geneva, Switzerland; has
over 100 participants.
 It provides a preliminary search that assesses whether
the filing firm will face infringements in any country.
 Differences may exists in the patent laws of each of
these countries.
 The Provisional Application
 It is the initial application to the PTO providing
evidence of first to market.
 Replaces the disclosure document that was
previously accepted by the PTO.
 Gives the rights to the patent based on the concept of
first to file.
 The actual filing of the patent in its final form must
occur no later than 12 months after the provisional
disclosure document if filed.
International Patents
 International Patents
 The Patent Cooperation Treaty (PCT) was established
to facilitate patent filings in multiple countries in one
office.
 It is administered by the World Intellectual Property
Organization (WIPO) in Geneva, Switzerland; has
over 100 participants.
 It provides a preliminary search that assesses whether
the filing firm will face infringements in any country.
 Differences may exists in the patent laws of each of
these countries.
 The Patent Application
 Introduction – Consists of the background and
advantages of the invention, the problems that it
overcomes, and how the invention differs from
existing offerings.
 Description of invention – Includes a detailed
description of the invention and of the drawings that
accompany it.
 Claims - Specify what the entrepreneur is trying to
patent.
 The application should contain a declaration signed by
the inventor(s).
 Patent Infringement
 Many businesses, inventions, or innovations are results
of improvements on, or modifications of, existing
products.
 Copying 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 product from the
patent holder.
 It is advisable to hire a patent attorney to ensure there
is no possibility of infringement.
Table 6.1 - Checklist for
Minimizing Patent Risks

Table 6.1
BUSINESS METHOD PATENTS
 The growth of Internet use and software development
has given rise to business method patents.
 Firms use these patents to assault competitors and
subsequently provide income from royalties or licensing
fees.
 Concerns have evolved regarding these patents.
 Not all start-ups will have a product or concept that is
patentable.
START UP WITHOUT A PATENT
If entrepreneur do not have a patentable product. He
Shall go for Product Differentiation OR a Unique
Positioning Strategy OR Competitive Advantage
 TRADE MARKS
A distinguishing word, name, symbol, combination,
slogan, color or sound that identifies a product

  It can last indefinitely.

 It can be filed solely on the intent to use the
trademark in interstate or foreign commerce; also
with the intent to use in the future.
Types of Trademarks
1- Coined Mark:
There is no relationship between the mark and the
good/service e.g. Kodak, Polaroid
 

2- Arbitrary Mark:
That has some other meanings in our language e.g. Apple

3- Suggestive Mark:
They suggest features, qualities, ingredients etc e.g.
Sun Silk Shampoo
 

4- Descriptive Mark:
The mark that has gained consumer recognition and has
been distinctive over a period of time e.g. Rubberiod
 Registering the Trademark
 Filing must meet four requirements:
 Completion of the written form.
 A drawing of the mark.
 Five specimens showing actual use of the mark.
 The fee.
 Initial determination of suitability takes 3 months.
 Objections must be raise within six months, or
application is considered abandoned.
 The entrepreneur has the right to appeal in case of
refusal.
 Once accepted, trademark is published in the
Trademark Official Gazette to allow any party 30
days to oppose or request an extension to oppose.
 Registration is issued if no opposition is filed.
 Procedure takes about 13 months from initial
filing.
Table 6.2 - Benefits of a
Registered Trademark

Table 6.2
 COPY RIGHTS
The Copy right protects original works of authorship
Examples include Music, Literary work, Pictures, Videos,
Soft wares, Books, scripts, Article, Poems, Songs,
Sculpture, Models, Maps, Printed material on Board Games
and Data.

Copy rights are registered with Library of congress (in USA)

Registration process includes
 1- Filling the Application Form
2- 2 Copies of work
3- The Fee 
Validity of copy right is life of author + 70 years
 TRADE SECRETS
Protection against others revealing or disclosing information
that could be damaging to the business

Employees may be asked to sign a non-disclosure

Agreement (confidential information agreement)

General Trade secrets may include Employee’s data, Sales

Data, Customer Data, Financial Information, Quotations,
Invoices and Procedures

Information can leak through Trade Shows, Transient

Employees, Media Interviews and Websites
 Trade secrets have a life as long as the idea or
process remains a secret.
 It is not covered by any federal law but is
recognized under a governing body of common
laws in each state.
 Entrepreneur needs to take proper precautions.
 Legal action is possible only after the secret has
been revealed.
Suggestions To Prevent Leakages of Trade Secrets
 
1. Train employees to refer sensitive questions to one person
2. Provide escorts to all office visitors
3. Avoid discussing business in public places
4. Keep important travel plans secret
5. Use simple security such as locked files cabinets, have
password in comp & use of document shredders
6. Get employees and consultants sign Non Disclosure
Agreement
7. Debrief the departing employees
8. Avoid faxing any sensitive information
9. Mark document confidential when needed
 LICENSING
An agreement between Licensor and Licensee.

Licensing is a contractual agreement giving rights to

others to use intellectual property in return for a royalty
or fee.
 Types of licensing:
 Patent license agreements - Specify how the licensee
would have access to the patent.
 Trademark license agreements - Involve a
franchising agreement.
 Copyright license agreements - Involve rights to use
or copy books, software, music, photographs, plays,
etc.
 Factors to be considered:
 Customers’ recognition of licensed property.
 Whether licensed property complements existing
products or services.
 Entrepreneur’s experience with the licensed
property.
 Long-term outlook for the licensed property.
 Kind of protection provided by the agreement.
 Commitments in terms of payment of royalties,
sales quotas, and so on.
 Renewal options.
 PRODUCT SAFETY AND
LIABILITY
Responsibility of the company to meet any legal specification
regarding a new product, covered by Consumer Product Safety Act.
Tasks of the Commission:
1- Setting standards for products
2- Finding hazardous and unsafe products for customers
3- Ensuring that all products are complying with Product Safety and
Liability Act
Claims
1. Negligence: e.g. Deficient Labels or False Advertising
2. Warranty: Overstated Benefits or Understated Performance
3. Strict Liability: Product is defective before its receipt
4. Miss-Representation: Concerning Character or Quality of
products
 INSURANCE:
It provides a means of managing risk in the new business.
TYPES:
i) Property Insurance
a) Fire Insurance
Covers Explosions, Riots, Vehicle Damage, Windstorm, Hail and
Smoke
b) Burglary and Robbery:
Burglary is a forced entry and Robbery is when threat of
violence was involved
c) Business Interruption
Any damage caused to the business i.e. income, profits or
expenses.
ii) Casualty Insurance
 

a) General Liability: Covers bodily injury, property

Damage and Product Liability
b) Automobile Liability: When employees use their
personal cars for company purpose
 
iii)Life Insurance:
Protects the continuity of Business
iv) Workers Compensation:
In case of work related injury (mandatory in some states)
 

v) Bonding:
Shifts the responsibility for employees for theft of funds
Or Sub Contractors who has failed to complete the task
 

Entrepreneur shall determine which type of insurance is

Required, How Much and From Which company.
 

Advise can be obtained from Specialists at Universities

Or Small Business Administration (SBA)
Sarbanes-Oxley Act
 Congress passed the Act in 2002.
 Provides a mechanism for greater control over the
financial activities of public companies.
 Under this law:
 CEOs need to vouch for financial statements through a
series of internal control mechanisms and reports.
 Directors must meet background, length of service,
and responsibilities requirements regarding internal
auditing and control.
Sarbanes-Oxley Act (cont.)

 Attempts to influence or impede the internal auditing

process is a criminal act.
 Law covers bank fraud, securities fraud, and fraud by
wire, radio, or TV.
 There has been some concern as to the
interpretation of this law and subsequent
directors’ liability.
 There are conflicts with the provisions of the new
law and the laws of foreign countries.
Sarbanes-Oxley Act (cont.)

 Though private companies are not included, they

are subject to control if they:
 Consult with a public company.
 Influence that public company in any wrongdoing
established by the Sarbanes-Oxley Act.
 Entrepreneurs can set up a board of advisors
instead of an extended board of directors.
Contracts

 A legally binding agreement between two parties.

 Often business deals are concluded with a
handshake.
 The rule is to not to rely on a handshake if a deal
cannot be completed within one year.
 Courts insist on a written contract for all
transactions over $500.
Table 6.5 - Contract Conditions
and Results of a Breach of
Contract
Contracts (cont.)

 Four essential items in an agreement to provide

the best legal protection:
 Understand the terms and conditions in the contract.
 Cross out anything that you do not agree to.
 Do not sign if there are blank spaces (these can be
crossed out).
 Make a copy for your files after signing.
The End