LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING

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Entrepreneurship MGT602

Lesson 19

LEGAL ISSUES FOR THE ENTREPRENEUR

LEARNING OBJECTIVES

To understand the purpose of a trademark and the procedure for filing.

To learn the purpose of a copyright and how to file for one.

To identify procedures that can protect a venture's trade secrets.

To understand the value of licensing to either expand a business or to start a new venture.

TRADEMARKS

A trademark may be a word, symbol, design, or some combination that identifies the source of certain

goods. A trademark can last indefinitely, as long as it continues to perform its indicated function. The

trademark is given a 20-year registration with 20-year renewable terms. In the fifth to sixth year, you must

file an affidavit with the PTO indicating that the patent is in commercial use. Today the law allows filing a

trademark solely on the intent to use the trademark in interstate commerce. There are benefits to

registering a mark that has already been in use.

Categories of trademarks:

Coined marks denote no relationship between the mark and the goods and afford the possibility of

expansion. An arbitrary mark is one that has another meaning in our language. A suggestive mark is

used to suggest certain features or characteristics of a product or service. A descriptive mark must have

become distinctive and gained recognition before it can be registered.

Registering a trademark can offer significant advantages to the entrepreneur.

Registering the Trademark

The PTO is responsible for federal registration of trademarks. To file, the entrepreneur must complete the

application form, which can be downloaded from the PTO website. Filing of the registration involves four

requirements:

a. Completion of the written form.

b. A drawing of the mark.

c. Five specimens showing actual use of the mark.

d. The fee.

An examining attorney at the PTO determines whether the mark is suitable for registration. Once accepted,

the trademark is published in the Trademark Official Gazette to allow any party 30 days opposing. If no

opposition is filed, the registration is issued. The entire process usually takes about 13 months.

COPYRIGHT

A copyright protects original works of authorship. The protection does not protect the idea itself. It allows

someone else to use the idea in a different manner. In 1980 the Computer Software Copyright Act was

added to provide explanation of the nature of software protection under copyright law. Authors of

software are protected in a manner similar to authors of artistic works. The idea is not eligible for

protection, but the actual software program is eligible. The PTO issues registration for software source

codes and object codes programs. Protection of material on the Internet has become an important issue.

The New York Time recently claimed that Amazon.com couldn't use its best-seller list without its

permission. Ownership of stock quotes, judicial decision, and real estate postings is also being questioned.

Copyrights are registered with the Library of Congress. All that is needed is the form, two copies of the

work, and the appropriate fee sent to the Register of Copyrights. The term of the copyright is the life of the

author plus 50 years. In some instances, several forms of protection may be available: trademark, patent,

and copyright.

TRADE SECRETS

A trade secret is not covered by any federal law but is recognized under common laws in each state.

Employees may be asked to sign a confidential information agreement. The holder of the trade secret has

the right to sue any signee who breaks the agreement. Non-protected ideas could become a serious

problem in the future unless the entrepreneur takes precautions.

To maintain secrecy

Entrepreneurship MGT602

Train employees to refer sensitive questions to one person.

Provide escorts for all office visitors.

Avoid discussing business in public places.

Control information that might be presented by employees at conferences or in

journals.

Use simple security such as locked file cabinets and shredders.

Have employees and consultants sign non-disclosure agreements.

Debrief departing employees.

Avoid faxing any sensitive information.

Mark documents "confidential" that need to be.

Protection against the leaking of trade secrets is difficult to enforce, and legal action can be taken only after

the secret has been revealed.

LICENSING

Licensing is an arrangement between two parties, where one party has proprietary rights protected by a

patent, trademark, or copyright. This requires the licensee to pay a royalty to the holder of the proprietary

rights in return for permission to copy the patent. Licensing has significant value as a marketing strategy to

holders of patents.

Procedure

A patent license agreement specifies how the licensee would have access to the patent. Licensing a

trademark usually involves an agreement where the entrepreneur operates a business using the trademark

and agrees to specific requirements. The agreement must be carefully worded and should involve a lawyer.

Licensing a trademark generally involves a franchising agreement. The entrepreneur operates a business

using the trademark and agrees to pay a fixed sum for use of the trademark.

The franchisee also pays a royalty based on sales volume, buys supplies from the franchiser, or some

combination of these.

Copyrights are also popular licensed property. They involve the right to use or copy books, software,

music, photos, and plays. Celebrities will often license the right to use his or her name or image in a

product. Hit movies can also result in new products. Licensing is also popular around special sports events.

Licensing opportunities are plentiful but should be carefully considered and planned.

A significant player in licensing is Walt Disney, which has been actively engaged in licensing for 65 years.

Licensing can be valuable for a firm that lacks resources to conduct R&D to develop a product.

Technology licensing entails an agreement by which a firm (licensee) acquires rights to product technology

from another firm (licensor.) Two reasons for licensing are to gain competitive advantage and to improve

technical skills.

Benefits

Licensing can increase revenues, without the risk and costly start-up investment. Licensing can also be a

way to start a new venture when the idea may infringe.

KEY TERMS

Disclosure document

Statement to U.S. Patent and Trademark Office by inventor disclosing intent to patent idea

Also included as a transparency master in Section VII of this manual

Trademark

A distinguishing word, name, or symbol used to identify a product

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