INTRODUCTION TO INTELLECTUAL PROPERTY March 19, 2009

Preliminary Note The topics covered today are generally addressed in Entrepreneurship: How to Start and Operate a Small Business, published by the National Foundation for Teaching Entrepreneurship, Inc. (NFTE). This presentation has been designed with the NFTE curriculum in mind, and is intended to provide additional information with respect to entrepreneurship and human resources issues for a growing business.

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What is Intellectual Property?

• We are all familiar with the concept of property, mostly with respect to two types: – Real property: land and territory – Personal property: all of your personal possessions

• These types of property are known as “tangible” property • All of your businesses will have some form of tangible property (equipment, books, etc.) 3

What is Intellectual Property?

• Intellectual property is different – it is sometimes referred to as “intangible” property. • Some have estimated that more than 80 percent of the value of a company comes from its intellectual property. • It is obviously important to the success of a company, but many don’t know how to identify it, let alone protect it. 4

Intellectual Property Example 1 One day while riding a train, Joanne has an idea for a new story. It is about a boy wizard named Larry who goes to a school to learn about wizardry. She furiously writes her story in her notebook and signs her name and writes the date to remember the big day. When she gets off the train, though, she accidentally leaves the notebook behind. Don Malfoy, who was watching Joanne, picks up the book and immediately realizes that it would be a big hit. Malfoy takes the notebook and publishes it under his own name. The book is very successful, and it becomes the subject of a major motion picture. Joanne, having forgotten about the story, goes to see the movie and immediately knows that someone stole her story. She goes to her lawyer to see what she can do. 5

Copyright Basics • Joanne’s work is protected under the branch of intellectual property known as COPYRIGHT. • Copyright protects the expression of an idea in a tangible medium. These are referred to as “works of authorship.” Examples: – Literary works (books, writings, computer code, etc.) – Pictorial, graphic, sculptural works (photographs, paintings, sculptures) – Musical and dramatic works (music, lyrics, plays) – Motion picture and sound recordings – Architectural works (house plans) 6

Copyright Basics • Important: copyright protects the expression of the idea – NOT the idea itself • It’s designed to protect “copying” – if someone independently comes up with a similar idea, that’s OK – so long as they didn’t copy from you. – This leads to some interesting cases.

• Copyright rights attach immediately when the work is made – you don’t need to register it with the government (although you should before you sue someone) – Commonly denoted with the “circle C”: © 7

Copyright Basics • The owner of a copyright can prevent the following types of activities, among others: – Copying (duh!) – Preparation of derivative works – Distribution of copies by sale, lease, rental – Public performance of the work – Public display

• Exception: fair use 8

Copyright Basics • Lots of interesting scenarios – – – – –

Music downloading (Napster, Grokster) Music sampling Parodies Criticism Academic Study

• Duration: essentially forever – 70 years after the death of the author; for companies, 95 years from publication or 120 years from creation (whichever comes first) 9

Intellectual Property Example 2 • Pizza Temple comes up with a new brand image. All of its store locations are redesigned and include a distinctive and instantly-recognizable roof design. PT spends lots of money advertising its new image and design. PT has always prided itself on the consistent quality of its product. Bob owns a competing pizza restaurant in Joliet, Illinois, and his sales have been sagging since PT came to town. Part of his problem is simply that his pizza isn’t very good (and once, about a year ago, there was a salmonella outbreak that was traced back to his restaurant). One day he has a brainstorm. He will redesign the outside of his store so that it looks just like a PT store, but he’ll call it Pizza Castle. His plan is that customers driving by will recognize the distinctive roof and will stop in. Even if they realize their mistake when they get there, hey, they’re hungry and will probably stay to eat. Sure enough, his business got a big boost. PT is understandably less than pleased. 10

Trademark Basics • Pizza Temple has TRADEMARK rights that Bob is infringing (and more specifically, trade dress rights, which we’ll talk about later). • Trademarks are designed to prevent confusion as to the source of goods or services. – You are not allowed to obtain a competitive advantage using the hard work of your competitors by confusing the public. – Companies spend a lot of money “branding” their products, so that the first thing that pops into someone’s mind when they see a product is that company.

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Trademark Basics • Definitions – Trademark: a word, name, symbol, or device used by a manufacturer or merchant to identify the source of its goods and/or services to distinguish them from the goods/services of others – Service Mark: a trademark for services – Trade Dress: the visual appearance of a product or packaging (can also extend to buildings like the Pizza Temple roof)

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Trademark Basics • Types of trademarks and service marks – Words (“Kodak”) – Logos (McDonald’s “Golden Arches”) – Phrases (Nike’s “Just Do It”) – Sounds (the NBC tones) – Colors (Pink for Owens-Corning fiberglass insulation) – Shapes (the Coca-Cola bottle)

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Trademark Basics • Trademarks identify the company or product • Trademarks prevent customers from confusing your product with your competitors • Trademarks can add value when they become associated with value or fashion – For example, would you pay more for a Gucci purse? Nike shoes? Sean John shirts?

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Trademark Basics • How is a trademark obtained? – – – –

Create (select) a “distinctive” trademark Conduct a trademark search Use the trademark in commerce File Intent-to-Use (ITU) Application (eventually must prove use)

• What do you get? – Right to stop others from confusing the public (injunction) – Damages

• Duration: Forever, or until the mark loses its distinctiveness or associate with a company (example: Xerox)

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Top Trademark Brands 1. Google worth $86 Billion 2. General Electric worth $71.4 Billion 3. Microsoft worth $70.89 Billion 4. Coca-Cola worth $58.2 Billion 5. China Mobile worth $57.2 Billion

6. IBM worth $55.3 Billion 7. Apple worth $55.2 Billion 8. McDonalds worth $49.49 Billion 9. Nokia worth $43.9 Billion 10.Marlboro worth $37.3 Billion 16

Intellectual Property Example 3 • Lieutenant Abe Sanders, fresh from the front lines, comes home to Alabama and starts a restaurant that specializes in very tasty broasted chicken. He calls his restaurant Alabama Broasted Chicken (ABC for short). The formula for his chicken is a closely guarded secret that he worked very hard to perfect. He keeps the formula in a locked safe in his office, and only trusts two employees with the combination. One of them, Tom Davis, is growing increasingly dissatisfied being “second fiddle,” and wants to start his own restaurant. He copies the secret formula on a sheet of paper and quits the same day. Two months later, Abe is shocked to hear from one of his customers that he has competition, and the chicken is just as good at Tom’s new restaurant, which he names after his only son, Wendell. Abe is not happy. 17

Trade Secret Basics • Abe may be able to rely on TRADE SECRET protection. He will claim that Tom “misappropriated” (i.e., stole) the trade secret. • A trade secret is anything in a business that gives the business a competitive advantage, and that is not generally known to the public: – Formulas and manufacturing processes – Customer lists – Business strategies – Other? 18

Trade Secret Basics • Trade secrets do not “just happen” – First must create (develop) “secret information” – Then must maintain secrecy of information in a manner that is reasonable under the circumstances • For example, utilize employment agreements (e.g., noncompete and/or confidentiality provisions) • Lock the information in a safe and control access • “Wall off” part of your factory so that people can’t just walk through and observe • Don’t give everyone the complete information – employees might have one piece of the information, but not the others (brake compounding)

• Duration: Forever, so long as the information is maintained as a secret 19

Trade Secret Basics • There is one BIG downside • “Reverse Engineering” is OK – If a competitor can pick up your product and figure out the trade secret (e.g., how it was made, what material it’s made of, etc.), there is nothing to stop them from doing the same thing. – Trade secrets really only prevent someone from taking your secret after you have told it to them (think of it as a violation of trust).

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Intellectual Property Example 4 • Tangerine Enterprises has created a new music player that will revolutionize the industry. The player has a touch screen and a unique scroll wheel that can be used to quickly page through the music library. The player uses a set of very unique internal components that were custom made for the product (they’re not secret, though, since you can just take the player apart and figure out how to make them simply by looking at them). A competing company, iDidit, comes out with a competing music player that has many of the same features, and uses nearly identical components. Tangerine finds out about the new device, and wants to stop iDidit from selling its competing device. 21

Patent Law Basics • Tangerine may be able to assert its PATENT rights against iDidit. • Patents have a limited duration: 20 years from the date that you file your patent application. However, they provide the strongest form of intellectual property protection.

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Patent Law Basics • What may be patented? “Anything under the sun made by man.” – Utility patents • Processes (e.g., methods of manufacture) • Machines (e.g., manufacturing equipment) • Manufacture (e.g., products that you make) • Compositions of matter (e.g., materials) • Including improvements of the above – Also: • Design patents: Ornamental designs for articles of manufacture (e.g., the shape of a soda bottle). Similar to trade dress protection. • Plant patents: Asexually reproduced plants

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Patent Law Basics • And when I say anything, I mean it:

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Patent Law Basics • What exactly is a patent? – A patent gives you the right to stop others from making, using, selling, or importing products that use the invention. – Important: a patent doesn’t give you the right to do anything – it only gives you the right to prevent others from doing something. Think of the fence around your yard that prevents others from entering – you can’t do anything you want within the yard, though

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Patent Law Basics • Patents can be used in many ways – Stop others from making your product – License your idea for a royalty fee – Stop others from advancing ahead of you – Enhance value of a company – Force competitors to “design around” your patent – make them spend time and money that otherwise would go to R&D

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Patent Law Basics • Must be “useful” – Like a scuba diving suit for a dog!

• Must be “novel” – the exact same thing cannot have been done before

• Must be “non-obvious” – one of “ordinary skill in the art” would not have thought to do it based on what was known at the time

• Basically, you can’t get a patent if someone else has done it before you. 27

Patent Law Basics • How do you know if someone has done it before? – One way: internet searching – Another: search the U.S. Patent & Trademark Office Website (www.uspto.gov). – Do nothing and wait for the patent examiner to find “prior art” patents – then try to argue that your invention is different

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Patent Law Basics • Several steps to get a patent (3-5 years): – Conceive an idea – Conduct patentability search (optional) – Prepare a patent application – “Prosecute” patent application • Goal: convince patent examiner at the patent office that the idea is patentable

– Pay lots of government fees (filing fee, issue fee, publication fee, maintenance fees, etc.). 29

Patent Law Basics • Once you have your patent, you essentially have a government-sanctioned monopoly on your invention. Unlike copyright, you get to protect the idea itself – not just its expression. • Key point: protects against reverse engineering. Even if someone could look at your product and figure out how to make it, if you have a patent, they are not allowed to do so. – Much stronger than trade secret protection in this regard. – Tradeoff: limited duration of 20 years, while a trade secret could potentially last forever if the secret is maintained. 30

Questions and Answers

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