The Importance of Intellectual Property: Bruce R. Barringer R. Duane Ireland

Chapter 12
The Importance of
Intellectual
Property
Bruce R. Barringer
R. Duane Ireland
Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-1
Chapter Objectives
1 of 2
1. Define the term “intellectual property” and describe

its importance.
2. Specify the rules of thumb for determining whether
a particular piece of intellectual property is worth
the time and expense of protecting.
3. Discuss the four major forms of intellectual
property – patents, trademarks, copyrights, and
trade secrets.
4. Describe the six-step process for obtaining a patent.
5. Identify the four types of trademarks.

Chapter Objectives
2 of 2
6. Identify the types of material that are eligible for

copyright protection.
7. Discuss the legal environment that facilitates trade
secret protection.
8. Identify the most common types of trade secret
disputes.
9. Describe some of the physical measures that firms
take to protect their trade secrets.
10. Explain the two primary reasons for conducting an
intellectual property audit.

The Importance of Intellectual Property
• Intellectual Property
– Is any product of human intellect that is intangible but has
value in the marketplace.
– It is called “intellectual” property because it is the product of
human imagination, creativity, and inventiveness.
• Importance
– Traditionally, businesses have thought of their physical
assets, such as land, buildings, and equipment as the most
important.
– Increasingly, however, a company’s intellectual assets are the
most important.
INTRODUCTION
• Intellectual property protection is critical to fostering innovation.
Without protection of ideas, businesses and individuals would not
reap the full benefits of their inventions and would focus less on
research and development.
• Intellectual property rights (IPR) can be used to protect the
technology, brand name, design and creativity behind the
concept. ... It gives the creator sole ownership of the concept, in a
similar way to owning physical property like a house or car.
• Examples- Intellectual property rights include patents, copyright, industrial
design rights, trademarks, plant variety rights, trade dress, geographical
indications, and in some jurisdictions trade secrets

Determining What Intellectual
Property to Protect
Criteria 1 Criteria 2
Determine whether the Decide whether the

intellectual property in intellectual property in
question is directly question has value in
related to the firm’s the marketplace.
competitive advantage.

Common Mistakes Firms Make in Regard
to Protecting Their Intellectual Property
Not properly identifying Not fully recognizing

all of their the value of their
intellectual property. intellectual property.
Not using their

Not legally protecting the
intellectual property as
intellectual property
part of their overall
that needs protecting.
plan for success.

The Four Key Forms of Intellectual
Property
Patents Trademarks
Copyrights Trade Secrets

• A patent is a grant of protection for an invention.
• It's granted by the U.S. Patent and Trademark Office (PTO)
and has a term of 14 to 20 years. Owning a patent gives you
the right to stop someone else from making, using or selling
your invention without your permission.
• Only an inventor may apply for a patent on his or her idea.
• If two or more people participate in the creation of an
invention, the law requires that all participants apply for a
patent as joint inventors.

types
• A design patent provides protection on the
appearance or ornamental design of your
invention. It is generally cheaper, simpler to
file and more easily accepted by the PTO than
other types of patents.
• Its term is 14 years.
• To receive a design patent, your invention must pass these tests:
• It must have a new, original and ornamental design.
• The novel features of your design must not be obvious.

• A utility patent protects the function or method
of your invention. This patent is more
complicated than a design patent because it
requires you to explain how your invention is
used. A utility patent is usually more
expensive to obtain, requires more input from
an attorney, and is more difficult to have
issued by the PTO.

• A utility patent protects the function or method of your invention. This
patent is more complicated than a design patent because it requires you to
explain how your invention is used.
• A utility patent is usually more expensive to obtain, requires more input
from an attorney, and is more difficult to have issued by the PTO.
• The utility patent's term is 20 years. Most inventions can be filed as a
design patent, utility patent or both.
• To receive a utility patent, your invention must pass four tests:
1. Statutory-class test. Your invention can reasonably be classified as a process, machine, manufacture, composition or a "new
use" of any one or more of these classifications.
2. Utility test. Your invention is considered useful.
3. Novelty test. Your invention has a feature that sets it apart from previous inventions and is unknown to the public.
4. "Unobviousness" test. Your invention's novelty must not be obvious to someone who has ordinary skill in the area of your
invention. For example, if your invention is a hairbrush, the uniqueness of its design must not be obvious to someone who
uses a hairbrush every day.

• A plant patent can be obtained by someone who “invents
or discovers and asexually reproduces any distinct and
new variety of plant, including cultivated sports,
mutants, hybrids, and newly found seedlings, other than
a tuber propagated plant or a plant found in an
uncultivated state.”
• he exclusion of tuber propagated plants include plants
such as the Irish potato and the Jerusalem artichoke,
since these types of plants are “propagated by the same
part of the plant that is sold as food.”

Patents
• Patents
– A patent is a grant from the federal government conferring
the rights to exclude others from making, selling, or using
an invention for the term of the patent. (See the next slide
for a full explanation.)
• Increasing Interest in Patents
– There is increasing interest in patents.
• Since Patent #1 was granted in 1790, the U.S. Patent & Trademark
Office has granted over six million patents.
• The patent office is strained. It now takes an average of 35.3
months from the date of first filing to receive a U.S. patent.

• A patent gives an inventor the right to stop other people making or
using their invention. If someone makes or uses that invention
without being allowed to, the inventor can sue that person in court to
make them stop.
• Patent Examples of Different Types of Patents
• Software patents.
• Electrical engineering patents.
• E-commerce system patents.
• Mechanical patents.
• Method and process patents.
• Design patents.

Proper Understanding for What a
Patent Means
A patent does not give its owner the right to make, use, or sell an invention;
rather, the right granted is only to exclude others from doing so.
As a result, if an inventor obtains a patent for a new kind of computer chip,
and the chip would infringe on a prior patent owned by Intel, the inventor
has no right to make, use, or sell the chip.
To do so, the inventor would need to obtain permission from Intel. Intel may
refuse permission, or ask that a licensing fee be paid for the rights to
While this system may seem odd, it is really the only way the system could
work. Many inventions are improvements on existing inventions, and the
system allows the improvements to be (patented) and sold, but only with the
permission of the original inventors, who usually benefit by obtaining
licensing income in exchange for their consent.

Growth in Patent Applications in the
United States

Three Basic Requirements for Obtaining a
Patent

Types of Patents
Type Type of Invention Covered Duration
New or useful process, machine, 20 years from

Utility manufacturer, or composition of material or the date of the
any new and useful improvement thereof. original
application.
14 years from
Invention of new, original, and ornamental the date of the
Design design for manufactured products. original
application.
20 years from
Any new varieties of plants that can be
Plant the date of the
reproduced asexually.
original
application.
Business Method Patents
(Special Utility Patent)
• Business Method Patent

– A business method patent is a patent that protects an
invention that is or facilitates a method of doing business.
– The most notable business method patents that have been
awarded:
• Amazon.com’s one-click ordering system.
• Priceline.com’s “name-your-price” business model.
• Netflix’s method for allowing customers to set up a rental list of
movies to be mailed to them.

Steps to Filing a Patent Application
1. Keep a Written Record of Your Invention. Record every

step of the invention process in a notebook. ...
2. Make Sure Your Invention Qualifies
for Patent Protection. ...
3. Assess the Commercial Potential of Your Invention. ...
4. Conduct a Thorough Patent Search. ...
5. Prepare and File an Application With the USPTO.(United
state patent and trade mark office)
6. For search of uspto.gov/patft.

The Process of Obtaining a Patent

Patent Infringement
• Patent Infringement
– Takes place when one party engages in the unauthorized
use of another party’s patent.
– The tough part (particularly from a small entrepreneurial
firm’s point of view) is that patent infringement cases are
costly to litigate.
• A typical patent infringement case costs each side at least $500,000
to litigate.

Trademarks
• Trademark
– A trademark is any word, name, symbol, or device used to
identify the source or origin of products or services and to
distinguish those product or services from others.
– Trademarks also provide consumers with useful
information.
• For example, consumers know what to expect when they see a
Macy’s store.
• Think how confusing it would be if any retail store could use the
name Macy’s.

Types of Trademarks
1 of 2
Type Types of Marks Covered Duration
Any word, name, symbol, or device

used to identify and distinguish one Renewable every
Trademark 10 years, as long
company’s goods from another.
as the mark
Examples: Apple, d.light, Dry Soda,
remains in use.
ModCloth, and Zeo.
Similar to trademarks; are used to Renewable every

Service mark identify the services or intangible
10 years, as long
activities of a business, rather than a
business’s physical products. as the mark
remains in use.
Examples: 1-800-FLOWERS,
Amazon.com, Mint.com, and Zipcar.

Types of Trademarks
2 of 2
Type Types of Marks Covered Duration
Trademarks or service marks used by

the members of a cooperative, Renewable every
Collective 10 years, as long
association, or other collective group.
mark as the mark
Examples: Rotary International and
remains in use.
International Franchise Association
Marks, words, names, symbols, or Renewable every

Certification devices used by a person other than
10 years, as long
mark the owner to certify a particular
quality about a good or service. as the mark
remains in use.
Examples: 100% Napa Valley and
Underwriters Laboratories

What is Protected Under Trademark Law
1 of 2
Item Example(s)
Words YouTern, PledgeMusic, GiftZip
Numbers 3M, MSNBA, 1-800-FLOWERS

and letters
Designs
Nike swoosh logo
and logos
Sounds MGM’s lion’s roar

What is Protected Under Trademark Law
2 of 2
Item Example
Fragrances Stationery treated with a special fragrance
Shapes Unique shape of the Apple iPhone
Colors Nexium—the “purple pill”
Trade dress The layout and décor of a restaurant

Exclusions From Trademark Protection
Item Example
Immoral or Profane words
scandalous matter
Labeling oranges “Fresh Florida
Deceptive matter Oranges” that aren’t grown in Florida
Phrases like “golf ball” and “fried chicken”

Descriptive marks are descriptive and can’t be trademarked
Surnames Common surnames like “Anderson” or

“Smith” can’t be trademarked
The Process of Obtaining a Trademark

Copyrights
• Copyrights
– 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.
– A work does not have to have artistic merit to be eligible
for copyright protection.
• As a result, things such as operating manuals and sales brochures
are eligible for copyright protection.

• Copyright is a form of intellectual
property law in the U.S., which offers
protection for “original works of
authorship,” whether published or
unpublished. Such original creative works
include: literary works. musical works,
including any accompanying words.

What is Protected By a Copyright?
Literary works Musical compositions
Computer software Dramatic works
Pantomimes and Pictorial, graphic, and

choreographic works sculptural works

• Many types of works are eligible for copyright protection,
for example:
• Audiovisual works, such as TV shows, movies, and
online videos
• Sound recordings and musical compositions
• Written works, such as lectures, articles, books, and
musical compositions
• Visual works, such as paintings, posters, and
advertisements
• Video games and computer software
• Dramatic works, such as plays and musicals
Exclusions From Copyright Protection
• The Idea-Expression Dichotomy

– The main exclusion is that copyright laws cannot protect
ideas.
• For example, an entrepreneur may have the idea to open a soccer-
themed restaurant. The idea itself is not eligible for copyright
protection. However, if the entrepreneur writes down specifically
what his or her soccer-themed restaurant will look like and how it
will operate, that description is copyrightable.
• The legal principle describing this concept is called the idea-
expression dichotomy.
• An idea is not copyrightable, but the specific expression of an idea
is.

Obtaining a Copyright
• How to Obtain a Copyright

– Copyright law protects any work of authorship the moment
it assumes a tangible form.
– Technically, it is not necessary to provide a copyright
notice or register work with the U.S. Copyright Office.
– The following steps can be taken, however, to enhance
copyright protection.
• Copyright protection can be enhanced by attaching the copyright
notice, or “copyright bug” to something.
• Further protection can be obtained by registering the work with the
U.S. Copyright Office.

Copyright Infringement
1 of 2
• Copyright Infringement
– Copyright infringement occurs when one work derives
from another or is an exact copy or shows substantial
similarity to the original work.
– To prove infringement, a copyright owner is required to
show that the alleged infringer had prior access to the
copyrighted work and that the work is substantially similar
to the owner’s.

Copyright Infringement
2 of 2
• The illegal downloading of

music is an example of
copyright infringement.
• Copyright infringement costs
the owners of copyrighted
material an estimated $20
billion per year in the U.S.
alone.

Trade Secrets
• Trade Secrets
– 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, employee rosters, logs of sales calls,
and similar types of proprietary information.
– The Federal Economic Espionage Act, passed in 1996,
criminalizes the theft of trade secrets.

• A trade secret is any practice or process of a company that is generally not
known outside of the company. Information considered a trade secret gives
the company an economic advantage over its competitors and is often a
product of internal research and development.
• any confidential business information which provides an enterprise a
competitive edge may be considered a trade secret. ... The unauthorized
use of such information by persons other than the holder is regarded as an
unfair practice and a violation of the trade secret .
• trade secret includes formulas, patterns, compilations,
programs, devices, methods, techniques, or
processes. Some examples of trade secrets include
customer lists and manufacturing processes.

What Qualifies for Trade Secret Protection?
1 of 2
• Trade Secret Protection

– Not all information qualifies for trade secret protection.
– In general, information that is know to the public or that
competitors can discover through legal means doesn’t
qualify for trade secret protection.
– Companies protect trade secrets through physical measures
and written documents.

What Qualifies for Trade Secret Protection?
2 of 2
The strongest case for trade secret protection is

information that is characterized by the following.
• Is not known outside the company.

• Is known only inside the company on a “need-to-know” basis.
• Is safeguarded by stringent efforts to keep the information
confidential.
• Is valuable and provides the company a competitive advantage
• Was developed at great cost, time, and effort.
• Cannot be easily duplicated, reverse engineered, or
discovered.

Physical Measures for Protecting Trade
Secrets
Restricting access Labeling documents
Password protecting
Maintaining logbooks
confidential computer
for visitors
files
Maintaining logbooks for Maintaining adequate

access to sensitive overall security
material measures

Conducting an Intellectual Property Audit
1 of 2
• Intellectual Property Audit

– The first step a firm should take to protect its intellectual
property is to complete an intellectual property audit.
– An intellectual property audit is conducted to determine the
intellectual property a firm owns.
– There are two reasons for conducting an intellectual
property audit:
• First, it is prudent for a company to periodically determine whether
its intellectual property is being properly protected.
• Second, it is important for a firm to remain prepared to justify its
valuation in the event of a merger or acquisition.

Conducting an Intellectual Property Audit
2 of 2
• The Process of Conducting an Intellectual Property

Audit
– The first step is to develop an inventory of a firm’s existing
intellectual property. The inventory should include the
firm’s present registrations of patents, trademarks, and
copyrights.
– The second step is to identify works in progress to ensure
that they are being documented and protected in a
systematic, orderly manner.

All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher. Printed in the
United States of America.
Copyright ©2012 Pearson Education, Inc.

publishing as Prentice Hall

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Chapter 12

1. Define the term “intellectual property” and describe

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-2

6. Identify the types of material that are eligible for

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-3

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-5

Determine whether the Decide whether the

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-6

Not properly identifying Not fully recognizing

Not using their

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-7

Copyrights Trade Secrets

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-8

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-9

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-10

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-11

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-12

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-13

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-14

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-15

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-16

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Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-18

Type Type of Invention Covered Duration

New or useful process, machine, 20 years from

• Business Method Patent

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-20

1. Keep a Written Record of Your Invention. Record every

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-21

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-22

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-23

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-24

Type Types of Marks Covered Duration

Any word, name, symbol, or device

Similar to trademarks; are used to Renewable every

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-25

Type Types of Marks Covered Duration

Trademarks or service marks used by

Marks, words, names, symbols, or Renewable every

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-26

Words YouTern, PledgeMusic, GiftZip

Numbers 3M, MSNBA, 1-800-FLOWERS

Sounds MGM’s lion’s roar

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-27

Fragrances Stationery treated with a special fragrance

Shapes Unique shape of the Apple iPhone

Colors Nexium—the “purple pill”

Trade dress The layout and décor of a restaurant

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-28

Phrases like “golf ball” and “fried chicken”

Surnames Common surnames like “Anderson” or

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-30

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-31

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-32

Literary works Musical compositions

Computer software Dramatic works

Pantomimes and Pictorial, graphic, and

Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-33

• The Idea-Expression Dichotomy

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• How to Obtain a Copyright

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Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall 12-37