Chapter 12. The importance of Intellectual Property

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. Traditionally, businesses have thought of their physical assets such as land, buildings, and equipment as their most important assets. Increasingly, however, a company's intellectual assets are the most valuable.

Common mistakes that entrepreneurial firms make are not properly identifying all their intellectual property, not using their intellectual property as part of their overall plan of success, and not taking sufficient steps to protect it.

Determining What Intellectual Property to Legally Protect

There are two primary rules of thumb for deciding if intellectual property protection should be pursued for particular intellectual asset. First, a firm should determine if the intellectual property in question is directly related to its competitive advantage. In contrast, if a business develops a product or business method or produces printed material that isn't directly related to its competitive advantage, intellectual property protection may not be warranted. The second primary criterion for deciding if intellectual property protection should be pursued is to determine whether an item has value in the marketplace.

Business ideas should be properly tested before a considerable amount of money is spent developing and legally protecting them.

The Four Key Forms of Intellectual Property

Intellectual property laws exist to encourage creativity and innovation by granting individuals who risk their time and money in creative endeavors exclusive rights to the fruits of their labors for a period of time. Intellectual property laws also help individuals make well-informed choices. One special notes about intellectual property laws is that it is up to entrepreneurs to take advantage of them and to safeguard their intellectual property once it is legally protected.

Here are the four key forms of intellectual property:

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 pattern. However, a patent does not give its owner the right to make, use, or sell the invention; it gives the owner only the right to exclude others from doing so. A patent owner can legally make or sell the patented invention only if no other patents are infringed on by doing so.

Types of Patents

There are three types of patents, which are:

• Utility patents → May be granted for anyone who "invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof. The term of a utility patent is 20 years from the date of the initial application.
• Design patents → A design patent is good for 14 years from the grant date. A design patent protects the way it looks.
• Plant patents → Protect new varieties of plants that can be reproduced asexually. The term of plant patent protection is 20 years from the date of the original application.

There are three basic requirements for a patent:

• Useful → It must have utility.
• Novel → It must be different from what has come before (i.e., not in the "prior art").
• Not obvious → It must not be obvious to a person of ordinary skills in the field.

Who Can Apply for a Patent?

Only the inventor of a product can apply for a patent. If two or more people make an invention jointly, they must apply for the patent together. Someone who is simply heard about the design of a product or is trying to patent something that is in the public domain may not apply for a patent. If an invention is made during the course of the inventor's employment, the employer typically is assigned the right to apply for the patent through an assignment of invention agreement signed by the employee as part of the employment agreement. The rights to apply for an invention can also be sold. This option can be an important source of revenue for entrepreneurial firms. If a firm has an invention that it doesn't want to pursue on its own, the rights to apply for a patent on the invention can be sold to another party.

The Process of Obtaining a Patent

The costs involved in obtaining a patent include attorney fees, fees for drawings, and USPTO filing and maintenance fees, Additional fees may be assessed depending on the nature of the patent. Attorney fees vary depending on the complexity of the technology involved. The inventions that independent inventors create range from relatively simple to moderately complex. 

Here are the steps of the process of obtaining a patent:

• Step 1: Make sure the invention is practical
• Step 2: Determine the type of application to file
• Step 3: Hire a patent attorney
• Step 4: Conduct a patent search
• Step 5: File a patent application
• Step 6: Obtain decision from U.S. Patent and Trademark Office

One provision of patent law that is particularly important to entrepreneurs is that the USPTO allows inventors to file a provisional patent application for utility patents, pending the preparation and filling of a complete application. In some instances, entrepreneurs license their patents to larger firms, which have nationwide distribution channels to market a product. The inventors receives distribution for his or her product and potential licensing income, and the large firm receives an innovative new product to place in its distribution channels. One requirement most large firms have is that an idea must be patented or a patent must be applied for before they will consider licensing it. 

Patent Infringement

Patent infringement takes place when one of party engages in the unauthorized use of another party's patent. The tough part about patent infringement cases is that they are costly to litigate, which puts start-up firms and their entrepreneurs at quite a disadvantage.

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 products or services from others. Trademarks are used to promote and advertise tangible products. All businesses want to be recognized by their potential clientele and use their names, logos, and other distinguishing features to enhance their visibility. Trademarks also provide consumers with useful information.

The Four Types of Trademarks

There are four types of trademarks:

• Trademarks are used to promote and advertise tangible products.
• Service marks are used to identify the services or intangible activities of a business rather than a business's physical products.
• Collective marks are service marks used by the members of a cooperative, association, or other collective group, including marks indicating membership in a union or similar organization. 
• Certification marks are marks, words, names, symbols, or devices used by a person other than its owner to certify a particular quality about a product or service.

What Is Protected Under Trademark Law?

Trademark law, which falls under the Lanham Act, passed in 1946, protects the following items:

• Words → All combinations of words are eligible for trademark registration, including single words, short phrases, and slogans.
• Numbers and letters
• Design or logos → A mark consisting solely of a design.
• Sounds
• Fragrances→ The fragrance of a product may be registerable as long as the product is not known for the fragrance or the fragrance does not enhance the use of a product.
• Shapes
• Colors
• Trade dress

Trademarks protection is very broad and provides many opportunities for businesses to differentiate themselves from one another. The key for young entrepreneurial firms is to trademark their products and services in ways that draw positive attention to them in a compelling manner.

Exclusions for Trademark Protection

There are notable exclusions from trademark protection that are set forth in the U.S. Trademark Act:

• Immoral or scandalous matter → A company cannot trademark immoral or scandalous matter, including profane words.
• Deceptive matter → Marks that are deceptive cannot be registered.
• Descriptive marks → Marks that are merely descriptive of a product or service cannot be trademarked.
• Surnames → A trademark consisting primarily of a surname is typically not protectable. An exception is a surname combined with other wording that is intended to trademark a distinct product.

The Process of Obtaining a Trademark

Selecting and registering a trademark is a three-step process. Once a trademark has been used in interstate commerce, it can be registered with the USPTO. It can remain registered forever as long as the trademark stays in use. The first renewal is between the fifth and the sixth year following the year of initial registration. It can be renewed every 10 years thereafter, as long as the trademark stays in use. Here are the process of obtaining a trademark:

• Step 1: Select an appropriate mark
• Step 2: Perform a trademark search
• Step 3: Create rights in the trademark

Copyrights

A copyright is a form of intellectual property protection that grants to the owner of a work of authorship and the legal right to determine how the work is used and to obtain the economic benefits from the work.

Who Is Protected by a Copyright?

The primary categories of material that can be copyrighted follow:

• Literary works → Anything written down, including books, poetry, references works, speeches, advertising copy, employee manuals, games, and computer programs.
• Musical compositions → A musical composition, including any accompanying words, that is in a fixed form (e.g. CD, MP3 file).
• Computer software →  All forms of computers programs are protected.
• Dramatic works → A theatrical performance, such as a play, comedy routine, newscast, movie, or television show.
• Pantomimes and choreographic works → Ballets, dance movements, and mime works.
• Pictorial, graphic, and sculptural works → Includes photographs, prints, art reproductions, cartoons, maps, globes, jewelry, fabrics, games, technical drawings, diagrams, posters, toys, sculptures, and charts.

Exclusion from Copyright Protection

There are exclusion from  copyright protection. The main exclusion is that copyright laws cannot protect ideas. An idea is not copyrightable, but the specific expression of an idea is. Other exclusions from copyright protection include facts (e.g., population statistics), titles (e.g., Introduction to Entrepreneurship), and lists of ingredients (e.g., recipes).

How to Obtain a Copyright

First, copyright protection can be enhanced for anything written by attaching the copyright notice, of "copyright bug" as it is sometimes called. Second, further protection can be obtained by registering a work with the U.S. Copyright Office.

After a copyright expires, the work goes into the public domain, meaning it becomes available for anyone's use.

Copyright Infringement 

Copyright infringement occurs when one work derives from another, is an exact copy, or shows substantial similarly 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 and the Internet

Copyright laws, particularly as they apply to the Internet, are sometimes difficult to follow and it is easy for people to dismiss them as contrary to common sense. 

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 laboratory notebooks. As a result, written documents, computer files, audiotapes, videotapes, financial statements, and even an employee's memory of various items can be protected from unauthorized disclosure. 

What Qualifies for Trade Secret Protection?

Companies can maintain protection for their trade secrets if they take reasonable steps to keep the information confidential. 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 safeguard by stringent efforts to keep the information confidential
• Is valuable and provides the company a compelling competitive advantage
• Was developed at great cost, time, and effort
• Cannot be easily duplicated, reverse engineered, or discovered

Trade Secret Disputes

Trade secret disputes arise most frequently when an employee leaves a firm to join a competitor and is accused of taking confidential information along. The key factor in winning a trade secret dispute is that some type of theft or misappropriation must have taken place.

Trade Secret Protection Methods

Physical Measures

The following are examples of commonly used physical measures for protecting trade secrets:

• Restricting access
• Labeling documents
• Password protecting confidential computer files
• Maintaining logbooks for visitors
• Maintain logbooks for access to sensitive material
• Maintaining adequate overall security measures

Written agreements

It is important for a company's employees to know that it is their duty to keep trade secrets and other forms of confidential information secret,

Conducting an Intellectual Property Audit

An intellectual property audit is conducted to determine the intellectual property a company owns. Once an audit is completed, a company can determine the appropriate measures it needs to take to protect the intellectual property that it owns and that is worth the effort and expense of protecting.

Why Conduct a Property Audit?

First, it is prudent for a company to periodically assess the intellectual property it owns to determine whether it is being properly protected. Second, a firm should conduct a periodic intellectual property audit to remain prepared to justify its value in the event of a merger or acquisition.

The Process of Conducting an Intellectual Property Audit

The first step is to develop an inventory of a firm's existing intellectual property. The second step is to identify works in progress to ensure that they are being documented in a systematic, orderly manner. The third step is to specify the firm's key trade secrets and describe how they are being protected.