1. Other Legal Issues for the Entrepreneur
Chapter 6
Protecting the Idea
and
Other Legal Issues for the Entrepreneur
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Entrepreneur’s Adage #23
“The worst vice is advice.”
- Al Pacino in The Devil’s Advocate

3. How to Select a Lawyer Find someone you get along with
Check references, BBB and Bar Association filings
Fees: Retainer or hourly fee
Entrepreneur can offer the lawyer stock in exchange for services
Self-accomplishing some of the legal “legwork” after seeking advice from a lawyer – saves $

4. Intellectual Property
Patents
Trademarks
Copyrights
Trade secrets

5. Patents
Patent - Grants holder protection from others making, using, or selling similar inventions; 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.
Not all start-ups will have a product or concept that is patentable.

6. Patents (cont.) International Patents
The Patent Cooperation Treaty (PCT) facilitates patent filings in multiple countries.
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.
Hardly a guarantee… Differences may exists in the patent laws of each of these countries.

7. Patents – Filing Processes
The Provisional Application
Initial application to the PTO providing evidence of first to market.
Replaces the disclosure document that was previously accepted by the PTO.
Grants rights to the patent based on “first to file”.
The actual filing of the patent in its final form must occur no later than 12 months after the provisional application is filed.

8. Patents – Filing Processes
(cont.)
The Patent Application
Introduction – Consists of the background and advantages of the invention, the problems it overcomes, and how the invention differs from existing offerings.
Description of invention – Includes a detailed description of the invention and drawings.
Claims - Specifies what the entrepreneur is trying to patent.
Declaration - signed by the inventor(s).

9. Patents (cont.) 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 patent from the patent holder.
Hire a good patent attorney to mitigate the risk of patent infringement.

10. Minimizing Patent Infringement Risks
Table 6.1

11. Business Method Patents
The growth of Internet use and software development has given rise to business method patents.
Firms use these patents to extract royalties or licensing fees from competitors or would-be infringers.

12. Trademarks
A distinguishing word, name, or symbol used to identify a product.
It can last indefinitely.
It can be filed on actual current use or the intent to use the trademark in interstate or foreign commerce;
Categories: (differ by arbitrariness)
Coined marks.
Arbitrary marks.
Suggestive marks.
Descriptive marks.

13. Trademarks (cont.) Registering the Trademark
Filing must meet four requirements:
Completion of the form
A drawing of the mark
Five specimens showing actual use of the mark
Pay the fee
Initial determination of suitability takes 3 months.
The entrepreneur can appeal denials of trademark grants.

14. Trademarks (cont.)
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.
Entire procedure takes about 13 months from initial filing.
In the meantime, use “TM” or “SM” label to stave off potential infringements.

15. Benefits of a Registered Trademark
Table 6.2

16. Copyrights
Prevents others from printing, copying, or publishing any original works of authorship.
Books, songs, artwork, scripts, even software
Legal battles in the entertainment industry (i.e. Napster).
Copyrights are registered with the Library of Congress.
Term of the copyright is the life of the author plus 70 years.

17. Trade Secrets
Provides protection against others revealing or disclosing information that could be damaging to business.
Trade secrets have a life as long as the idea or process remains a secret.
Not covered by federal law but recognized under common laws in each state.
Ask employees, contractors, consultants, etc. to sign a confidential information agreement.
Entrepreneur should take proper precautions to only disclose trade secrets on a “need to know basis”

18. Entrepreneur’s Adage #24
“Never discuss a business idea without first signing an NDA.”
- Jordan

19. Licensing
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.

20. Product Safety and Liability
Companies must meet any legal product specifications covered by the Consumer Product Safety Act.
Must also meet strict regulations regarding labeling and advertising
Penalties
Large fines
Product recalls
Liability Lawsuits
Strict/Absolute Liability

21. Insurance Provides a means of managing risk in the new business.
Some insurances are required by law (i.e. Worker’s Comp) and cannot be avoided while others are optional and help protect the financial net worth of the venture (i.e. Life Insurance).
Talk to insurance agent about the kinds of insurance needed for your business
Certain businesses/policies may be hard to find insurance for.
Be accurate in the information provided to insurers.

22. Types of Insurance and Coverage

23. Contracts A legally binding agreement between two parties.
“Handshake” / Verbal Agreements – generally a bad idea
Always write contracts in the corporate name (if incorporated)
Statute of Frauds
Written contract required for:
Contract performance that cannot be completed within one year.
All transactions over $500.
Real estate contracts

24. Contracts (cont.) Four essentials of contracts:
Fully understand the terms and conditions in the contract.
Cross out/eliminate 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.
Have a lawyer review the contract.
Use e-signature (Docusign/Verisign/MS Word etc.) web services to expedite authentication and recording

25. Entrepreneur’s Adage #25
“Find yourself some low-impact friends. Pets are pretty good for that.”
- Jordan