copyright © 2008 by nelson, a division of thomson canada limited entrepreneurship a process...

Copyright © 2008 by Nelson, a division of Thomson Canada Limited

ENTREPRENEURSHIPA PROCESS PERSPECTIVE

Robert A. BaronScott A. ShaneA. Rebecca Reuber

Slides Prepared by:Sandra Malach, University of Calgary


7 Intellectual Property: Protecting Your Ideas

1


LEARNING OBJECTIVES

1. Explain why product development in new firms is difficult, but why new firms tend to be better than established firms at product development in most industries.

2. Explain why established firms find it easy to imitate entrepreneurs’ intellectual property quickly and at a low cost.

3. Define a patent, explain what conditions are necessary for an inventor to patent an invention, and outline the pros and cons of patenting.


LEARNING OBJECTIVES

4. Define an industrial design, explain what conditions are necessary for an invention to be an industrial design.

5. Define a trade secret, explain what conditions are necessary for an invention to be a trade secret, and outline the pros and cons of trade secrets.

6. Define a trademark, describe why trademarks are useful to entrepreneurs, and explain how an entrepreneur can obtain a trademark.


LEARNING OBJECTIVES

7. Define a copyright, and describe how it protects an entrepreneur’s intellectual property.

8. Describe a first-mover advantage and explain the conditions under which it provides a useful form of intellectual property protection.

9. Describe complementary assets, and explain when it is better for an entrepreneur to obtain control over complementary assets than to be innovative.


“Every man with an idea has at least two or three followers.”

--Brooks AtkinsonOnce Around the Sun, 1951


INTELLECTUAL PROPERTY

The core ideas about a new product or service

The only major advantage (most of the time) new ventures have over established firms


THE PRODUCT DEVELOPMENT PROCESS

A difficult and uncertain process Solution must be produced and

marketed for less than the customer is willing to pay

May result in something different than people set out to produce


ESTABLISHED FIRM ADVANTAGES

Better at manufacturing Better access to capital Tacit knowledge from experience Economies of scale Better at marketing Established reputations Established customers


NEW FIRM ADVANTAGES

Superior product development Develop new products cheaper and

easier No bureaucratic structures and

rules in place Better incentives for employees Greater flexibility


WHY NEW FIRMS LOSE AT PRODUCT DEVELOPMENT

The typical unpatented process innovation can be copied at less than 50% of the cost of developing the original innovation more than 40% of the time.

(Richard Levin)


WHY IS IMITATION SO EASY?

Competitors have a variety of methods for imitating intellectual property:

Reverse engineering Hiring employees or suppliers from

the entrepreneur Assigning staff to copy the new

product


PATENTS

To obtain a patent, an invention must: Be novel Not be obvious to a person in the field Be useful Not publicly disclosed for more than 1

year prior to the date of filing.


WHAT CAN YOU PATENT?

YES Process Method Machine Chemical formula Design

NO Business method Something that

doesn’t work Most software Life Form


THE PATENT PROCESS File an Initial Application with CIPO

Determine prior art (novelty) Determine claims carefully

Submit a full application Application becomes public 18 months

after initial filing date. Patent valid for 20 years from

application date www.cipo.gc.ca


ADVANTAGES OF PATENTS

Helps to raise capital by demonstrating competitive advantage

Raises the cost of imitation Provides a monopoly right Prevents a second party from using

the invention as a trade secret


DISADVANTAGES OF PATENTS Cost (min. approx $15K) Requires disclosure of the invention Provides only a 20 year monopoly Can be circumvented Difficult and costly to defend Less effective for most types of technology Can be irrelevant if technology is fast moving Requires patents for each individual country


INDUSTRIAL DESIGN

Features of shape, configuration, pattern or ornamental design

Purely decorative in nature Term 10 years Application must be submitted

within 12 months of disclosure. Mark with (D), name of owner


TRADE SECRETS A piece of knowledge that confers an

advantage on a firm and is protected by non-disclosure agreements and processes.

Protect a competitive advantage without disclosing how an underlying technology works


DISADVANTAGES OF TRADE SECRETS

Must be kept hidden to remain valuable

Doesn’t provide a monopoly right To enforce and claim damages in

court, must show a loss of competitive advantage or breach of contract


TRADEMARKS

A word, phrase, symbol, design that distinguishes the goods and services of one company from those of another

Obtained by using the mark or filing an application

Term 15 years, renewable Application to CIPO.


COPYRIGHTS

A form of intellectual property protection provided to the authors of original works of authorship

Protect the right to reproduce, further derive, copy, or display the protected item

Advantages to filing but not required. Term: life of the author + 50 years.


FIRST MOVER ADVANTAGE: The Advantage of Speed and Timing

The first to offer a product in a particular market

Lead-time advantage Locations Suppliers

Learning curve advantage


FIRST MOVER ADVANTAGE

Conditions for First Mover advantage: They control scarce or intangible assets More customers result in increased value Switching costs People are content with the status quo Reputations are important The learning curve for production is

proprietary


WILL A NEW COMPANY PROFIT?

Three factors determine whether a new company will profit from introducing a new product:

The ability to secure a strong patent The absence of a dominant design The presence of complementary

assets in marketing and distribution


WHICH IS MOST IMPORTANT?Complementary Assets Are More Important…

Being Innovative Is More Important…

When patents are not very effective

When patents are very effective

When a dominant design exists

Before a dominant design exists

When learning curves are shallow or not proprietary

When learning curves are steep or proprietary

When knowledge is codified When knowledge is tacit

When products are observable

When products are not observable

copyright © 2008 by nelson, a division of thomson canada limited entrepreneurship a process...

Documents

new firms

established firms

product development

university of calgary

new products cheaper

time new ventures

manufacturing better

place better incentives