week 7 discussion

1

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.

Intellectual Property legal

issues – relevant to

startups, but especially

innovation initiatives

3

Determining What Intellectual Property to Protect

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.

4

Common Mistakes Firms Make in Regard to Protecting Their Intellectual Property

Not properly identifying

all of their

intellectual property.

Not legally protecting the

intellectual property

that needs protecting.

Not fully recognizing

the value of their

intellectual property.

Not using their

intellectual property as

part of their overall

plan for success.

5

The Four Key Forms of Intellectual Property

Patents

Copyrights

Trademarks

Trade Secrets

6

Patents

• 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. (See the next slide for a full explanation.)

• 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 over six million patents.

• 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.

7

Proper Understanding for What a Patent Means

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.

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Three Basic Requirements for Obtaining a Patent

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Types of Patents

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.

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Business Method Patents (Special Utility Patent)

• Business Method 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.

• Netflix’s method for allowing customers to set up a rental list of movies to be mailed to them.

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The Process of Obtaining a Patent

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Patent Infringement

• 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.

13

Trademarks

• Trademark • 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.

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Types of Trademarks 1 of 2

Type Types of Marks Covered

Trademark

Duration

Renewable every

10 years, as long

as the mark

remains in use.

Service mark Renewable 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.

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Types of Trademarks 2 of 2

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

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What is Protected Under Trademark Law 1 of 2

Item Example(s)

Words

Numbers

and letters

Designs

and logos

Sounds

Crock-Pot, Magic Marker, Baggies

3M, MSNBA, 1-800-FLOWERS

Nike swoosh logo

MGM’s lion’s roar

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What is Protected Under Trademark Law 2 of 2

Item Example

Fragrances

Shapes

Colors

Trade dress

Stationery treated with a special fragrance

Unique shape of the Apple iPhone

Barbie Pink, Target Stores Red

The layout and décor of a restaurant

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Exclusions From Trademark Protection

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

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The Process of Obtaining a Trademark

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Copyrights

• 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.

• 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.

21

What is Protected By a Copyright?

Literary works Musical compositions

Computer software Dramatic works

Pantomimes and

choreographic works

Pictorial, graphic, and

sculptural works

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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 soccer-themed restaurant. The idea itself is not eligible for copyright protection. However, if the entrepreneur writes down specifically what his or her soccer-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.

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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.

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Copyright Infringement 1 of 2

• Copyright Infringement • Copyright infringement occurs when one work derives from

another or 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.

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Copyright Infringement 2 of 2

• The illegal downloading of

movies is an example of

copyright infringement.

• Copyright infringement costs

the owners of copyrighted

material an estimated $30

billion per year in the U.S.

alone.

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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.

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What Qualifies for Trade Secret Protection? 1 of 2

• 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.

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What Qualifies for Trade Secret Protection? 2 of 2

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.

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Physical Measures for Protecting Trade Secrets

Restricting access Labeling documents

Password protecting

confidential computer

files

Maintaining logbooks

for visitors

Maintaining logbooks for

access to sensitive

material

Maintaining adequate

overall security

measures

30

Conducting an Intellectual Property Audit 1 of 2

• Intellectual Property Audit • The first step a firm should take to protect its intellectual property is to

complete an intellectual property audit on any new innovation, product, or service.

• 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.

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Conducting an Intellectual Property Audit 2 of 2

• The Process of Conducting an Intellectual Property Audit • The first step is to develop an inventory of a firm’s existing intellectual

property. The inventory should include the firm’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.