INTELLECTUAL PROPERTYAND

UNFAIR COMPETITION

Stephen Ong, BSc(Hons) Econs (LSE), MBA International Business(Bradford)

Visiting Fellow, Birmingham City UniversityVisiting Professor, Shenzhen University

MBA1034 GOVERNANCE, LAW & ETHICS

• Discussion: CEO Pay1

• Intellectual Property & Unfair Competition2

• Case Discussion : Patent Games - Plavix3

Today’s Overview

1. Open Discussion

• Gabaix, Xavier, Landier, Augustin and Sauvagnat, Julien (2013) CEO pay and firm size: an update after the crisis,NBER working paper 19078, May 2013

2.1 INTELLECTUAL PROPERTY

Overview

• Introduction to Intellectual property

• Intellectual property protection• Trade secret• Patent• Copyright• Trademarks

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.

SPOT the DIFFERENCE

8

Patent Litigation

Source: bbc.co.uk 30th August 2005

Creative wins MP3 player patent

One of Apple's main rivals, Creative Technology, has

been awarded a patent in the US for the interface

used on many digital music players.

"The first portable media player based upon the user interface covered in our Zen Patent was our Nomad Jukebox MP3 player," said Creative

CEO Sim Wong Hoo. "The Apple iPod was only announced in October 2001, 13 months after

we had been shipping the Nomad Jukebox based upon the user interface covered by our Zen Patent."

In its press release, Creative said Apple had filed for a patent for a user interface in a multimedia player in late 2002, but its application had

been recently rejected.On 24 August 2006, Apple and Creative announced a broad settlement to end their legal disputes. Apple will pay Creative US$100 million for a paid-up license, to use Creative's awarded patent in all Apple products.

As part of the agreement, Apple will recoup part of its payment, if Creative is successful in licensing the patent. 

9

Automatic hierarchical categorization of music by metadata

Patent number: 6928433Filing date: Jan 5, 2001Issue date: Aug 9, 2005

Application number: 9/755,723

A method, performed by software executing on the processor of a portable music playback device, that automatically files tracks

according to hierarchical structure of categories to organize tracks in a logical order. A user interface is utilized to change the hierarchy, view

track names, and...Inventors: Ron Goodman, Howard N. Egan

Assignee: Creative Technology LTD

Apple pays US$100m for use of Patent

Source: bbc.co.uk 30th August 2005

SPOT the DIFFERENCE

NASDAQ AAPL

Market Cap : US$308.8 B

PINK CREAFMarket Cap : US$0.150 B

CREATIVE vs APPLE

The Four Key Forms of Intellectual Property

12-12

Patents

Copyrights

Trademarks

Trade Secrets

FIGURE 2.4 Patent Applications and Patents Issued

2 - 14

FIGURE 2.6 Trademark Applications and Trademarks and Renewals Issued

Protecting Your Ideas

• Patent – a grant from the Patent and Trademark Office to the inventor of product, giving the exclusive right to make, use, or sell the invention for 20 years from the date of filing the patent application.

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.

Proper Understanding for What a Patent Means (1)• 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.

12-17

Proper Understanding for What a Patent Means (2)• 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 infringe on its patent.

• 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. 12-18

Growth in Patent Applications in the United States

Three Basic Requirements for Obtaining a Patent

12-20

Types of Patents

Type Type of Invention Covered Duration

Utility

Design

Plant

20 years from the date of the

original application.

20 years from the date of the

original application.

14 years from the date of the

original application.

New or useful process, machine, manufacturer, or composition of material

or any new and useful improvement thereof.

Invention of new, original, and ornamental design for manufactured products.

Any new varieties of plants that can be reproduced

asexually.

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.12-22

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.

Protecting Your Ideas• Trademark – any distinctive word, symbol,

design, name, logo, slogan, or trade dress a company uses to identify the origin of a product or to distinguish it from other goods on the market.

• Servicemark – the same as a trademark except that it identifies the source of a service rather than a product.

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 Trademarks1 of 2

12-26

Type Types of Marks Covered

Trademark

Duration

Renewable every 10 years, as long as the mark remains

in use.

Service mark

Renewable every 10

years, as long as the mark remains in

use.

Any word, name, symbol, or device used to identify and distinguish one company’s goods from another. Eg. Apple, d.light, Dry Soda, ModCloth, and Zeo.

Similar to trademarks; are used to identify the services or intangible activities of a business, rather than a business’s physical products. Eg. 1-800-FLOWERS, Amazon.com, Mint.com, and Zipcar.

Types of Trademarks2 of 2

12-27

Type Types of Marks Covered

Collective mark

Duration

Renewable every 10 years, as long as the mark remains

in use.

Certification

mark

Renewable every 10

years, as long as the mark remains in

use.

Trademarks or service marks used by the members of a cooperative, association, or other collective group. Eg. Rotary International and International Franchise Association

Marks, words, names, symbols, or devices used by a person other than the owner to certify a particular quality about a good or service. Eg. 100% Napa Valley and Underwriters Laboratories

What is Protected Under Trademark Law1 of 2

12-28

Item Example(s)

Words

Numbers and letters

Designs and logos

Sounds

YouTern, PledgeMusic, GiftZip

3M, MSNBA, 1-800-FLOWERS

Nike swoosh logo

MGM’s lion’s roar

What is Protected Under Trademark Law2 of 2

12-29

Item Example

Fragrances

Shapes

Colours

Trade dress

Stationery treated with a special fragrance

Unique shape of the Apple iPhone

Nexium—the “purple pill”

The layout and décor of a restaurant

Exclusions From Trademark Protection

Item ExampleImmoral or

scandalous matter

Deceptive matter

Descriptive marks

Surnames

Profane wordsLabeling oranges “Fresh Florida

Oranges” that aren’t grown in Florida

Phrases like “golf ball” and “fried chicken” are descriptive and can’t

be trademarkedCommon surnames like

“Anderson” or “Smith” can’t be trademarked

Protecting Your Ideas

• Copyright – an exclusive right that protects the creators of original works of authorship such as literary, dramatic, musical, and artistic works.

• Copyrighted material is denoted by the symbol ©.

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.

What is Protected By a Copyright?

Literary works Musical compositions

Computer software Dramatic works

Pantomimes and

choreographic works

Pictorial, graphic, and

sculptural works

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.

• 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.

Obtaining a Copyright

Copyright Infringement1 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 Infringement2 of 2

12-37

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.

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.

Protecting Your IdeasType of

ProtectionWhat It Covers

Time Required

Cost

Copyright Works of original authorship

About 2 weeks About $35

Trademark Logos, names, phrases

6 – 12 months $900 - $1,500

Design patent Look of an original product

Up to 2 years $5,000 - $20,000

Utility patent How an original product works

2 – 5 years $5,000 - $20,000

Business method patent

A business process

2 – 5 years $5,000 - $20,000

2 - 41Source: Anne Field, “How to Knock Out Knock Offs,” Business Week, March 14, 2005.

2.2 INTELLECTUAL PROPERTY

PROTECTION

Intellectual Property Protection

• The basic trade-off in the protection of intellectual property is between: – Benefits to society from the use of ideas and

inventions and the incentives for their creation

Information and Incentives

Intellectual Property• The appropriability of the returns

from a discovery depends on two principal factors:–How easy it is for others to replicate

the discovery–Strength of the public protection for

the discovery

Appropriability of Returns

Example : Appropriability of Returns and Peer-to-Peer Systems

Intellectual Property Protection

• Patents• Copyright• Trademarks and trade secrets

2.3 INTELLECTUAL

PROPERTY LAWS

Introduction to Intellectual Property

• U.S. Federal law provides protections for intellectual property rights by means of:– Patents– Copyrights–Trademarks

7-2

Trade Secret• Trade secrets

–Product formula

–Pattern

–Design

–Compilation of data

–Customer list or other business secret

• Uniform Trade Secrets Act: Gives statutory protection to trade secrets 7-3

Trade Secret• Lawsuits for misappropriation – brought

against anyone who steals a trade secret–Defendant must have obtained the trade

secret through unlawful means–Discovery of trade secret by reverse

engineering is lawful–A trade secret unprotected by the owner

is not subject to legal protection

7-4

Trade Secret

• Civil Trade Secret Law: Misappropriation of a trade secret–A successful civil plaintiff can:

• Recover profits made by offender• Recover damages• Obtain injunction prohibiting offender

from divulging trade secret

Trade Secret• Economic Espionage Act

–Makes it a federal crime for any person:• To convert a trade secret to his or her benefit or

for the benefit of others

• Performing the above knowing or intending that the act would cause injury to the owner of the trade secret

–Includes computer espionage

–Severe criminal penalties7-6

Patent• A grant by the federal government upon

the inventor of an invention for the exclusive right to use, sell, or license the invention for a limited amount of time– Intended to provide incentive for inventors

to make their inventions public– Protects patented inventions from

infringement– Federal patent law is exclusive; no state

patent laws 7-7

Patent• Federal Patent Statute: Establishes the

requirements for obtaining a patent and protects patented inventions from infringement

• Patent: A grant by the federal government upon the inventor of an invention for the exclusive right to use, sell, or license the invention for a limited amount of time

Patent• U.S. Court of Appeals for the

Federal Circuit: A special federal appeals court that hears appeals from the Board of Patent Appeals and Interferences and federal court concerning patent issues

• Utility patent: Protects the functionality of an invention

Patent• Subject matter that can be patented

– Machines– Processes– Compositions of matter– Improvements to existing machines, processes, or

compositions of matter– Designs for an article of manufacture– Asexually reproduced plants– Living material invented by a person

7-8

Patent• Requirements for obtaining a patent

–An invention must be:• Novel• Useful• Nonobvious

–Abstractions and scientific principles cannot be patented unless they are part of the tangible environment

7-9

Case 1: U.S. Supreme Court Patent

• Case– Bilski v. Kappos, Director, Patent and Trademark

Office– 130 S.Ct. 3218, 177 L.Ed.2d 792, Web 2010 U.S.

Lexis 5521 (2010)– Supreme Court of the United States

• Issue– Is the petitioners’ claimed invention patentable?

7-10

Patent• Patent period

–Utility patents – 20 years–Design patents – 14 years–Patent term begins to run from the date

the patent application is filed–The U.S. follows “first-to-invent” rule –The invention or design enters the

public domain after patent period expires 7-11

Patent

• One-year “on sale” doctrine–Public use doctrine–Patents will not be granted if an

invention was in the public domain for one year prior to application filing

7-12

Patent• Provisional patent application

–Filed by the inventor to obtain three months to prepare a final patent application

–American Inventors Protection Act provides provisional patent application

7-13

Patent• Patent infringement

–Occurs when someone makes unauthorized use of a patent

–Plaintiff may recover:• Money damages equal to royalty rate• Other damages caused by the infringement• Order for destruction of infringing items• Injunction against infringer• Treble damages for intentional infringement

7-14

Copyright• Copyright Revision Act of 1976

– Establishes the requirements for obtaining a copyright

– Protects copyrighted works from infringement

• Only tangible writings are subject to copyright registration and protection

• Federal copyright law is exclusive

• Copyright can be sold or licensed to others7-15

Copyright• Registration of copyrights

– Must be an original work– Registered with U.S. Copyright Office– Registration

• Permissive • Voluntary• Done at any time during term of copyright

– Registration permits a holder to obtain statutory damages for copyright infringement

– Not required to use © or word “copyright”7-16

Copyright• Copyright period

–Sonny Bono Copyright Term Extension Act• Individuals are granted copyright protection for

their lifetime plus seventy years

• Copyrights owned by businesses are protected for the shorter of either:

–120 years from the year of creation

–95 years from the year of first publication7-17

Copyright

• Copyright infringement–Occurs when a party copies a substantial

and material part of the plaintiff’s copyrighted work without permission

–Successful plaintiff may recover:• Profit made by the defendant from the

infringement• Damages suffered by the plaintiff• Order requiring impoundment and destruction• Injunction preventing future infringement

7-18

Copyright• Fair use doctrine

–Permits certain limited unauthorized use of copyrighted materials

• No electronic theft act–Makes it a crime for a person to

willfully infringe on a copyright

• Digital Millennium Copyright Act–Makes it a crime to circumvent

encryption technology 7-19

Copyright• Fair Use Doctrine: Permits certain

limited use of a copyright by someone other than the copyright holder without the permission of the copyright holder

• Examples of fair use include:– Quote for review– Parody or satire– Academic– Brief quote in news report

Copyright• No electronic theft act: A federal statute that

makes it a crime for a person to willfully infringe on a copyright

• Digital Millennium Copyright Act: A federal statute that prohibits unauthorized access to copyrighted digital works by circumventing encryption technology or the manufacture and distribution of technologies designed for the purpose of circumventing encryption protection of digital works

• Used to identify and distinguish goods of a manufacturer or seller or services of a provider from others–Trade name–Symbol–Word–Logo–Design–Device

Trademark

7-20

Trademark

• Lanham (Trademark) Act

–Protects the owner’s investment and goodwill in a mark

–Prevents consumers from being confused as to the origin of goods and services

Meaning of Symbols Used in Association With Marks

Trademark• Registration of a mark

• Mark may be registered if it has been used in commerce– Can be registered six months

prior to use• Mark is lost if not used within six months

• Mark may be opposed by third parties• The use of the symbol ® is not

mandatory 7-22

Trademark

• Types of marks–Trademark –Service Mark –Certification mark–Collective membership mark

7-23

Trademark• Marks that cannot be registered

–Flag or coat of arms of the United States, any state, municipality, or foreign nation

–Marks that are immoral or scandalous

–Geographical names standing alone

–Surnames standing alone

–Any mark that resembles a mark already registered with the U.S. PTO 7-24

Trademark

• Distinctiveness or secondary meaning–A mark must be distinctive

• A unique word or design

–Have acquired a secondary meaning• An ordinary term becomes a brand name

7-25

Trademark• Trademark infringement: Unauthorized

use of a trademark

• Owner must prove that:

–Defendant infringed the plaintiff’s mark by using it in an unauthorized manner

–Use is likely to cause confusion, mistake, or deception

7-26

Case 2: Trademark Infringement

• Case– Intel Corporation v. Intelsys

Software, LLC– Web 2009 U.S. Dist. Lexis

14761 (2009)– United States District Court

for the Northern District of California

• Issue– Is there trademark

infringement that warrants the issuance of a permanent injunction against Intelsys?

7-27

Trademark• Generic names

–Term for a mark that has become a common term for a product line or type of service and therefore has lost its trademark protection

–Name becomes descriptive rather than distinctive

7-28

Trademark• Diluting, blurring, or tarnishing

trademarks–Federal Dilution Act of 1995

• Protects famous marks from dilution• Use by other party is actionable if:

–It is commercial–It causes dilution of distinctive quality of mark

–Types of dilution–Blurring–Tarnishment

7-29

Trademark• Trademark Dilution Revision

Act–A dilution plaintiff does not need

to show that it has suffered actual harm

–It only needs to show that there would be the likelihood of dilution

7-30

Case 3 : Dilution of a Trademark

• Case–V Secret Catalogue, Inc. and Victoria’s

Secret Stores, Inc. v. Moseley–605 F.3d 382, Web 2010 U.S. App.

Lexis 10150 (2010)–United States Court of Appeals for the

Sixth Circuit

7-31

Case 3: Dilution of a Trademark

• Issue–Is there tarnishment of the

Victoria’s Secret senior mark by the Moseleys’ use of the junior marks Victor’s Secret and Victor’s Little Secret?

7-32

CASE DISCUSSION : PATENT GAMES -

PLAVIX

Case - Patent Games: Plavix• In 2002 Sanofi-Aventis filed a patent infringement

lawsuit in federal court, claiming that the patent provided it with exclusive rights to produce and market Plavix

• The approval by FDA allowed Apotex to market the Plavix at its own risk

• Surprised by Apotex’s flooding the market, Sanofi- Aventis responded by filing a lawsuit in federal court seeking an injunction to halt the sales

• At the hearing on the lawsuit seeking an injunction, attorneys for Bristol-Myers Squibb claimed that failure to issue an injunction would “kill future clinical efforts.”

Core Readings• Baron, David P.(2013) Business and its environment, 7th

Edition, Pearson, Ch.14• Cheeseman, Henry R.(2013) Business law, 8th Edition,

Prentice Hall. Ch.8.• Barringer, Bruce R. & Ireland, R. Duane, 2011

Entrepreneurship – Successfully launching new ventures 4th edition, Pearson.

Next Week’s Ideas for Discussion

• Rocco R. Vanasco, (1996),"Auditor independence: an international perspective", Managerial Auditing Journal, Vol. 11 No.: 9 pp. 4

• - 48

QUESTIONS?