VIII.

Intellectual Property

1. What distinguishes intellectual property from other types of property, such as land,
buildings, inventory? Provide several examples of intellectual property and describe their
importance to a firm.

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

Example in firm
• Marketing: Names, slogans, logos, jingles, advertisements, brochures, pamphlets, ad copy
under development, customer lists, prospect lists, and similar items. The usual methods
of protection is Trademark, copyright, and trade secret
• Management: Recruiting brochures, employee handbooks, forms and checklists used by
recruiters in qualifying and hiring candidates, written training materials, and company
newsletters. The usual methods of protection is Copyright and trade secret
• Finance: Contractual forms, PowerPoint slides describing the company’s financial
performance, written methodologies explaining how the company handles its finances,
and employee pay records. The usual methods of protection is Copyright and trade secret
• Management information systems: Web site design, Internet domain names, company-
specific training manuals for computer equipment and software, original computer code,
e-mail lists, name registry. The usual methods of protection is Copyright, trade secret,
and Internet domain
• Research and development: New and useful inventions and business processes,
improvements to existing inventions and processes, and laboratory notes documenting
invention discovery dates and charting the progress on various projects. The usual
methods of protection is Patent and trade secret

2. What are the major differences between utility patents and design patents? Provide an
example of each.

• Utility patents are the most common type of patent and cover what we generally think of
as new inventions. Of the 509,367 patent applications filed in 2010, 94 percent were for
utility patents. Utility patents are the most common type of patent and cover what we
generally think of as new inventions. Of the 509,367 patent applications filed in 2010, 94
percent were for utility patents. Consider the pharmaceutical industry. Assume a drug
produced by a large firm such as Pfizer Inc. is prescribed for you and that, when seeking
to fill the prescription, your pharmacist tells you there is no generic equivalent available.
The lack of a generic equivalent typically means that a patent owned by Pfizer protects
the drug and that the 20-year term of the patent has not expired. If the pharmacist tells you
there is a generic version of the drug available, that typically means the 20-year patent has
expired and other companies are now making a drug chemically identical to Pfizer’s. The
price of the generic version of the drug is generally lower because the manufacturer of the
generic version of the drug is not trying to recover the costs Pfizer (in this case) incurred
to develop the product (the drug) in question.
• Design patents are the second most common type of patent and cover the invention of
new, original, and ornamental designs for manufactured products. 13 Of the 509,367
patent applications filed in 2010, 5.6 percent were for design patents. 14 A design patent
is good for 14 years from the grant date. While a utility patent protects the way an
invention is used and works, a design patent protects the way it looks. As a result, if an
entrepreneur invented a new version of the computer mouse, it would be prudent to apply
for a utility patent to cover the way the mouse works and for a design patent to protect the
 way the mouse looks. Although all computer mice perform essentially the same function,
they can be ornamentally designed in an infinite number of ways. As long as each new
design is considered by the USPTO to be novel and nonobvious, it is eligible for design
patent protection. This is not a trivial issue in that product design is increasingly becoming
an important source of competitive advantage for many firms producing many
different types of products.

3. What is a business method patent? Provide an example of a business method patent and
explain how having a business method patent can provide a firm a competitive advantage
in the marketplace.

• A business method patent is a patent that protects an invention that is or facilitates a

method of doing business. Patents for these purposes were not allowed until 1998, when
a federal circuit court issued an opinion allowing a patent for a business method, holding
that business methods, mathematical algorithms, and software are patentable as long as
they produce useful, tangible, and concrete results. Priceline.com’s “name-your-price”
business model, and Netflix’s method for allowing customers to set up a rental list of
movies they want mailed to them or that they wish to download for streaming purposes.
Activities associated with a business method patent can be an important source of
competitive advantage for a firm.

4. Give an example of a design patent. Explain how having a design patent can provide a
firm a competitive advantage in the marketplace.

• Design patents are the second most common type of patent and cover the invention of
new, original, and ornamental designs for manufactured products. 13 Of the 509,367
patent applications filed in 2010, 5.6 percent were for design patents. 14 A design patent
is good for 14 years from the grant date. While a utility patent protects the way an
invention is used and works, a design patent protects the way it looks. As a result, if an
entrepreneur invented a new version of the computer mouse, it would be prudent to apply
for a utility patent to cover the way the mouse works and for a design patent to protect the
way the mouse looks. Although all computer mice perform essentially the same function,
they can be ornamentally designed in an infinite number of ways. As long as each new
design is considered by the USPTO to be novel and nonobvious, it is eligible for design
patent protection. This is not a trivial issue in that product design is increasingly becoming
an important source of competitive advantage for many firms producing many different
types of products.

5. What is trademark? Provide several examples of trademarks and describe how they help a
firm establish a competitive advantage in the marketplace.

• 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. All
businesses want to be recognized by their potential clientele and use their names, logos,
and other distinguishing features to enhance their visibility. Trademarks also provide
consumers with useful information. For example, consumers know what to expect when
they see a Macy’s store in a mall. Think of how confusing it would be if any retail store
could use the name Macy’s.
6. What are the three steps involved in selecting and registering a trademark?
• Step 1: Select an appropriate mark. There are several rules of thumb to help business
owners and entrepreneurs select appropriate trademarks. First, a mark, whether it is a
name, logo, design, or fragrance, should display creativity and strength.
• Step 2: Perform a trademark search. Once a trademark has been selected, a trademark
search should be conducted to determine if the trademark is available. If someone else has
already established rights to the proposed mark, it cannot be used. There are several ways
to conduct a trademark search, from self-help searches to hiring a firm specializing in
trademark clearance checks.
• Step 3: Create rights in the trademark. The final step in establishing a trademark is to create
rights in the mark. using the mark merely begins the process of developing a secondary
meaning necessary to create full trademark protection. Secondary meaning arises when,
over time, consumers start to identify a trademark with a specific product.

7. What is copyright?

• 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

8. 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 Indonesia?
Explain.

• Copyright infringement is a growing problem in the United States and in other countries,
with estimates of the costs to owners at more than $20 billion per year.
• Copyright infringement occurs when one work derives from another, 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.
• For example, a technique frequently used to guard against the illegal copying of software
code is to embed and hide in the code useless information, such as the birth dates and
addresses of the authors. It’s hard for infringers to spot useless information if they are
simply cutting and pasting large amounts of code from one program to another. If software
code is illegally copied and an infringement suit is filed, it is difficult for the accused party
to explain why the (supposedly original) code included the birth dates and addresses of its
accusers. Similarly, some publishers of maps, guides, and other reference works will
deliberately include bits of phony information in their products, such as fake streets,
nonexistent railroad crossings, and so on, to try to catch copiers. Again, it would be pretty
hard for someone who copied someone else’s copyrighted street guide to explain why the
name of a fake street was included.

9. What is trade secret? Provide an example of a trade secret and describe how it helps a firm
establish a competitive advantage in the marketplace.

• 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 laboratory notebooks. The medium in which
information is stored typically has no impact on whether it can be protected as a trade
secret. As a result, written documents, computer files, audiotapes, videotapes, financial
 statements, and even an employee’s memory of various items can be protected from
unauthorized disclosure.

10. What information does not qualify for trade secret protection? Make your answer as
thorough as possible.

• Not all information qualifies for trade secret protection. In general, information that is
known to the public or that competitors can discover through legal means doesn’t qualify
for trade secret protection. If a company passes out brochures at a trade show that are
available to anyone in attendance, nothing that is in the brochure can typically qualify as
a trade secret.
• he strongest case for trade secret protection is information that is characterized by the
following:
o Is not known outside the company
o Is known only inside the company on a “need-to-know” basis
o Is safeguarded by stringent efforts to keep the information confidential
o Is valuable and provides the company a compelling competitive advantage
o Was developed at great cost, time, and effort
o Cannot be easily duplicated, reverse engineered, or discovered.

11. What types of physical measures do firms take to protect their trade secrets?

• Restricting access: Many companies restrict physical access to

confidential material to only the employees who have a “need to know.” For example,
access to a company’s customer list may be restricted to key personnel in the marketing
department.
• Labeling documents: Sensitive documents should be stamped or labeled “confidential,”
“proprietary,” “restricted,” or “secret.” If possible, these documents should be secured
when not in use. Such labeling should be restricted to particularly sensitive documents. If
everything is labeled “confidential,” there is a risk that employees will soon lose their
ability to distinguish between slightly and highly confidential material.
• Password protecting confidential computer files: Providing employees with clearance to
view confidential information by using secure passwords can restrict information on a
company’s computer network, Web site, or intranet. Companies can also write-protect
documents to ensure that employees can read but not modify certain documents.
• Maintaining logbooks for visitors: Visitors can be denied access to
confidential information by asking them to sign in when they arrive at a company facility,
wear name badges that identify them as visitors, and always be accompanied by a company
employee.
• Maintain logbooks for access to sensitive material: Many companies maintain logbooks
for sensitive material and make their employees “check out” and “check in” the material.
• Maintaining adequate overall security measures: Commonsense measures are also helpful.
Shredders should be provided to destroy documents as appropriate. Employees who have
access to confidential material should have desks and cabinets that can be locked and
secured. Alarms, security systems, and security personnel should be used to protect a
firm’s premises.