Chapter 5_Legal Issues Related to Emerging Ventures.pdf

CHAPTER 5 LEGAL ISSUES TTV6133  CHAPTER OBJECTIVES To introduce the importance of legal issues to entrepreneurs To examine patent protection, including definitions and preparation To review copyrights and their relevance to entrepreneurs To study trademarks and their impact on...

CHAPTER 5 LEGAL ISSUES TTV6133  CHAPTER OBJECTIVES To introduce the importance of legal issues to entrepreneurs To examine patent protection, including definitions and preparation To review copyrights and their relevance to entrepreneurs To study trademarks and their impact on new ventures To present the major segments of the bankruptcy law that apply to business 2  INTRODUCTION Certain legal concepts need to be known by entrepreneurs Some of the major legal concepts can be divided into three groups: Starting Ongoing Growth Those relate to the Those relate to the Those relate to the inception (starting) ongoing venture growth and of the venture continuity of the venture 3  MAJOR LEGAL CONCEPTS AND ENTREPRENEURIAL VENTURES Inception (starting) of an Entrepreneurial Venture A. Laws governing intellectual property 1. Patents 2. Copyrights 3. Trademarks B. Forms of business organization 1. Sole proprietorship 2. Partnership 3. Corporation 4. Franchise* *a kind of business where you use the firm’s business model and name 4  MAJOR LEGAL CONCEPTS AND ENTREPRENEURIAL VENTURES Inception (starting) of an Entrepreneurial Venture C. Tax considerations D. Capital formation – additions of capital stock such as equipment, buildings 5  MAJOR LEGAL CONCEPTS AND ENTREPRENEURIAL VENTURES Ongoing Venture: Business Development and Transactions A. Personnel Law 1. Hiring and firing policies 2. Equal Employment Opportunity Commission 3. Collective bargaining* B. Contract Law 1. Legal contracts 2. Sales contracts 3. Leases *agreement between employer and employee about working conditions. Eg: working hours, training 6  MAJOR LEGAL CONCEPTS AND ENTREPRENEURIAL VENTURES Growth and Continuity of an Entrepreneurial Venture A. Tax considerations 1. Federal, state, and local 2. Payroll 3. Incentives B. Governmental regulations 1. Zoning (property) 2. Administrative agencies (regulatory) 3. Consumer law C. Continuity of ownership rights 1. Property laws and ownership 2. Wills, trusts, and ownership 7 3. Bankruptcy There are 3 types Patents Copyrights Trademarks 8  PATENTS Provides the owner with exclusive rights to hold, transfer, and license the production and sale of the product or process as an intellectual property right 9  PATENTS Unique discovery Design patents last for 14 years All others last for 20 years 10 PATENT APPLICATION Patent Application has two parts: 1. Specification 2. Claims 11 PATENT APPLICATION Specification – the text of a patent – may include any accompanying illustrations – why is it useful? – experimental results in full detail PATENT APPLICATION Claims – a series of short paragraphs – each of which identifies a particular feature or – combination of features that is protected by the patent – define and limit the patent invention  Claim for a Pencil: A hand-held writing instrument comprising: a) elongated core-element means that will leave a marking line if moved across paper or other similar surface, and b) an elongated holder surrounding and encasing said elongated core element Claims means, one portion of said holder being removable from an end thereof to expose an end of said core-element means so as to enable said core-element means to be exposed for writing,whereby said holder protects said core element means from breakage and provides an enlarged means for holding said core-element means conveniently. 14 Apple & their slide to unlock Post-it Play-Doh  Patent Process: From Application To Allowance & Issue Application to PTO (Patent Trademark Office) Rejected or accepted Not easy!! Need to prove this is your work alone Source: United States Patent Office. SECURING A PATENT: BASIC RULES RULE 1 Pursue patents that are broad, are commercially significant, and offer a strong position Record each step in a book Have witnesses 17 SECURING A PATENT: BASIC RULES RULE 2 Prepare a patent plan in detail Outline the cost to develop and market the innovation 18 SECURING A PATENT: BASIC RULES RULE 3 Have your actions relate to your original patent plan Whatever you have planned, stick to it 19 SECURING A PATENT: BASIC RULES RULE 4 Establish an infringement budget Money needed to prosecute patent violation 20 SECURING A PATENT: BASIC RULES RULE 5 Evaluate the patent plan strategically Patent process takes 3 years Will the patent worth defending in 3 years? 21  Patents confer upon inventors the exclusive right to their inventions and discoveries Patents Under United States patent law, inventors may decide who can make, use, or sell their inventions 22  Patents fall within three categories 1 Utility Patents 2 Design Patents 3 Plant Patents  Cover inventions or discoveries of new and useful processes, Utility Patents machines, articles of manufacture, or compositions of matter, or any new and useful improvements thereof 24  Cover new, original, and ornamental designs for Design Patents articles of manufacture, and last for 14 years from the date of grant 25  An inventor who invents or discovers and asexually reproduce a distinct and new variety of plant may Plant Patents obtain a plant patent. Plant patents cover mutants, hybrids and newly found seedlings 26  UTILITY PATENT U.S. Patent No. 7,304,636: A system that may couple to a computer that may include a selectably interchangeable pointing device controller, and further may include an ergonomic design that may include a front portion and a rear portion where the front portion is configured to move horizontally and vertically with respect to the rear portion. 27 DESIGN PATENT U.S. Patent No. D439,253: The ornamental design for an ergonomic mouse, as shown and described. 28  COPYRIGHTS Provides exclusive rights to creative individuals for the protection of their literary or artistic productions Example: books, musical compositions, art, motion pictures Duration: life of the author plus 70 years 29  COPYRIGHTS PROTECTION ONE TWO THREE The material must It also must be the Formal registration be in a tangible author’s own work of a copyright is (real) form so it can and thus the product with the Copyright be communicated or of his or her skill Office of the Library reproduced of Congress 30  Fair use Copyrights An exception to copyright protection that allows limited use of copyrighted materials 31  not an infringement of copyright COPYRIGHTS The Copyright Act specifically excludes copyright protection for any Procedure Process System Concept Idea Method of operation 33 COPYRIGHTS It is not possible to copyright an “idea” Anything that is not an original expression will not qualify for copyright Facts widely known to the public are not copyrightable Example: How to boil water? 34 COPYRIGHTS 13–35 EXAMPLE OF COPYRIGHT © Randy Glasbergen © Marty Bucella 13–36  A distinctive name, mark, symbol, or motto identified with a company’s product(s) and registered at the Patent and Trademark Office Trademarks Current registrations are good for 10 years with the possibility for continuous renewal every 10 years 37  Trademarks A trademark may be invalidated in four specific ways 1 2 Third party’s challenge to the Failure to justify the mark lack of use distinctiveness Cancellation proceedings Cleaning-out procedure  Trademarks A trademark may be invalidated in four specific ways 3 4 The nonuse of a The allowance of a trademark for 2 trademark to consecutive years represent a general without justification grouping of products or services Abandonment Generic meaning Avoiding Pitfalls Rule 1: Never select a corporate name or a mark without first doing a trademark search. Rule 2: If your attorney says you have a potential problem with a mark, trust judgment. Rule 3: Seek a coined or a fanciful name or mark before you settle for a descriptive one. Example of descriptive trademark: “Truck Repair” for an auto body shop, “Creamy” for ice cream Rule 4: Avoid abbreviations & acronyms wherever possible and when no alternative is acceptable, select distinctive logotype in which abbreviation or acronym appears. Trademark Protection on the Internet Cyberlaw Domain Names (Internet Addresses) The emerging The principles of trademark law apply to domain names body of law governing Unauthorized use of another’s mark in a domain name may constitute trademark cyberspace infringement  Conclusion If you have invented a new type of washing machine which can wash, dry and fold, you will need: A patent for the A trademark to A copyright for invention protect the name the TV and logo commercial TRADE SECRETS Business processes and information that cannot be patented, copyrighted, or trademarked but makes an individual company unique and has value to a competitor 44 Examples of Trade Secrets Customer lists Strategic plans Research and development Pricing information Marketing techniques Production techniques  When a venture’s financial obligations are greater Bankruptcy than its assets and it is unable to meet its obligations 46  BANKRUPTCY Reasons may be New competition enters the market Lack of R&D Other firms seem to be selling products that are a generation ahead Overstocked - a supply or quantity in excess of demand or requirements 47  THE BANKRUPTCY ACT A federal law that provides for specific procedures for handling insolvent debtors—those who are unable to pay debts as they become due 48  THE BANKRUPTCY ACT Ensures that the property of the debtor is distributed fairly to the creditors Protects debtors from extreme demands by creditors Protects creditors from having debtors unreasonably diminish their assets 49 Chapter 7 Chapter 11 Chapter 13 50  STRAIGHT BANKRUPTCY − Sometimes referred to as liquidation − Requires the debtor to surrender all property to a trustee appointed by the court − Trustee sells the assets and turns it over to creditors − The debtor is released from debts  CHAPTER 11 - REORGANIZATION ─ The most common form of bankruptcy ─ Under this format, a debtor attempts to formulate a plan to pay a portion of the debts, have the remaining sum discharged, and continue to stay in operation CHAPTER 13 - ADJUSTMENT OF DEBTS Individuals or sole proprietors with unsecured debts of less than $360,000 or secured debts of less than $1,000,000 are eligible to file under a Chapter 13 procedure In the petition the debtor declares an inability to pay his or her debts and requests some form of extension through future earnings (a longer period of time to pay) or a composition of debt (a reduction in the amount owed)  Debt secured by collateral to reduce risk associated with lending Secured Debts Example - Mortgage: your house considered collateral towards debt If you default on repayment, bank seizes your house, sells it & uses proceeds to pay back debt 54  Unsecured Debts Debt does not have specific property (e.g. house / car) as collateral for payment of debt If you fail to make High risk for lenders: payment on Includes credit may have to sue to unsecured debt, card debt, medical bills, get money owed if creditor cannot utility bills borrower doesn’t take any of your repay full amount property owed