MGT340 - Chapter 14 Important Topics and Study Guide (2023-2024).pdf

Chapter 14: Navigating Legal and IP Issues Dr. Kipp A. Krukowski MGT 340 – Fundamentals of Entrepreneurship Protecting Intellectual Property (IP) • Intellectual Property Rights: the group of legal rights associated with patents, trademarks, copyrights, and trade secrets. Patents • Patents are...

Chapter 14: Navigating Legal and IP Issues Dr. Kipp A. Krukowski MGT 340 – Fundamentals of Entrepreneurship Protecting Intellectual Property (IP) • Intellectual Property Rights: the group of legal rights associated with patents, trademarks, copyrights, and trade secrets. Patents • Patents are the primary means of protecting an original invention. • The patent process: • • Designed by Thomas Jefferson in 1790 • Designed to provide a brief legal monopoly to give the inventor an opportunity to get the invention to market and recoup development costs before competitors entered the market • Designed to provide inventors with a financial incentive to invent United States Patent and Trademark Office (USPTO) Types of Patents Utility Patent: • Issued for the invention of a new or improved and useful product, process, machine, or composition of matter • Generally permits its owner to exclude others from making, using, or selling the invention for a period of up to twenty years from the date of patent application filing, subject to the payment of maintenance fees. • Approximately 90% of the patent documents issued by the USPTO in recent years have been utility patents, also referred to as "patents for invention." Types of Patents Design Patent: • Issued for a new, original, and ornamental design embodied in or applied to an article of manufacture • Permits its owner to exclude others from making, using, or selling the design for a period of fourteen years from the date of patent grant. Types of Patents Plant Patent: • Issued for a new and distinct, invented or discovered asexually reproduced plant including cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber propagated plant or a plant found in an uncultivated state • Permits its owner to exclude others from making, using, or selling the plant for a period of up to twenty years from the date of patent application filing. The Patent Process File a provisional patent (not required) • Allows filer to use the term “patent pending” • Doesn’t have to include specific patent claims File a (non-provisional; full) patent application • Must file within 12 months of filing the provisional patent • Note: You must file for your non-provisional patent application within 12 months of the first sale or public disclosure (i.e., tradeshow use) of your product. Patent Infringement Patent Infringement • Patents give the holder right to enforce the patent • Defense costs in terms of time and money often make it difficult for small businesses to enforce their patents Foreign Patents • U.S. patent rights extend only to the borders of the United States. • Every country has different laws regarding intellectual property, although countries are working to develop an international patent system. • If attempting to obtain foreign patents, be sure to hire an intellectual-property attorney who is knowledgeable in that area. Trademarks • • • Trademark: • A symbol, logo, word, sound, color, design, or other device that is used to identify a business or a product in commerce. • It has a longer life than a patent as you have exclusive right to it as long as you continue to use it (you can renew it every 10 years) ® Registered trademark ™ Non-registered trademark TM Trademarks Logos Slogans / Taglines Nike: Just do it. Dunkin’: America Runs on Dunkin’ Trademarks Not Trademarkable: • • • • • Anything immoral or deceptive Anything that uses official symbols of the U.S. or any state/municipality, such as a flag Anything that uses a person’s name or likeness without their permission Anything that has become part of general language (example: the term “smart phone”) You don’t necessarily need an attorney to trademark; but you’ll probably need a good graphic artist Copyrights Copyright (©) • Protects the form of the original works of authors, composers, screenwriters, and computer programmers • Lasts for the life of the holder +70 years Trade Secrets • A trade secret consists of: • A formula, device, idea, process, pattern, or compilation of information that gives the owner a competitive advantage in the marketplace • A novel idea that is not common knowledge and is kept in a confidential state • A trade secret is not protected by federal law, but protections for a trade secret can be created via contract. • Sometimes owners/companies choose not to patent in order to keep a trade secret secret indefinitely. • Examples: • Formula for Coca-Cola; Google's Search Algorithm; KFC Chicken Recipe; WD-40 Example IP Lawsuits Patents • Apple vs. Samsung: http://www.mercurynews.com/crime-courts/ci_24573092/applev-samsung-jury-awards-290-million-patent-feud • Retrial: https://fortune.com/2018/05/24/apple-samsung-jury-539-million/ • CMU / Marvell: http://www.bizjournals.com/pittsburgh/blog/financialdistrict/2016/02/marvell-to-pay-cmu-750m-in-patent-suit-settlement.html Copyrights • Happy Birthday: https://www.rollingstone.com/music/music-news/warner-musicsettles-happy-birthday-lawsuit-for-14-million-182584/ • Blurred Lines: https://www.rollingstone.com/music/music-news/robin-thicke-pharrellwilliams-blurred-lines-copyright-suit-final-5-million-dollar-judgment-768508/ Founders’ Agreement • Rights and responsibilities between founders of a business • Establishes who has equity in the business • How everyone is going to get paid • How leaving the firm will be handled (death, incapacitation, retirement, other interests) • Value of firms shares Forms of Ownership • Sole proprietorship • Partnerships • “C” Corporation • ”S” Corporation • Limited Liability Company (LLC) • “B” Corporation Sole Proprietorship • Easiest form of business ownership to create • Unincorporated business • • – Owned by founder – Business dies with owner Main Advantages – Easy to create and discontinue – Pass-through taxation Main Disadvantages – Unlimited personal liability General Partnership • Essentially the same as a sole proprietorship but between two or more people • Key elements • • – Common ownership/interest in the company – Profits and losses are shared – A high level of trust is needed between partners Main Advantages – Easy to create – Pass-through taxation Main Disadvantage – Unlimited personal liability of each partner “C” Corporation • • • Separate legal entity – EIN (tax identification number) is the equivalent of a person’s SSN – Stockholders, directors, officers make up the structure of control and management Main Advantages – Stockholders have limited liability (loss limited to amount invested) – Ideal structure if looking to add investors in the future – Continuous existence Main Disadvantages – More complicated and expensive to set-up and maintain with more reporting requirements – Taxable entity (potential double tax on dividends) “S” Corporation • Separate legal entity – Benefits of a “C Corporation” while avoiding being taxed at the corporate rate to avoid the potential “double taxation” of profits – EIN (tax identification number) is equivalent of a person’s SSN Some restrictions in regards set-up (must be domestic corporation, all shares must have same rights, number of shareholders cannot exceed 100) – • Main Advantages – – • Stockholders have limited liability (loss limited to amount invested) Pass-through taxation Main Disadvantages – Similar to “C” Corporation in more complicated and expensive to set-up and maintain with more reporting requirements Limited Liability Company (LLC) • One of the most popular forms of ownership for new start-ups • Main Advantages • – Stockholders have limited liability (loss limited to amount invested) – Pass-through taxation – Increased flexibility over “S” Corporation – No restriction on number of shareholders (called members) or on their participation Main Disadvantages – Have to elect to be treated as a “S” Corporation from a taxation standpoint thus more complicated and expensive to set-up and maintain with more reporting requirements “B” Corporation • “B” Stands for Benefit Corporation • May be either a “C” or “S” Corporation, sharing the specific advantages or disadvantages of each • Main Differences – Ensures that the for-profit business entity fulfils its social mission through strict standards of social and environmental performance, accountability, and transparency – Managers are held responsible for ensuring the right balance between pure profit and the declared social benefit goals – Not available in all states Not-for-Profit Entities • Not technically a different form of business entity • Not-for-profit is a tax status available to corporations and LLCs that is granted to companies performing functions deemed by Congress to be socially desirable that exempts them from income tax and, in some cases, allows them to receive tax deductible donations • None of the organization’s earnings are permitted to benefit the individuals – Reasonable compensation must be paid to employees – Cannot have shareholders – All profit must be reinvested in the business and used for the organization’s exempt purposes Which Form of Ownership is Right for You? • It really depends on your goals • Things to consider: – Taxation – Your appetite for risk due to potential liabilities – Whether or not you plan on eventually adding investors – Costs for set-up and reporting requirements – The purpose of the business Business Licenses and Permits • Businesses require many licenses and permits to engage in business – Usually determined by city, county, or state regulations • Must complete research to determine which permits are required • Other examples of permits and regulations: – Occupancy codes – Construction permits – Use of fictitious names Other Agreements & Contracts • Customer and Supplier Agreements – • • • Non-Disclosure Agreements (NDA) – Competitors, Trade Secrets, Employees, Prospective Buyers – Potential Investors? (probably not) Non-Compete Agreement – Some states not enforceable – Consider Non-Interference Agreement Employee Contracts – • Pricing, terms and conditions related to quality, delivery date and location, terms of payment Job responsibilities, salary, benefits, and other details Independent Contractor Agreements Employee vs. Independent Contractor Importance of Accountants & Attorneys • You want to have both for your business • Find an accountant familiar with start-ups • There is no “one best” attorney • – Find specialists for your needs like new venture formation, intellectual property law, contract law, franchise law, etc. – Visit with multiple attorneys first before selecting (pricing and experience will differ) Create a team that you are comfortable, that communicate well, and allow you to ask questions without always “being on the clock” 3 Key Points • Select the legal structure that is ideal for your situation. Formally set this up as soon as you can to gain the protections you need. • Get the protections that you need to protect your IP, however, remember that this should not be the basis of your business strategy – you must get out there and sell! • Get things in order with agreements and contracts on paper to avoid lawsuits – founder/partnership agreements, suppliers, employees, etc. This may require getting some assistance from accountants and attorneys. Questions? Dr. Kipp A. Krukowski MGT 340 – Fundamentals of Entrepreneurship