Abdm4223 lecture week 5 010612 part 2

Business Ownership, Business Ownership, Regulations Regulations

& & Intellectual PropertyIntellectual Property

Business Ownership, Business Ownership, Regulations Regulations

& & Intellectual PropertyIntellectual Property

ABDM4233 ENTREPRENEURSHIPABDM4233 ENTREPRENEURSHIP

byStephen OngStephen Ong

Principal Lecturer (Specialist)Principal Lecturer (Specialist)Visiting Professor, Shenzhen UniversityVisiting Professor, Shenzhen University

Forms of Forms of Business OwnershipBusiness Ownership

Forms of Forms of Business OwnershipBusiness Ownership

Choosing a Form of OwnershipChoosing a Form of Ownership

There is no one “best” form of ownership.There is no one “best” form of ownership. The best form of ownership depends on The best form of ownership depends on

an entrepreneur’s particular situation.an entrepreneur’s particular situation. Key: Understanding the characteristics of Key: Understanding the characteristics of

each form of ownership and how well they each form of ownership and how well they match an entrepreneur’s business and match an entrepreneur’s business and personal circumstances. personal circumstances.

5 - 3Ch, 5: Forms of Business Ownership

Factors Affecting the ChoiceFactors Affecting the Choice Tax considerationsTax considerations Liability exposureLiability exposure Start-up and future capital requirementsStart-up and future capital requirements ControlControl Managerial abilityManagerial ability Business goalsBusiness goals Management succession plansManagement succession plans Cost of formationCost of formation


Major Forms of OwnershipMajor Forms of Ownership

Sole ProprietorshipSole Proprietorship PartnershipPartnership CorporationCorporation S CorporationS Corporation Limited Liability CompanyLimited Liability Company Joint VentureJoint Venture



FIGURE 5.1 (A)

Forms of Business Ownership – Percentage of Business


FIGURE 5.1 (B)

Forms of Business Ownership - Percentage of Sales


FIGURE 5.1 (C)

Forms of Business Ownership - Percentage of Sales

Advantages of the Advantages of the Sole ProprietorshipSole Proprietorship

Simple to createSimple to create Least costly form to beginLeast costly form to begin Profit incentiveProfit incentive Total decision making authorityTotal decision making authority No special legal restrictionsNo special legal restrictions Easy to discontinueEasy to discontinue


Disadvantages of the Disadvantages of the Sole ProprietorshipSole Proprietorship

Unlimited personal liabilityUnlimited personal liability


Liability Features of the Basic Liability Features of the Basic Forms of OwnershipForms of Ownership


Sole ProprietorshipSole Proprietorship

Claims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s Creditors

Sole Proprietor’s Personal Sole Proprietor’s Personal AssetsAssets

Sole Proprietor’s Personal Sole Proprietor’s Personal AssetsAssets


Disadvantages of the Disadvantages of the Sole ProprietorshipSole Proprietorship

Unlimited personal liabilityUnlimited personal liability Limited skills and capabilitiesLimited skills and capabilities Feelings of isolationFeelings of isolation Limited access to capitalLimited access to capital Lack of continuity of the businessLack of continuity of the business

PartnershipPartnership

An association of two or more people An association of two or more people who co-own a business for the who co-own a business for the purpose of making a profit.purpose of making a profit.

AlwaysAlways wise to create a partnership wise to create a partnership agreement.agreement.

The best partnerships are The best partnerships are built on trust and respect. built on trust and respect.


Advantages of the PartnershipAdvantages of the Partnership

Easy to establishEasy to establish Complementary skills of partnersComplementary skills of partners Division of profitsDivision of profits Larger pool of capitalLarger pool of capital Ability to attract limited partnersAbility to attract limited partners


Types of PartnersTypes of Partners General partnersGeneral partners

Take an active role in managing a business.Take an active role in managing a business. Have unlimited liability for the partnership’s Have unlimited liability for the partnership’s

debts.debts. Every partnership must have at least one Every partnership must have at least one

general partner.general partner. Limited partnersLimited partners

Cannot participate in the day-to-day Cannot participate in the day-to-day management of a company. management of a company.

Have limited liability for the partnership’s Have limited liability for the partnership’s debts. debts.


Advantages of the PartnershipAdvantages of the Partnership Easy to establishEasy to establish Complementary skills of partnersComplementary skills of partners Division of profitsDivision of profits Larger pool of capitalLarger pool of capital Ability to attract limited partnersAbility to attract limited partners Minimal government regulationMinimal government regulation FlexibilityFlexibility TaxationTaxation


Disadvantages of the Disadvantages of the PartnershipPartnership

Unlimited liability of at least one Unlimited liability of at least one partnerpartner




PartnershipPartnership

Claims of Partnership’s CreditorsClaims of Partnership’s CreditorsClaims of Partnership’s CreditorsClaims of Partnership’s Creditors

Partnership’s AssetsPartnership’s AssetsPartnership’s AssetsPartnership’s AssetsGeneralGeneralPartner’sPartner’sPersonalPersonalAssetsAssets

GeneralGeneralPartner’sPartner’sPersonalPersonalAssetsAssets




Disadvantages of the Disadvantages of the PartnershipPartnership

Unlimited liability of at least one partnerUnlimited liability of at least one partner Capital accumulationCapital accumulation Difficulty in disposing of partnership Difficulty in disposing of partnership

interest without dissolving the partnershipinterest without dissolving the partnership Lack of continuityLack of continuity Potential for personality and authority Potential for personality and authority

conflictsconflicts Partners bound by law of agencyPartners bound by law of agency

Limited PartnershipLimited Partnership

A partnership composed of at least A partnership composed of at least one general partner and one or more one general partner and one or more limited partners.limited partners.

A general partner in this partnership A general partner in this partnership is treated exactly as in a general is treated exactly as in a general partnership.partnership.

A limited partner has limited A limited partner has limited liability and is treated as an liability and is treated as an investor in the business. investor in the business.


CorporationCorporation

A separate legal entity from its owners.A separate legal entity from its owners. Types of corporations:Types of corporations:

DomesticDomestic – a corporation doing business – a corporation doing business in the state in which it is incorporated.in the state in which it is incorporated.

ForeignForeign – a corporation doing business in – a corporation doing business in a state other than the state in which it is a state other than the state in which it is incorporated. incorporated.

AlienAlien – a corporation formed in another – a corporation formed in another country but doing business in the United country but doing business in the United States. States.


CorporationCorporation

Types of corporations:Types of corporations: Publicly held Publicly held – a corporation that has – a corporation that has

a large number of shareholders and a large number of shareholders and whose stock usually is traded on one whose stock usually is traded on one of the large stock exchanges.of the large stock exchanges.

Closely held Closely held – a corporation in which – a corporation in which shares are controlled by a relatively shares are controlled by a relatively small number of people, often family small number of people, often family members, relatives, or friends. members, relatives, or friends.


Advantages of the CorporationAdvantages of the Corporation

Limited liability of stockholdersLimited liability of stockholders




Corporation

Claims of Corporation’s CreditorsClaims of Corporation’s Creditors

Corporation’s AssetsCorporation’s Assets

Shareholder’sPersonal AssetsShareholder’s

Personal AssetsShareholder’s


Personal Assets

barrier barrier barrier

barrier


Advantages of the CorporationAdvantages of the Corporation

Limited liability of stockholdersLimited liability of stockholders Ability to attract capitalAbility to attract capital Ability to continue indefinitelyAbility to continue indefinitely Transferable ownershipTransferable ownership

Disadvantages of the Disadvantages of the CorporationCorporation

Cost and time of incorporation processCost and time of incorporation process Double taxationDouble taxation Potential for diminished managerial Potential for diminished managerial

incentivesincentives Legal requirements and regulatory “red Legal requirements and regulatory “red

tape”tape” Potential loss of control by founder(s)Potential loss of control by founder(s)


S CorporationS Corporation No different from any other corporation No different from any other corporation

from a legal perspective.from a legal perspective. An S corporation is taxed like a An S corporation is taxed like a

partnership, passing all of its profits (or partnership, passing all of its profits (or losses) through to individual shareholders.losses) through to individual shareholders.

To elect “S” status, all shareholders must To elect “S” status, all shareholders must consent, and the corporation must file with consent, and the corporation must file with the IRS within the first 75 days of its tax the IRS within the first 75 days of its tax year.year.




S-Corporation

Claims of S-Corporation’s CreditorsClaims of S-Corporation’s Creditors

S-Corporation’s AssetsS-Corporation’s Assets

Shareholder’sPersonal AssetsShareholder’s



Personal Assets


barrier

Limited Liability Company Limited Liability Company (LLC)(LLC)

Resembles an S Corporation but is Resembles an S Corporation but is notnot subject to the same restrictions. subject to the same restrictions.

Two documents required: Two documents required: Articles of organizationArticles of organization Operating agreementOperating agreement


Limited Liability Company Limited Liability Company (LLC)(LLC)

An LLC cannot have more than An LLC cannot have more than twotwo of of these four corporate characteristics:these four corporate characteristics:

1.1. Limited liabilityLimited liability

2.2. Continuity of lifeContinuity of life

3.3. Free transferability of interestFree transferability of interest

4.4. Centralized managementCentralized management




Limited Liability Company - LLCLimited Liability Company - LLC

Claims of LLC’s CreditorsClaims of LLC’s Creditors

LLC’s AssetsLLC’s Assets

Member’sPersonal Assets





barrier


The Professional CorporationThe Professional Corporation

Designed for professions – lawyers, Designed for professions – lawyers, doctors, dentists, accountants and other doctors, dentists, accountants and other professionalsprofessionals

Created in the same manner as a Created in the same manner as a corporationcorporation

Identified by the abbreviations: Identified by the abbreviations: P.C. – Professional CorporationP.C. – Professional Corporation

P.A. – Professional AssociationP.A. – Professional Association

S.C. – Service CorporationS.C. – Service Corporation

Ch, 5: Forms of Business Ownership

The Joint VentureThe Joint Venture

Much like a partnership, but it: Much like a partnership, but it:

Is formed for a specific purposeIs formed for a specific purpose

Has a beginning and an endHas a beginning and an end

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ConclusionConclusion

The “right” choice of the form of The “right” choice of the form of ownership is unique to every ownership is unique to every entrepreneur and their business. entrepreneur and their business.

Each form has advantages and Each form has advantages and disadvantages.disadvantages.

The entrepreneur must be thoughtful The entrepreneur must be thoughtful and strategic about this important and strategic about this important decision.decision.

IntellectualIntellectualPropertyProperty

IntellectualIntellectualPropertyProperty

The Importance of Intellectual PropertyThe Importance of Intellectual Property

Intellectual PropertyIntellectual Property Is any product of human intellect that is intangible but has Is any product of human intellect that is intangible but has

value in the marketplace.value in the marketplace. It is called “intellectual” property because it is the product It is called “intellectual” property because it is the product

of human imagination, creativity, and inventiveness.of human imagination, creativity, and inventiveness. ImportanceImportance

Traditionally, businesses have thought of their physical Traditionally, businesses have thought of their physical assets, such as land, buildings, and equipment as the most assets, such as land, buildings, and equipment as the most important.important.

Increasingly, however, a company’s intellectual assets are Increasingly, however, a company’s intellectual assets are the most important.the most important.

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SPOT the DIFFERENCESPOT the DIFFERENCE

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Patent LitigationPatent Litigation

Source: bbc.co.uk 30th August 2005

Creative wins MP3 player patent

One of Apple's main rivals, Creative Technology, hasbeen awarded a patent in the US for the interface

used on many digital music players.

"The first portable media player based upon the user interface covered in our Zen Patent was our Nomad Jukebox MP3 player," said Creative CEO Sim

Wong Hoo. "The Apple iPod was only announced in October 2001, 13 months after we

had been shipping the Nomad Jukebox based upon the user interface covered by our Zen Patent."

In its press release, Creative said Apple had filed for a patent for a user interface in a multimedia player in late 2002, but its application had been

recently rejected.On 24 August 2006, Apple and Creative announced a broad settlement to end their legal disputes. Apple will pay Creative US$100 million for a paid-up license, to use Creative's awarded patent in all Apple products. As part

of the agreement, Apple will recoup part of its payment, if Creative is successful in licensing the patent.

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Automatic hierarchical categorization of music by metadata

Patent number: 6928433Filing date: Jan 5, 2001Issue date: Aug 9, 2005

Application number: 9/755,723

A method, performed by software executing on the processor of a portable music playback device, that automatically files tracks

according to hierarchical structure of categories to organize tracks in a logical order. A user interface is utilized to change the hierarchy, view

track names, and...Inventors: Ron Goodman, Howard N. Egan

Assignee: Creative Technology LTD

Apple pays US$100m for use of PatentApple pays US$100m for use of Patent

Source: bbc.co.uk 30th August 2005

SPOT the DIFFERENCESPOT the DIFFERENCE

NASDAQ AAPL

Market Cap : US$308.8 B

PINK CREAFMarket Cap : US$0.150 B

CREATIVE vs APPLECREATIVE vs APPLE

Determining What Intellectual Determining What Intellectual Property to ProtectProperty to Protect

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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.

Common Mistakes Firms Make in Common Mistakes Firms Make in Regard to Protecting Their Intellectual Regard to Protecting Their Intellectual

PropertyProperty

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Not properly identifyingall of their

intellectual property.

Not legally protecting theintellectual property

that needs protecting.

Not fully recognizing the value of their

intellectual property.

Not using theirintellectual property as

part of their overallplan for success.

The Four Key Forms of Intellectual The Four Key Forms of Intellectual PropertyProperty

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Patents

Copyrights

Trademarks

Trade Secrets

FIGURE 2.4 Patent Applications and Patents Issued

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FIGURE 2.6 Trademark Applications and Trademarks and Renewals Issued

Protecting Your IdeasProtecting Your Ideas

PatentPatent – a grant from the Patent and – a grant from the Patent and Trademark Office to the inventor of Trademark Office to the inventor of product, giving the exclusive right to product, giving the exclusive right to make, use, or sell the invention for make, use, or sell the invention for 20 years from the date of 20 years from the date of filing the patent application.filing the patent application.

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PatentsPatents

PatentsPatents A patent is a grant from the federal government A patent is a grant from the federal government

conferring the rights to exclude others from making, conferring the rights to exclude others from making, selling, or using an invention for the term of the patent. selling, or using an invention for the term of the patent. (See the next slide for a full explanation.)(See the next slide for a full explanation.)

Increasing Interest in PatentsIncreasing Interest in Patents There is increasing interest in patents.There is increasing interest in patents.

Since Patent #1 was granted in 1790, the U.S. Patent & Since Patent #1 was granted in 1790, the U.S. Patent & Trademark Office has granted over six million patents.Trademark Office has granted over six million patents.

The patent office is strained. It now takes an average of 35.3 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.months from the date of first filing to receive a U.S. patent.

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Proper Understanding for What a Proper Understanding for What a Patent MeansPatent Means

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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.

Growth in Patent Applications in the Growth in Patent Applications in the United StatesUnited States

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Three Basic Requirements for Obtaining Three Basic Requirements for Obtaining a Patenta Patent

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Types of PatentsTypes of Patents

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Type Type of Invention Covered Duration

Utility

Design

Plant

20 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.

Business Method Patents Business Method Patents (Special Utility Patent)(Special Utility Patent)

Business Method PatentBusiness Method Patent A business method patent is a patent that protects an A business method patent is a patent that protects an

invention that is or facilitates a method of doing invention that is or facilitates a method of doing business.business.

The most notable business method patents that have The most notable business method patents that have been awarded:been awarded:

Amazon.com’s one-click ordering system.Amazon.com’s one-click ordering system. Priceline.com’s “name-your-price” business model.Priceline.com’s “name-your-price” business model. Netflix’s method for allowing customers to set up a rental list Netflix’s method for allowing customers to set up a rental list

of movies to be mailed to them.of movies to be mailed to them.

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The Six Steps to a PatentThe Six Steps to a Patent

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1. Establish the invention’s novelty

2. Document the device

3. Search existing patents

5. Complete the patent application

6. File the patent application

4. Study search results

The Process of Obtaining a PatentThe Process of Obtaining a Patent

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Patent InfringementPatent Infringement

Patent InfringementPatent Infringement Takes place when one party engages in the Takes place when one party engages in the

unauthorized use of another party’s patent.unauthorized use of another party’s patent. The tough part (particularly from a small The tough part (particularly from a small

entrepreneurial firm’s point of view) is that patent entrepreneurial firm’s point of view) is that patent infringement cases are costly to litigate.infringement cases are costly to litigate.

A typical patent infringement case costs each side at least A typical patent infringement case costs each side at least $500,000 to litigate.$500,000 to litigate.

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TrademarkTrademark – any distinctive word, – any distinctive word, symbol, design, name, logo, slogan, or symbol, design, name, logo, slogan, or trade dress a company uses to identify trade dress a company uses to identify the origin of a product or to distinguish the origin of a product or to distinguish it from other goods on the market. it from other goods on the market.

ServicemarkServicemark – the same as a trademark – the same as a trademark except that it identifies the source of a except that it identifies the source of a service rather than a product. service rather than a product.

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TrademarksTrademarks

TrademarkTrademark A trademark is any word, name, symbol, or device used A trademark is any word, name, symbol, or device used

to identify the source or origin of products or services to identify the source or origin of products or services and to distinguish those product or services from and to distinguish those product or services from others.others.

Trademarks also provide consumers with useful Trademarks also provide consumers with useful information.information.

For example, consumers know what to expect when they see a For example, consumers know what to expect when they see a Macy’s store.Macy’s store.

Think how confusing it would be if any retail store could use Think how confusing it would be if any retail store could use the name Macy’s.the name Macy’s.

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Types of TrademarksTypes of Trademarks1 of 21 of 2

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Type Types of Marks Covered

Trademark

Duration

Renewable every 10 years, as long

as the mark remains in use.

Service markRenewable every 10 years, as long


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.

Types of TrademarksTypes of Trademarks2 of 22 of 2

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Type Types of Marks Covered

Collective mark

Duration



Certification mark



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

What is Protected Under Trademark What is Protected Under Trademark LawLaw1 of 21 of 2

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Item Example(s)

Words

Numbers and letters

Designs and logos

Sounds

YouTern, PledgeMusic, GiftZip

3M, MSNBA, 1-800-FLOWERS

Nike swoosh logo

MGM’s lion’s roar

What is Protected Under Trademark What is Protected Under Trademark LawLaw2 of 22 of 2

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Item Example

Fragrances

Shapes

Colors

Trade dress

Stationery treated with a special fragrance

Unique shape of the Apple iPhone

Nexium—the “purple pill”

The layout and décor of a restaurant

Exclusions From Trademark ProtectionExclusions From Trademark Protection

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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

The Process of Obtaining a TrademarkThe Process of Obtaining a Trademark

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CopyrightCopyright – an exclusive right that – an exclusive right that protects the creators of original works protects the creators of original works of authorship such as literary, of authorship such as literary, dramatic, musical, and artistic works. dramatic, musical, and artistic works.

Copyrighted material is denoted by Copyrighted material is denoted by the symbol the symbol ©. ©.

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CopyrightsCopyrights

CopyrightsCopyrights A copyright is a form of intellectual property protection A copyright is a form of intellectual property protection

that grants to the owner of a work of authorship the that grants to the owner of a work of authorship the legal right to determine how the work is used and to legal right to determine how the work is used and to obtain the economic benefits from the work.obtain the economic benefits from the work.

A work does not have to have artistic merit to be A work does not have to have artistic merit to be eligible for copyright protection.eligible for copyright protection.

As a result, things such as operating manuals and sales As a result, things such as operating manuals and sales brochures are eligible for copyright protection.brochures are eligible for copyright protection.

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What is Protected By a Copyright?What is Protected By a Copyright?

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Literary works Musical compositions

Computer software Dramatic works

Pantomimes andchoreographic works

Pictorial, graphic, andsculptural works

Exclusions From Copyright ProtectionExclusions From Copyright Protection

The Idea-Expression DichotomyThe Idea-Expression Dichotomy The main exclusion is that copyright laws cannot The main exclusion is that copyright laws cannot

protect ideas.protect ideas. For example, an entrepreneur may have the idea to open a For example, an entrepreneur may have the idea to open a

soccer-themed restaurant. The idea itself is not eligible for soccer-themed restaurant. The idea itself is not eligible for copyright protection. However, if the entrepreneur writes copyright protection. However, if the entrepreneur writes down specifically what his or her soccer-themed restaurant will down specifically what his or her soccer-themed restaurant will look like and how it will operate, that description is look like and how it will operate, that description is copyrightable.copyrightable.

The legal principle describing this concept is called the idea-The legal principle describing this concept is called the idea-expression dichotomy. expression dichotomy.

An idea is not copyrightable, but the specific expression of an An idea is not copyrightable, but the specific expression of an idea is.idea is.

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Obtaining a CopyrightObtaining a Copyright

How to Obtain a CopyrightHow to Obtain a Copyright Copyright law protects any work of authorship the Copyright law protects any work of authorship the

moment it assumes a tangible form. moment it assumes a tangible form. Technically, it is not necessary to provide a copyright Technically, it is not necessary to provide a copyright

notice or register work with the U.S. Copyright Office.notice or register work with the U.S. Copyright Office. The following steps can be taken, however, to enhance The following steps can be taken, however, to enhance

copyright protection.copyright protection. Copyright protection can be enhanced by attaching the Copyright protection can be enhanced by attaching the

copyright notice, or “copyright bug” to something.copyright notice, or “copyright bug” to something. Further protection can be obtained by registering the work Further protection can be obtained by registering the work

with the U.S. Copyright Office.with the U.S. Copyright Office.

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Copyright InfringementCopyright Infringement1 of 21 of 2

Copyright InfringementCopyright Infringement Copyright infringement occurs when one work derives Copyright infringement occurs when one work derives

from another or is an exact copy or shows substantial from another or is an exact copy or shows substantial similarity to the original work.similarity to the original work.

To prove infringement, a copyright owner is required to To prove infringement, a copyright owner is required to show that the alleged infringer had prior access to the show that the alleged infringer had prior access to the copyrighted work and that the work is substantially copyrighted work and that the work is substantially similar to the owner’s.similar to the owner’s.

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Copyright InfringementCopyright Infringement2 of 22 of 2

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• The illegal downloading of music is an example of copyright infringement.• Copyright infringement costs the owners of copyrighted material an estimated $20 billion per year in the U.S. alone.

Trade SecretsTrade Secrets

Trade SecretsTrade Secrets A trade secret is any formula, pattern, physical device, A trade secret is any formula, pattern, physical device,

idea, process, or other information that provides the idea, process, or other information that provides the owner of the information with a competitive advantage owner of the information with a competitive advantage in the marketplace.in the marketplace.

Trade secrets include marketing plans, product Trade secrets include marketing plans, product formulas, financial forecasts, employee rosters, logs of formulas, financial forecasts, employee rosters, logs of sales calls, and similar types of proprietary information.sales calls, and similar types of proprietary information.

The Federal Economic Espionage Act, passed in 1996, The Federal Economic Espionage Act, passed in 1996, criminalizes the theft of trade secrets.criminalizes the theft of trade secrets.

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What Qualifies for Trade Secret What Qualifies for Trade Secret Protection?Protection?

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Trade Secret ProtectionTrade Secret Protection Not all information qualifies for trade secret protection.Not all information qualifies for trade secret protection. In general, information that is know to the public or In general, information that is know to the public or

that competitors can discover through legal means that competitors can discover through legal means doesn’t qualify for trade secret protection.doesn’t qualify for trade secret protection.

Companies protect trade secrets through physical Companies protect trade secrets through physical measures and written documents.measures and written documents.

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What Qualifies for Trade Secret What Qualifies for Trade Secret Protection?Protection?

2 of 22 of 2

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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 Physical Measures for Protecting Trade SecretsSecrets

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Restricting access Labeling documents

Password protecting confidential computer

files

Maintaining logbooksfor visitors

Maintaining logbooks foraccess to sensitive

material

Maintaining adequate overall security

measures

Conducting an Intellectual Property Conducting an Intellectual Property AuditAudit

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Intellectual Property AuditIntellectual Property Audit The first step a firm should take to protect its The first step a firm should take to protect its

intellectual property is to complete an intellectual intellectual property is to complete an intellectual property audit.property audit.

An intellectual property audit is conducted to An intellectual property audit is conducted to determine the intellectual property a firm owns.determine the intellectual property a firm owns.

There are two reasons for conducting an intellectual There are two reasons for conducting an intellectual property audit:property audit:

First, it is prudent for a company to periodically determine First, it is prudent for a company to periodically determine whether its intellectual property is being properly protected.whether its intellectual property is being properly protected.

Second, it is important for a firm to remain prepared to justify Second, it is important for a firm to remain prepared to justify its valuation in the event of a merger or acquisition. its valuation in the event of a merger or acquisition.

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Conducting an Intellectual Property Conducting an Intellectual Property AuditAudit

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

existing intellectual property. The inventory should existing intellectual property. The inventory should include the firm’s present registrations of patents, include the firm’s present registrations of patents, trademarks, and copyrights.trademarks, and copyrights.

The second step is to identify works in progress to The second step is to identify works in progress to ensure that they are being documented and protected in ensure that they are being documented and protected in a systematic, orderly manner.a systematic, orderly manner.

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Protecting Your IdeasProtecting Your IdeasType of Type of

ProtectionProtectionWhat It What It Covers Covers

Time Time RequiredRequired

CostCost

CopyrightCopyright Works of Works of original original authorshipauthorship

About 2 weeksAbout 2 weeks About $35About $35

TrademarkTrademark Logos, names, Logos, names, phrasesphrases

6 – 12 months6 – 12 months $900 - $1,500$900 - $1,500

Design patentDesign patent Look of an Look of an original productoriginal product

Up to 2 yearsUp to 2 years $5,000 - $20,000$5,000 - $20,000

Utility patentUtility patent How an original How an original product worksproduct works

2 – 5 years2 – 5 years $5,000 - $20,000$5,000 - $20,000

Business Business method patentmethod patent

A business A business processprocess

2 – 5 years2 – 5 years $5,000 - $20,000$5,000 - $20,000

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Source: Anne Field, Source: Anne Field, ““How to Knock Out Knock Offs,How to Knock Out Knock Offs,”” Business WeekBusiness Week, March 14, 2005., March 14, 2005.

Conclusion The creative process is a tenant of the The creative process is a tenant of the

entrepreneurial experience. entrepreneurial experience. Success, and even survival itself, requires Success, and even survival itself, requires

entrepreneurs to tap their creativity. entrepreneurs to tap their creativity. The seven steps of the creative process The seven steps of the creative process

transform an idea into a business reality. transform an idea into a business reality. Creativity results in value, and value Creativity results in value, and value

provides a competitive advantage. provides a competitive advantage. Entrepreneurs protect their creative ideas Entrepreneurs protect their creative ideas

with patents, trademarks, servicemarks, and with patents, trademarks, servicemarks, and copyrights to sustain a competitive edge. copyrights to sustain a competitive edge.

2 - 79Ch. 2: Inside the Entrepreneurial Mind

Further ReadingFurther Reading Scarborough, Norman, M. 2011. Scarborough, Norman, M. 2011. Essentials of Essentials of

Entrepreneurship and Small Business Management.Entrepreneurship and Small Business Management. 66thth edition. Pearson. edition. Pearson.

Brooks, Arthur C. (2006) Social Entrepreneurship : A Brooks, Arthur C. (2006) Social Entrepreneurship : A Modern Approach to Social Value Creation. Pearson Modern Approach to Social Value Creation. Pearson

Barringer, Bruce R. & Ireland, R. Duane, 2011 Barringer, Bruce R. & Ireland, R. Duane, 2011 Entrepreneurship – Successfully launching new Entrepreneurship – Successfully launching new ventures ventures 44thth edition, Pearson. edition, Pearson.

Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. Entrepreneurship and Small Business.Entrepreneurship and Small Business. 3 3rdrd Asia Asia Pacific edition. John Wiley.Pacific edition. John Wiley.

Abdm4223 lecture week 5 010612 part 2

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