Chapter 12: The Importance of Intellectual Property
Posting queries in the chat rooms and discussion forums of the entrepreneurship-
focused social networks talked about in this book is a good place to start.
REVIEW QUESTIONS
12-1.
What distinguishes intellectual property from other types of property, such as
land, buildings, and inventory?
MyLab Question.
12-2.
What are the two primary rules for determining whether intellectual property
protection should be pursued for a particular intellectual asset?
Answer: There are two primary rules for determining whether intellectual
property should be pursued for a particular intellectual asset:
First, an entrepreneur should determine whether the intellectual property in
question is directly related to its competitive advantages.
Second, a firm should determine whether its intellectual property has value
in the marketplace.
12-3.
Search the USPTO database and find three patents issued to Donald E. Weder
of Highland Park, Illinois. Describe the patents. In what areas are most of Mr.
Weder’s patents?
Answer: By typing in the name Donald E. Weder on the USPTO Web site, you
can see patents awarded to Mr. Weder. All of his patents have something to do
with flowers. A more user-friendly patent search engine is provided by Google
at http://www.google.com/patents.
12-4.
What are the major differences between utility patents and design patents?
Provide an example of each.
Answer: A utility patent is the most common type of patent covering what we
generally think of as new inventions that must be useful, must be novel in
relation to prior arts in the field, and must not be obvious to a person of
ordinary skill in the field. In contrast, a design patent covers the invention of
new, original, and ornamental designs for manufactured products. In short, a
utility patent covers what something does, whereas a design patent covers how
it looks.
12-5.
What is a business method patent? Provide an example of a business method
patent. How can having such a patent provide a firm a competitive advantage in
Chapter 12: The Importance of Intellectual Property
Answer: A business method patent protects an invention that is or facilitates a
method of doing business. An example of a business method patent is
Amazon.com’s one-click ordering system. Amazon’s one-click ordering system
provides it a competitive advantage in the marketplace because it allows
Amazon’s Web site to “check customers out” in a slightly more intuitive and
simpler manner than competing Web sites.
12-6.
Give an example of a design patent. How can having a design patent provide a
firm a competitive advantage in the marketplace?
Answer: The distinctive look of Apple Computer’s iMac computer is protected
by a design patent. The distinctive look of the iMac provides it a quality that is
very attractive to some buyers. As a result, the distinctive look, which is
protected by a design patent, gives the iMac a competitive advantage in the
marketplace.
12-7.
What is the purpose of an assignment of invention agreement? Is it a good idea
for firms to ask their employees to sign assignment of invention agreements?
Answer: An assignment of invention agreement is a document signed by an
employee as part of the employment agreement that assigns the employer the
right to apply for the patent of an invention made by the employee during the
course of his or her employment. It is an excellent idea for firms to ask their
employees to sign assignment of invention agreements. The agreement allows a
firm to capture the intellectual property that is created by employees while they
are on their jobs.
12-8.
What are the six steps in applying for a patent?
Answer: The six steps to apply for a patent are as follows:
Step 1: Make sure the invention is practical.
Step 2: Determine the type of application to file.
Step 3: Hire a patent attorney.
Step 4: Conduct a patent search.
Step 5: File a patent application.
Step 6: Obtain a decision from the U.S. Patent and Trademark Office.
12-9.
What is a trademark? How can a trademark help a firm establish a competitive
advantage in the marketplace?
Answer: A trademark is any word, name, symbol, or device used to identify the
source or origin of products or services and to distinguish those products or
services from others. An example of a trademark is GAP. Consumers know
would be, and how little good it would do GAP to spend money building its
trademark, if any retail store could use the name GAP.
12-10.
What are the three steps involved in selecting and registering a trademark?
Answer: The steps involved in selecting and registering a trademark are as
follows:
Select an appropriate mark.
Perform a trademark search.
Create rights in the trademark.
12-11.
What is meant by the term trade dress?
Answer: The manner in which a product is “dressed up” to appeal to customers
is protectable. This category includes the overall packaging, design, and
configuration of a product. As a result, the overall look of a business is
protected as its trade dress.
12-12.
What is a copyright?
Answer: A copyright is a form of intellectual property protection that grants to
the owner of a work of authorship the legal right to determine how the work is
used and to obtain the economic benefits from the work.
12-13.
In the context of copyright law, what is meant by the term derivative work?
Answer: Derivative works are works that are new renditions of something that
is already copyrighted. As a result of the derivative work provision, a musician
who performs a unique rendition of a song written and copyrighted by Metallica
can obtain a copyright on his or her efforts. Of course, Metallica would have to
consent to the infringement on its copyright of the original song before the new
song could be used commercially, which is a common way that composers and
musicians earn extra income.
12-14.
If an entrepreneur has an idea for a themed restaurant based on television game
shows, is the idea itself eligible for copyright protection? Why or why not?
MyLab Question.
Chapter 12: The Importance of Intellectual Property
12-15.
What is a copyright bug? Where would one expect to find the bug, and how is it
used?
Answer: Copyright protection can be enhanced for anything written by
attaching the copyright notice, or “copyright bug” as it is sometimes called. The
bug—the letter “c” inside a circle—typically appears in the following form: ©
[first year of publication][author or copyright owner].
12-16.
What is meant by the phrase copyright infringement? Would you characterize
copyright infringement as a minor or as a major problem in the United States
and in other countries? Explain.
Answer: Copyright infringement occurs when one work derives from another or
is an exact copy or shows substantial similarity to the original work. In most
sectors, copyright infringement is not a major problem in the United States.
Book and magazine publishers, for example, don’t have a lot of problems with
people trying to infringe on the copyright of their work. Copyright infringement
is a major problem for works placed in digital form (particularly music files),
because they can be illegally copied and disseminated via the Internet.
12-17.
What is a trade secret? Provide an example of a trade secret. How might the
trade secret you identified help a firm establish a competitive advantage in the
marketplace?
Answer: A trade secret is any formula, pattern, physical device, idea, process,
or other information that provides the owner of the information with a
competitive advantage in the marketplace. Trade secrets include marketing
plans, product formulas, financial forecasts, and employee rosters. There are
many trade secrets that can provide a firm a competitive advantage in the
marketplace. For example, if a firm has a well-developed prospect list for its
product or service, that list could provide the firm a competitive advantage.
12-18.
What information does not qualify for trade secret protection? Make your
answer as thorough as possible.
Answer: In general, information that is known to the public or that competitors
can discover through legal means doesn’t qualify for trade secret protection.
Similarly, if a secret is disclosed by mistake (or through carelessness on the part
of a firm), it typically loses its trade secret status.
12-19.
What types of physical measures do firms take to protect their trade secrets?
Answer: The following are examples of commonly used physical measures for
protecting trade secrets:
Chapter 12: The Importance of Intellectual Property
Restricting access
Labeling documents (confidential, proprietary, secret)
Password protecting confidential files
Maintaining logbooks for visitors
Maintaining logbooks for access to sensitive material
Maintaining adequate overall security measures
12-20.
What are the two primary purposes of conducting an intellectual property audit?
What risks does a company run if it doesn’t periodically conduct an intellectual
property audit?
Answer: First, it is prudent for a company to periodically determine whether its
intellectual property is being properly protected. Second, it is important that a
firm have a good handle on the intellectual property it owns, to justify its value
in the event of an acquisition or a merger. The risk of not conducting an
intellectual property audit is that if the firm doesn’t know what it owns, it
cannot take adequate safeguards to protect what it owns.
APPLICATION QUESTIONS
12-21.
Imagine you are about to attend a one-day seminar dealing with intellectual
property law, and you contact a friend of yours who is in the process of starting
a business to urge her to attend the seminar with you. She says to you, “I’m
really busy because I’m just about to launch my start–up, so I’ll have to pass. If
they offer the same seminar next year, I’ll go with you then.” How would you
respond to your friend?
Answer: You should tell your friend that if she’s about to launch her firm, it’s
important that she attend the seminar this year. According to the chapter, a
patent will not be issued (by the U.S. Patent & Trademark Office) if an
invention has been described in any printed publication anywhere in the world
or was in public use or offered for sale anywhere in the United States for more
than one year prior to the time an application for a U.S. patent is filed. As a
result, if in the process of launching her business, your friend reveals something
that is patentable, the one-year clock will start ticking. If she attends the
seminar “next year,” and doesn’t get any help in the intervening period, it will
be too late to file a patent application.
12-22.
Access the USPTO Web site and look up U.S. Patent Number 5,433,036.
Describe the purpose of the patent. Do you think this patent describes an
invention that has commercial potential? On a scale of 1 to 10 (10 is high), how
significant do you think the potential is?
Chapter 12: The Importance of Intellectual Property
Answer: The title of U.S. Patent Number 5,443,036 is “Method of Exercising a
Cat.” The abstract for the patent reads as follows: “A method for inducing cats
to exercise consists of directing a beam of invisible light produced by a hand–
held laser apparatus onto the floor or wall or other opaque surface in the vicinity
of the cat, then moving the laser so as to cause the bright pattern of light to
move in an irregular way fascinating to cats, and to any other animal with a
chase instinct.” Most students will say that the commercial potential for this
invention is rather small, and will rate it toward the bottom of the 1–10 scale.
12-23.
Tyler Simms just invented a new product that he is convinced is unique and will
make him wealthy. The product is a toothbrush with a tube of toothpaste
attached to the handle. Tyler is anxious to file a patent application on the
product, but when he tells you about the idea, you say—“Whoa, let’s do a
preliminary patent application search first to see if someone else has already
patented this idea.” What do you find when you help Tyler with the preliminary
search?
Answer: As it turns out, the idea of creating a toothbrush with a tube of
toothpaste attached has been thought of many times, and there are a number of
existing patents that cover different versions of the idea. An example is United
States Patent 6,895,976. Another is United States Patent 6,390,103. The later
patent can be easily found in the following manner:
Go to the U.S. Patent and Trademark Web site at www.uspto.gov.
Select Patents and click on Advanced Search.
Type in the query box, using quotation marks, “toothbrush toothpaste.”
One of the results is U.S. Patent 6,390,103 titled “Toothpaste Dispensing
Toothbrush Having Floss Dispenser.”
12-24.
According to the chapter, a trademark registered with the USPTO can
theoretically remain registered forever as long as it stays in use. Does the owner
of a trademark have to take affirmative action to demonstrate to the USPTO
office that a trademark is remaining in use? If so, what is the process that must
be followed?
Answer: If a trademark is registered, it needs to be renewed (via the USPTO
Web site) every 10 years, and can be renewed indefinitely as long as the
trademark remains in use. The USPTO will not remind you of when it’s time to
renew. It is the responsibility of the owner of the trademark to meet the renewal
deadlines.
12-25.
Pam Tarver just opened an information technology consulting company and has
thought for a long time about what to name it. She finally settled on the
fictitious name Infoxx. Search the USPTO database to determine if the name
Infoxx is available. Is it? If it is available, describe how Pam would go about
Chapter 12: The Importance of Intellectual Property
Answer: Infoxx appears to be available (as of October 2017). A search can be
completed via the USPTO Web site (www.uspto.gov) by following the
instructions under the Trademark tab on the Web site.
12-26.
Ken and Jackie Smith just purchased a small winery in the Napa Valley of
northern California. One thing they noticed when they were investigating the
winery is that the owners never placed the “100% Napa Valley” certification
mark on their bottles. Now that they own the winery Ken and Jackie are looking
into using the mark. Investigate what is required to place the “100% Napa
Valley” certification mark on a bottle of wine. If Ken and Jackie’s winery
qualifies, should they use the mark?
Answer: The mark can only be placed on a wine label if a full hundred percent
of the wine contained is actually made from wine grapes produced and bottled
in the Napa Valley. It’s a voluntary add–on that’s placed on the bottle by the
winery. Ken and Jackie should use the mark, if they qualify, because it helps
protect their brand (as being genuine Napa Valley) and provides a simple tool
for consumers to quickly discern the origin of the wine in the bottle.
Applications to use the Napa Valley certification mark are made through Napa
Valley Vinters (www.napavintners.com), a Napa Valley trade group.
YOU BE THE VC 12.1
Company: Flatiron School (www.flatironschool.com)
Business Idea: Launch an elite programming school that teaches people to code in an
accelerated period of time and helps them find good-paying jobs as developers.
You Be the VC Scorecard
Flatiron School
(www.flatironschool.com)
Score/Comments
1 2 3 4 5
In 2012, Adam Enbar and Avi Flombaum cofounded
Flatiron School. Since then, though, it appears (from
Crunchbase) that there are four people who are currently
on the top management team: Aditi Patil, Joan Soskin,
David Gabeau, and Ruth Mesfun, each of whom has a
Chapter 12: The Importance of Intellectual Property
1 2 3 4 5
The opportunity is larger than we would have imagined.
Coding has become a vital job skill and Flatiron
School’s 12-week approach shortens the time off for a
student. In addition, placing students at jobs of around
$75,000 a year is a compelling value proposition.
1 2 3 4 5
The industry here is the traditional university or
community college system where a student can learn to
program. This means the industry is large and Flatiron
School is trying to disrupt the traditional education
industry.
1 2 3 4 5
With a 6 percent acceptance rate, clearly Flatiron
School’s value proposition is quite attractive. How
scalable the business is remains to be seen. We don’t
know how well the web-based instruction model is
working.
3.5/5.0
YOU BE THE VC 12.2
Company: Kolibree (www.kolibree.com)
Business Idea: Develop a smart toothbrush that can tell users if they are brushing well.
Accompany the toothbrush with smartphone games in which good brushing is rewarded
with high scores in the games.
Chapter 12: The Importance of Intellectual Property
You Be the VC Scorecard
Kolibree
(www.kolibree.com)
Score/Comments
1 2 3 4 5
Kolibree is a European start-up. It was co-founded by
Matthieu Delporte and Thomas Serval. Both co-founders
have entrepreneurial experience prior to launching
Kolibree. They currently form the top management
team.
1 2 3 4 5
The opportunity is sizable. Dental hygiene is an
important aspect of one’s lifestyle and the children’s
market is even more promising. Kolibree uses
smartphone technology to make brushing teeth into a
fun and effective activity.
1 2 3 4 5
Consistent with the information provided above, this is
an app-based hygiene device. There is a downside,
however. The app market is crowded. As a result, it’s
hard for a new app to get noticed, even if the app is
connected to a device.
1 2 3 4 5
Kolibree’s kid toothbrush sells at $149 on Amazon and
so it is a premium priced product. It appears to be a
traditional retail business, in that, the company reaches
end users via retail stores and online stores.
3.5/5.0
Chapter 12: The Importance of Intellectual Property
CASES
Case 12.1
GoldieBlox vs. Beastie Boys: The Type of Fight That No Start-Up Wants to Be a Part of
DISCUSSION QUESTIONS
12-31.
If the case hadn’t been settled by GoldieBlox and the Beastie Boys and you had
been asked to render a judgment in the case, would you have rendered a
judgment in favor of GoldieBlox or the Beastie Boys? Explain your decision.
Answer: Students will vary in their answers to this question. Most students will
come down on the side of the Beastie Boys. If one watches the video that
GoldieBlox produced (see instructions for finding the video on YouTube
contained in the case), it’s hard to accept GoldieBlox’s argument that the video
does not infringe on the Beastie Boys copyright for the song “Girls” under the
principal of fair use.
12-32.
Briefly comment on how both sides handled the dispute.
Answer: Most students will say that both sides were civil and professional,
although in retrospect GoldieBlox may regret having sued the Beastie Boys
when the Beastie Boys first indicated that they were upset by GoldieBlox’s
adaptation of their song. Both sides were conciliatory when the dispute seemed
to be coming to a head. The majority of students will say that the right argument
prevailed—that GoldieBlox violated the Beastie Boys copyright on the song
“Girls.” Both sides seemed to accept the outcome and have moved on.
12-33.
What do we learn about fair use from the GoldieBlox–Beastie Boys dispute?
Answer: We learn that fair use has limits. The challenge is that what type of use
of another person’s or business’s copyright is within the limits and what is not is
a judgment call. Most people who watch GoldieBlox’s rendition of “Girls,”
however, will say that it’s clearly outside the intent of fair use.
12-34.
What do we learn about the process of launching and growing a firm, in general,
from the GoldieBlox–Beastie Boys dispute?
Answer: We learn two things. First, the businesses take their intellectual property
seriously, so be careful to not infringe on the intellectual property of others.
GoldieBlox tread upon the intellectual property of the Beastie Boys, and it cost
them dearly in terms of time, money, and reputation. Second, be careful to not
engage in activities that will take you away from what should be your primary
focus—building a successful company. All the time that GoldieBlox devoted to
building their brand, servicing customers, and so on.
Chapter 12: The Importance of Intellectual Property
Case 12.2
You Make the Call: Can a Company Patent How It Makes a Peanut Butter and Jelly
Sandwich?
DISCUSSION QUESTIONS
12-35.
Go to the U.S. Patent & Trademark Office’s Web site (www.uspto.gov) and look
up Patent No. 6,004,596. Read the patent. After reading the patent are you more
inclined or less inclined to side with the Smucker’s point of view?
Answer: After reading the patent, students will probably be divided on this issue.
On the one hand, the description contained in the patent sounds just like the
Uncrustable, so one has to at least give Smucker’s that. On the other hand, it just
doesn’t make intuitive sense that someone could patent any version of a basic
peanut and butter and jelly sandwich. This debate can lead to lively classroom
discussion.
12-36.
Type “Uncrustables” into the Google search engine and look at the Uncrustables
sandwich. Spend a little time reading about the Uncrustables on Smucker’s Web
site. Again, after looking over the Web site, are you more inclined or less
inclined to side with the Smucker’s point of view?
Answer: Again, students will be divided on this issue.
12-37.
In regard to the arguments espoused by the “critics” of the U.S. patent system
and the “advocates” of the U.S. patent system, with which of the points of view
do you agree? Thinking as an entrepreneur, use your own words to state why you
think the critics or the advocates have a stronger point of view.
Answer: There are good arguments on both sides of this issue, as illustrated in
the “Broader Issues Involved” section of the case. Again, this issue can lead to
lively classroom debate.
12-38.
After using a search engine to discover how the court ruled, why do you think
the court ruled as it did? Use materials in the chapter to explain and justify your
thinking.
Answer: Smucker’s didn’t get its patent. The U.S. Court of Appeals upheld the
lower court’s ruling without providing a comment. The lower court had ruled
that Smucker’s could not patent its Uncrustables because the crimped edges are
similar to a ravioli or pie crust. Students should be encouraged to use this verdict
to find out why the court ruled the way it did.