Essentials of Business Law, 9th edition
INSTRUCTOR’S MANUAL
Chapter 28 Intellectual Property
LESSON OVERVIEW
As described in Chapter 24, individuals and businesses own both real and personal property. The
chapter addressed how the law protects intellectual property stored on computers and in other locations.
Chapter 28 discusses the definition of intellectual property, trade secrets, application of trade secret law
to computer software, trademarks, application of trademark law to cyberspace, copyrights, application
of copyright law to software and cyberspace, patents, application of patent law to computer hardware
and software, and through the use of examples, depicts their relevance in real life situations. Finally,
students’ understanding of the topic is evaluated through objective-type questions, discussion questions,
and case scenarios. Students are encouraged to conduct their own research through the use of the
Internet and other sources.
CHAPTER OUTLINE
A. INTELLECTUAL PROPERTY DEFINED (p. 464)
B. TRADE SECRETS (pp. 464-465)
1. Protecting Trade Secrets (pp. 464-465)
C. APPLICATION OF TRADE SECRET LAW TO COMPUTER SOFTWARE (p. 466)
D. TRADEMARKS (pp. 466-467)
1. Trade Dress (pp. 467-468)
2. How Trademarks Are Lost (p. 468)
3. Protecting a Trademark (p. 469)
E. APPLICATION OF TRADEMARK LAW TO CYBERSPACE (pp. 469-470)
1. Domain Names (pp. 469-470)
F. COPYRIGHTS (p. 471)
1. Fair Use (p. 471)
G. APPLICATION OF COPYRIGHT LAW TO SOFTWARE AND CYBERSPACE (pp. 471-472)
H. PATENTS (pp. 472-473)
I. APPLICATION OF PATENT LAW TO COMPUTER HARDWARE AND SOFTWARE (pp.
473-474)
1. Design Patents (p. 474)
J. CHAPTER SUMMARY (p. 474)
K. CHAPTER ASSESSMENT (pp. 475-481)
1. Matching Legal Terms (p. 475)
2. True/False Quiz (pp. 475-476)
3. Discussion Questions (pp. 476-477)
4. Thinking Critically About the Law (pp. 477-478)
5. Case Questions (pp. 478-479)
6. Case Analysis (pp. 479-480)
7. Legal Research (p. 481)
KEY TERMS
Key terms are listed at the beginning of the chapter, posted in the student textbook margins, and placed
in bold in the copy. They are listed here for your quick reference.
§ intellectual property (p. 464)
§ trade secret (p. 464)
§ restrictive espionage act
of 1996 (p. 464)
§ restrictive covenant (p. 465)
§ agreement not to compete (p. 465)
§ trademark (p. 466)
§ trade dress (p. 467)
§ cybersquatting (p. 470)
§ copyright (p. 471)
§ infringement (p. 471)
§ fair use (p. 471)
§ substantial similarity test (p. 472)
§ patent (p. 472)
§ design patent (p. 474)
LEARNING OUTCOMES
The chapter Learning Outcomes will help you and the students discover the concepts and information
that should be understood upon completion of the chapter. You may want to access the PowerPoint
(PPT) slides for Chapter 28 when you begin the study of the chapter and discuss each Learning
Outcome. Each Learning Outcomes will be covered separately in the Instructor Notes, but they are
shown here in total as an overview of the sections being presented in Chapter 28. The corresponding
text page numbers and PPT slides are listed next to each outcome. These slides should be used to
reinforce the main points of the lecture.
After completing this chapter, the students will be able to:
1. Discuss intellectual property and explain how such is protected. (p. 464, PPT slide 2)
2. Explain why trade secrets are so important to a firm, and recognize how these may be protected
using restrictive covenants and agreements not to compete. (pp. 464-465, PPT slides 3-8)
3. Discuss when computer software is protected by trade secret law, and when it is protected by
licensing. (p. 466, PPT slide 9)
4. Distinguish between the types of trademarks. (pp. 466-467, PPT slides 10-14)
5. Discuss how trademark law can be applied to cyberspace. (pp. 469-470, PPT slide 15)
6. Explain copyrights and how the doctrine of fair use applies to them. (p. 471, PPT slides 16-19)
7. Describe how copyright law can be applied to software and cyberspace. (pp. 471-472, PPT slides
20-21)
8. Identify the requirements for obtaining a patent. (pp. 471-472, PPT slides 22-23)
9. Explain the challenges associated with applying patent requirements to computer hardware and
software. (pp. 473-474, PPT slides 24-25)
LECTURE OUTLINE
A. INTELLECTUAL PROPERTY DEFINED
Most people think of property as including only tangible items, such as land, buildings, automobiles,
clothing, and cash. There is another form of personal property, which includes knowledge, ways of
doing things, and expressions of ideas. This property is commonly referred to as intellectual property,
or intellectual capital. Intellectual property is protected through the use of trade secrets, trademarks,
copyrights, and patents.
B. TRADE SECRETS
A trade secret is specialized knowledge associated with a particular business. It includes information
gained during employment about such matters as manufacturing processes, practices, devices, customer
lists, and other confidential information that, in the hands of a competitor, would place the firm at a
serious disadvantage. When trade secrets are made public, the firm loses the advantage it had while the
secrets were undisclosed.
In an effort to protect firms from the theft of trade secrets, the Economic Espionage Act of 1996 was
passed. This statute makes the misappropriation or outright theft of trade secrets a federal crime. Under
the Economic Espionage Act, if the owner of the trade secret took reasonable precautions to protect it
from theft, he or she is generally entitled to recover damages resulting from the loss of the advantage
provided by the trade secret.
1. Protecting Trade Secrets
To protect its business and its trade secrets, an employer may, within reasonable bounds,
impose restrictions of secrecy on the employee or forbid the employee to work in the
same line of business or for a competing firm if he or she leaves the company.
a) Restrictive Covenants
A restrictive covenant is an agreement in which the employee agrees not to
work in similar employment. Nearly all restrictive covenants are enforceable; the
most important factor is whether the covenant is reasonable.
b) Agreements Not to Compete
When an established business is sold, included in the sale are trade secrets that
the business owns. Accordingly, the contract for sale usually includes an
agreement not to compete. In this kind of agreements, the seller agrees not to
begin or operate a similar business within a certain geographic area, or within a
specified period of time. Such agreements are highly recommended and legally
enforceable because the sale of a business includes more than just a firm’s
physical property, such as land, buildings, inventory, cash, and so on; the sale
also includes the firm’s goodwill, that is, the name and good reputation of the
firm.
C. APPLICATION OF TRADE SECRET LAW TO COMPUTER SOFTWARE
Some developers of commercial software have attempted to protect against pirated copying by
claiming that the program is a trade secret. Since most software is prepared for wide distribution, it is
difficult to protect a computer program from being copied by making this argument.
It is important, however, to recognize that a computer program distributed to a limited number of users
is usually not sold; rather, the producer of the program generally retains ownership and licenses the use
of it. Producers of computer software have an incentive to treat their works as trade secrets, since there
is no set time limit on the protection available for trade secrets as there is for trademarks, patents, and
copyrights.
D. TRADEMARKS
According to the Lanham Trademark Act of 1947, a trademark is “any word, name, symbol, or device
or combination thereof adopted and used by a manufacturer or merchant to identify his (or her) goods
and distinguish them from goods manufactured or sold by others.”
1. Trade Dress
Trade dress is a distinctive, nonfunctional feature, which distinguishes a merchant’s or
manufacturer’s goods or services from those of another. The trade dress of a product
relates to its total image and can include the color of the packaging or the configuration
of goods.
2. How Trademarks Are Lost
Most firms that have registered trademarks spend considerable amounts of money to
research, design, register, and advertise their trademarks. These firms naturally regard
them as valuable property and take appropriate measures to protect them.
3. Protecting a Trademark
Under federal law, the owner of a trademark loses rights to it “when any course of
conduct of the registrant, including acts of omission or commission, causes the mark to
lose its significance as an indication of origin.” It is important that all executives,
employees, and the firm’s advertising agency try to protect the firm’s trademark by
following a few basic rules.
i. Never use the trademark without the generic name of the product.
ii. Never use the trademark in the possessive form.
iii. Never use the trademark in the plural.
iv. Always identify trademarks.
v. Continuously monitor the way others use your trademarks.
E. APPLICATION OF TRADEMARK LAW TO CYBERSPACE
A business needs to be extremely vigilant to ensure that its valuable trademark is protected in
cyberspace.
1. Domain Names
A domain name is a unique identifier that serves as an address for a Web page. It
consists of several characters and numerals, followed by a suffix that can be .com,
.org, .gov, .edu, and others.
Registering or using another person’s or company’s domain name in bad faith for the
purpose of earning a profit is referred to as cybersquatting.
F. COPYRIGHTS
A copyright is a valid, government-granted protection given to creators of literary, creative, or artistic
works such as books, magazines, music, dramatic works, maps, works of art, motion pictures, computer
programs, computer games, and videos. A copyright cannot prevent the copying of an idea, but only the
way it is expressed. Copying without permission is referred to as infringement.
1. Fair Use
The law sometimes does allow limited copying if such copying falls under the doctrine
of fair use. Fair use applies when the copyrighted material is copied without
authorization for use in connection with criticism, news reporting, research, education,
or parody.
G. APPLICATION OF COPYRIGHT LAW TO SOFTWARE AND CYBERSPACE
The Computer Software Copyright Act of 1980 defines a computer program as a “set of statements or
instructions to be used directly or indirectly in a computer in order to bring about a certain act.” In
cases where there is the need to determine whether a person or business has violated the copyright of
another, courts use the substantial similarity test.
H. PATENTS
A patent is a valid, government-granted protection awarded to inventors that gives the patent holder
the exclusive right to manufacture, use, and sell the invention for 20 years. A patent cannot be renewed.
I. APPLICATION OF PATENT LAW TO COMPUTER HARDWARE AND SOFTWARE
In order for a patent to be issued, several requirements must be met. The requirements, and their
application to computer hardware and software, are described below.
The invention must be a device.
This is a term that has broad application in patent law and may include a design or process. In the case
of computer-related inventions, the requirement that an invention be a device is often difficult to meet
because many computer features are not devices at all, but rather are based on mathematical formulas
or on the manipulation of electronic signals and data.
The invention must be useful.
Since patent law requires that an invention be useful, in order to be patentable a computer program
must be more than just an amusing curiosity.
The invention must be novel (or new).
Since, to be patentable, a computer program must be original, merely adapting another, similar program
would not satisfy the requirement that the invention be novel.
The invention must be nonobvious.
A computer program, for example, that merely computes the total of a series of numbers would not
satisfy the requirement that the device be nonobvious.
1. Design Patents
Combining some of the characteristics of patents and copyrights, a design patent is
awarded to individuals or business firms to protect distinctive patterns, figures, and
shapes and to prevent unauthorized copying. Design patents have been issued for
soft-drink bottles, wine decanters, silverware patterns, and other unique designs. Design
patents, however, are granted for periods of less than 20 years.
INSTRUCTOR NOTES
A resulting answer or explanation is provided below for each Learning Outcome in Chapter 28. Every
outcome is also mapped to corresponding text page numbers, PPT slides, and relevant chapter
assessment exercises and activities for ease of reference and use.
LO1. Discuss intellectual property and explain how such is protected.
Intellectual property is a form of personal property. It includes knowledge, ways of doing things, and
expressions of ideas. Intellectual property is protected through the use of trade secrets, trademarks,
copyrights, and patents.
Text Pages: 464
PowerPoint: Slide 2
Thinking Critically About the Law: 27
LO2. Explain why trade secrets are so important to a firm, and recognize how these may be
protected using restrictive covenants and agreements not to compete.
When its trade secrets are made public, a firm loses the advantage it had while the secrets were
undisclosed. To protect its trade secrets, an employer or seller of a business may, through a restrictive
covenant or an agreement not to compete, impose restrictions of secrecy on an employee or buyer of
the business or forbid them from working in the same line of business or for a competing firm.
Text Pages: 464-465
PowerPoint: Slides 3-8
Thinking Critically About the Law: 28
Case Questions: 32
LO3. Discuss when computer software is protected by trade secret law, and when it is protected by
licensing.
If a computer program is highly specialized and not intended for wide distribution, it would likely be
considered a trade secret. A computer program distributed to a limited number of users is usually not
sold; rather, the producer of the program generally retains ownership and licenses the use of it.
Text Pages: 466
PowerPoint: Slide 9
LO4. Distinguish between the types of trademarks.
A trademark is any word, name, symbol, or device or combination thereof adopted and used by a
manufacturer or merchant to identify his or her goods and distinguish them from goods manufactured
or sold by others. Symbols used to identify services, as distinguished from goods, are called service
marks. Trade characters are fictional characters; trade names are the names under which a firm does its
business; and brand names are the registered names for products. Trade dress is a distinctive,
nonfunctional feature, which distinguishes a merchant’s or manufacturer’s goods or services from those
of another.
Text Pages: 466-467
PowerPoint: Slides 10-14
Case Questions: 33
LO5. Discuss how trademark law can be applied to cyberspace.
A domain name is a unique identifier that serves as an address for a Web page. To protect its domain
name from a cybersquatter, a firm would need to demonstrate to the court that (a) there was bad faith
on the part of the cybersquatter, (b) the firm owns the trademark, (c) the trademark is distinctive, and
(d) the domain name being used by the cybersquatter is identical to (or confusingly close to) the
trademarked name owned by the complaining party.
Text Pages: 469-470
PowerPoint: Slide 15
Discussion Questions: 22
Thinking Critically About the Law: 30-31
Case Analysis: 35-36
LO6. Explain copyrights and how the doctrine of fair use applies to them.
A copyright is a valid government-granted protection given to creators of literary, creative, or artistic
works such as books, magazines, music, dramatic works, maps, works of art, motion pictures, computer
programs, computer games, and videos. Fair use applies when the copyrighted material is copied
without authorization for use in connection with criticism, news reporting, research, education, or
parody.
Text Pages: 471
PowerPoint: Slides 16-19
Discussion Questions: 23-24
Case Questions: 34
Case Analysis: 37
LO7. Describe how copyright law can be applied to software and cyberspace.
Courts determine whether a person or business has violated the copyright of another’s computer
software through the use of the substantial similarity test. This test is used to determine whether an
ordinary reasonable observer comparing two programs would have to conclude that the software being
questioned was copied from the other.
Text Pages: 471-472
PowerPoint: Slides 20-21
Case Analysis: 38
LO8. Identify the requirements for obtaining a patent.
To obtain a patent on an invention, it must be a device that is useful, novel, and nonobvious.
Text Pages: 471-472
PowerPoint: Slides 22-23
LO9. Explain the challenges associated with applying patent requirements to computer hardware
and software.
It is difficult to patent computer-related inventions because many of these are not devices; are mere
curiosities; adapt other, similar programs; or are designed to do certain tasks electronically that have
previously been done mechanically.
Text Pages: 473-474
PowerPoint: Slides 24-25
Discussion Questions: 25-26