Chapter 12 - The Importance of Intellectual Property

The Importance of Intellectual Property
Intellectual property is any product of the 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. Traditionally, businesses have thought of their physical assets such as land, buildings, and equipment as their most important assets. Increasingly, however, a company’s intellectual assets are the most valuable.

A. Determining What Intellectual Property to Legally Protect
There are two primary rules of thumb for deciding if intellectual property protection should be pursued for a particular intellectual asset.

First, a firm should determine if the intellectual property in question is directly related to its competitive advantage.

The second primary criterion for deciding if intellectual property protection should be pursued is to determine whether an item has value in the marketplace.

B. The Four Key Forms of Intellectual Property
Patents, trademarks, copyrights, and trade secrets are the four key forms of intellectual property.

While not one of the four forms of intellectual property, Internet domain names are an important form of intellectual property. Having a short, easy-to-spell Internet domain name is becoming increasingly important as the Internet becomes an ever more powerful force in business.

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.

A. Types of Patents
There are four types of patents: utility patents, business method patents, design patents, and plant patents.

There are three basic requirements for a patent to be granted: The subject of the patent application must be (1) useful, (2) novel in relation to prior arts in the field, and (3) not obvious to a person of ordinary skill in the field.

1. Utility patents
New and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”

Duration of this patent is 20 years from the date of the original application

2. Business method patent
Protects an invention that is or facilitates a method of doing business.

3. Design patents 

The invention of new, original, and ornamental designs for manufactured products.

Duration of this patent is 14 years from the date of the original application

4. Plant patents
Plant patents protect new varieties of plants that can be reproduced asexually.

Duration of this patent is 20 years from the date of the original application

B. Who Can Apply for a Patent?
Only the inventor of a product can apply for a patent. If two or more people make an invention jointly, they must apply for the patent together.

C. The Process of Obtaining a Patent
Here are the 6 steps to obtain a patent:
Step 1: Make sure the invention is practical.
Step 2: Determine what 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 official institution.

D. Patent Infringement
Patent infringement takes place when one party engages in the unauthorized use of another party’s patent.

Trademarks
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.

A. The Four Types of Trademarks
There are four types of trademarks: trademarks, service marks, collective marks, and certification marks. Every type trademark is renewable every 10 years, as long as the mark remains in use 

Trademark: Any word, name, symbol, or device used to identify and distinguish one company’s goods from another.

Service mark: Used to identify the services or intangible activities of a business, rather than a business’s physical products

Collective mark: Trademarks or service marks used by the members of a cooperative, association, or other collective groups

Certification mark: Marks, words, names, symbols, or devices used by a person other than its owner to certify a particular quality about a good or service

B. What Is Protected Under Trademark Law?
Trademark law, which falls under the Lanham Act, passed in 1946, protects the following items:

• Words
• Number and letters
• Design or logos
• Sounds
• Fragrances
• Shapes
• Colors
• Trade dress

C. Exclusions from Trademark Protection
There are notable exclusions from trademark protection that are set forth in the U.S. Trademark Act:

• Immoral or scandalous matter
• Deceptive matter
• Descriptive marks
• Surnames

D. The Process of Obtaining a Trademark
There are three steps in selecting and registering a trademark: 
Step 1: Select an appropriate mark.
Step 2: Perform a trademark search.
Step 3: Create rights in the trademark.

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. What Is Protected by a Copyright?
The primary categories of material that can be copyrighted follow:

• Literary works
• Musical compositions
• Computer software
• Dramatic works
• Pantomimes and choreographic works
• Pictorial, graphic, and sculptural works

Other categories of items covered by copyright law include motion pictures and other audiovisual works, sound recordings, and architectural works.

B. Exclusions from Copyright Protection
The main exclusion is that copyright laws cannot protect ideas.

Other exclusions from copyright protection include facts (e.g., population statistics), titles (e.g., Introduction to Entrepreneurship), and lists of ingredients (e.g., recipes).

C. How to Obtain a Copyright
Step 1: copyright protection can be enhanced for anything written by attaching the copyright notice, or “copyright bug” as it is sometimes called. The bug typically appears in the following form of ©.
Step 2: Further protection can be obtained by registering a work with the official institution. Filing a simple form and depositing one or two samples of the work with the official institution completes the registration process.

D. Copyright Infringement
Copyright infringement is a growing problem, with estimates of the costs to owners at more than $25 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.

E. Copyright and the Internet
Copyright laws, particularly as they apply to the Internet, are sometimes difficult to follow, and it is easy for people to dismiss them as contrary to common sense.

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 laboratory notebooks.

A. What Qualifies for Trade Secret Protection?
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 compelling competitive advantage
• Was developed at great cost, time, and effort
• Cannot be easily duplicated, reverse engineered, or discovered

B. Trade Secret Disputes
Trade secret disputes arise most frequently when an employee leaves a firm to join a competitor and is accused of taking confidential information along.

A company damaged by trade secret theft can initiate a civil action for damages in court. The action should be taken as soon after the discovery of the theft as possible.

C. Trade Secret Protection Methods
Aggressive protection of trade secrets is necessary to prevent intentional or unintentional disclosure.

1. Physical Measures
The following are examples of commonly used physical measures for protecting trade secrets:

• Restricting access
• Labeling documents
• Password protecting confidential computer files
• Maintaining logbooks for visitors
• Maintain logbooks for access to sensitive material
• Maintaining adequate overall security measures

2. Written Agreements
For the best protection, a firm should ask its employees to sign nondisclosure and noncompete agreements.

Conducting an Intellectual Property Audit
A. Why Conduct an Intellectual Property Audit?
There are two primary reasons for conducting an intellectual property audit:

• It is prudent for a company to periodically determine whether its intellectual property is being properly protected.
• To remain prepared to justify its value in the event of a merger or acquisition.

B. The Process of Conducting an Intellectual Property Audit
Step 1: Develop an inventory of a firm’s existing intellectual property.
Step 2: Identify works in progress to ensure that they are being documented in a systematic, orderly manner.
Step 3: Specify the firm’s key trade secrets and describe how they are being protected.

Chapter 11 - Unique Marketing Issues

Selecting a Market and Establishing a Position
When starting a firm we should ask these questions.

A. Segmenting the Market
What groups of customers in my market are similar enough that the same product or service will appeal to all of them?

B. Selecting a Target Market
Which specific group of customers have I decided to target?

C. Crafting a Unique Market Position
What position will my firm occupy in the minds of my customers (and potential customers) that will differentiate it from all of my competitors?

Branding
A brand is the set of attributes—positive or negative—that people associate with a company. These attributes can be positive, such as trustworthy, innovative, dependable, or easy to deal with. Or they can be negative, such as cheap, unreliable, arrogant, or difficult to deal with.

Here are different ways of thinking about the meaning of a brand.

• A brand is a promise to serve stakeholders’ interests.
• A brand is a firm’s guarantee of a level of performance.
• A brand indicates the promises a firm makes to those it serves.
• A brand expresses a firm’s reputation.
• A brand presents a firm’s credentials.
• A brand is an indicator of trust and reduced risk.
• A brand describes a company’s nature.
• A brand serves as a handshake between a firm and its customers.

A firm must have meaning in its customers’ lives. It must create value.

Brands are built through a number of techniques, including advertising, public relations, sponsorships, support of social causes, social media, and good performance. A firm’s name, logo, website design, Facebook page, and even its letterhead are part of its brand. It’s important for start-ups, particularly if they plan to sell to other businesses, to have a polished image immediately so that they have credibility when they approach their potential customers.

Most experts warn against placing an overreliance on advertising to build a firm’s brand. A more affordable approach is to rely on word of mouth, the media, and ingenuity to create positive buzz about a company. Creating buzz means creating awareness and a sense of anticipation about a company and its offerings.

The 4Ps of Marketing for New Ventures
Once a company decides on its target market, establishes a position within that market, and establishes a brand, it is ready to begin planning the details of its marketing mix. A firm’s marketing mix is the set of controllable, tactical marketing tools that it uses to produce the response it wants in the target market.

A. Product
A firm’s product, in the context of its marketing mix, is the good or service it offers to its target market. Technically, a product is something that takes on physical form, such as an Apple iPhone, a bicycle, or a solar panel.

A service is an activity or benefit that is intangible and does not take on a physical form, such as an airplane trip or advice from an attorney. But when discussing a firm’s marketing mix, both products and services are lumped together under the label “product.”

B. Price

The number of money consumers pays to buy a product. It is the only element in the marketing mix that produces revenue; all other elements represent costs.

1. Cost-Based Pricing
The list price is determined by adding a markup percentage to a product’s cost. The markup percentage may be standard for the industry or maybe arbitrarily determined by the entrepreneur.

2. Value-Based Pricing
The list price is determined by estimating what consumers are willing to pay for a product and then backing off a bit to provide a cushion. What a customer is willing to pay is determined by the perceived value of the product and by the number of choices available in the marketplace.

C. Promotion
The activities the firm takes to communicate the merits of its product to its target market. The goal of these activities is to persuade people to buy the product.

1. Advertising
Making people aware of a product in hopes of persuading them to buy it. Advertising’s major goals are to:

• Raise customer awareness of a product
• Explain a product’s comparative features and benefits
• Create associations between a product and a certain lifestyle

However, advertising has some major weaknesses, including the following:

• Low credibility
• The possibility that a high percentage of the people who see the ad will not be interested
• Message clutter (meaning that after hearing or reading so many ads, people simply tune out)
• Relative costliness compared to other forms of promotions
• The perception that advertising is intrusive

6 steps in putting together an advertisement

Step 1: Identify the purpose of the ad

Step 2: Determine the target audience

Step 3: Select a medium

Step 4: Create the ad

Step 5: Select a place and time for the ad to appear

Step 6: Fulfill expectations

2. Public Relations
Public relations refers to efforts to establish and maintain a company’s image with the public. The major difference between public relations and advertising is that public relations are not paid for directly. The cost of public relations to a firm is the effort it takes to network with journalists, blog authors, and other people to try to interest them in saying or writing good things about the company and its products.

3. Social Media
The use of social media consists primarily of blogging and establishing a presence and connecting with customers and others through social networking sites such as Facebook or Twitter.

4. Other Promotion-Related Activities
A fairly new technique that has received quite a bit of attention is viral marketing, which facilitates and encourages people to pass along a marketing message about a particular product.

A technique related to both viral marketing and creating buzz is guerrilla marketing. Guerrilla marketing is a low-budget approach to marketing that relies on ingenuity, cleverness, and surprise rather than traditional techniques.

D. Place (or Distribution)
Place, or distribution, encompasses all the activities that move a firm’s product from its place of origin to the consumer. A distribution channel is a route a product takes from the place it is made to the customer who is the end-user.

1. Selling Direct
Being able to control the process of moving their products from their place of origin to the end-user instead of relying on third parties is a major advantage of direct selling.

The disadvantage of selling direct is that a firm has more of its capital tied up in fixed assets because it must own or rent retail outlets, must maintain a sales force, and/or must support an e-commerce website. It must also find its own buyers rather than have distributors that are constantly looking for new outlets for the firm’s products.

The advent of the Internet has changed how many companies sell their products. Many firms that once sold their products exclusively through retail stores are now also selling directly online. The process of eliminating layers of middlemen, such as distributors and wholesalers, to sell directly to customers is called disintermediation.

2. Selling Through Intermediaries
Firms selling through intermediaries typically pass off their products to wholesalers or distributors that place them in retail outlets to be sold. An advantage of this approach is that the firm does not need to own as much of the distribution channel.

The disadvantage of selling through intermediaries is that a firm loses a certain amount of control of its product.

Some firms enter into exclusive distribution arrangements with channel partners. Exclusive distribution arrangements give a retailer or other intermediary the exclusive rights to sell a company’s products.

The advantage of giving out an exclusive distribution agreement is to motivate a retailer or other intermediary to make a concerted effort to sell a firm’s products without having to worry about direct competitors.

Sales Process and Related Issues
A firm’s sales process depicts the steps it goes through to identify prospects and close sales.

7 steps in Sales Process and Related Issues

Step 1: Prospects for (or gather) sales leads

Step 2: Make the initial contact

Step 3: Qualify the lead

Step 4: Make the sales presentation

Step 5: Meet objections and concern

Step 6: Close the sale
Step 7: Follow up