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ENTREPRENEURSHIP
A PROCESS PERSPECTIVERobert A. BaronScott A. Shane
A. Rebecca Reuber
Slides Prepared by:
Sandra Malach, University of Calgary
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7Intellectual Property:Protecting Your Ideas
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LEARNING OBJECTIVES1. Explain why product development in new firms is
difficult, but why new firms tend to be better thanestablished firms at product development in mostindustries.
2. Explain why established firms find it easy to imitateentrepreneurs intellectual property quickly and at alow cost.
3. Define a patent, explain what conditions arenecessary for an inventor to patent an invention,and outline the pros and cons of patenting.
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LEARNING OBJECTIVES4. Define an industrial design, explain what conditions
are necessary for an invention to be an industrialdesign.
5. Define a trade secret, explain what conditions arenecessary for an invention to be a trade secret, andoutline the pros and cons of trade secrets.
6. Define a trademark, describe why trademarks areuseful to entrepreneurs, and explain how anentrepreneur can obtain a trademark.
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LEARNING OBJECTIVES7. Define a copyright, and describe how it protects an
entrepreneurs intellectual property.
8. Describe a first-mover advantage and explain theconditions under which it provides a useful form ofintellectual property protection.
9. Describe complementary assets, and explain whenit is better for an entrepreneur to obtain controlover complementary assets than to be innovative.
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Every man with an idea has at leasttwo or three followers.
--Brooks Atkinson
Once Around the Sun, 1951
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INTELLECTUAL PROPERTY The core ideas about a
new product or service
The only majoradvantage (most of thetime) new ventures have
over established firms
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THE PRODUCT DEVELOPMENT
PROCESSA difficult and uncertain process
Solution must be produced andmarketed for less than the customer iswilling to pay
May result in something different than
people set out to produce
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ESTABLISHED FIRM
ADVANTAGES Better at manufacturing
Better access to capital
Tacit knowledge from experience
Economies of scale
Better at marketing Established reputations
Established customers
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NEW FIRM ADVANTAGES Superior product development
Develop new products cheaper andeasier
No bureaucratic structures and rules inplace
Better incentives for employees
Greater flexibility
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WHY NEW FIRMS LOSE AT
PRODUCT DEVELOPMENTThe typical unpatented processinnovation can be copied at less than
50% of the cost of developing theoriginal innovation more than 40% ofthe time.
(Richard Levin)
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WHY IS IMITATION SO EASY?Competitors have a variety of methodsfor imitating intellectual property:
Reverse engineering
Hiring employees or suppliers from theentrepreneur
Assigning staff to copy the new product
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PATENTSTo 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 1year prior to the date of filing.
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WHAT CAN YOU PATENT?YES
Process
Method
Machine
Chemical formula
Design
NO
Business method
Something thatdoesnt work
Most software
Life Form
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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 afterinitial filing date.
Patent valid for 20 years from applicationdate
www.cipo.gc.ca
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ADVANTAGES OF PATENTS
Helps to raise capital by demonstratingcompetitive advantage
Raises the cost of imitation
Provides a monopoly right
Prevents a second party from using theinvention as a trade secret
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DISADVANTAGES OFPATENTS
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
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INDUSTRIAL DESIGN
Features of shape, configuration,pattern or ornamental design
Purely decorative in nature
Term 10 years
Application must be submitted within 12months of disclosure.
Mark with (D), name of owner
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TRADE SECRETS
A piece of knowledge that confers an advantageon a firm and is protected by non-disclosure
agreements and processes. Protect a competitive advantage without
disclosing how an underlying technology works
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DISADVANTAGES OFTRADE SECRETS
Must be kept hidden to remain valuable
Doesnt provide a monopoly right
To enforce and claim damages in court,must show a loss of competitiveadvantage or breach of contract
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TRADEMARKS
A word, phrase, symbol, design thatdistinguishes 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.
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COPYRIGHTS
A form of intellectual property protectionprovided 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.
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FIRST MOVER ADVANTAGE:The Advantage of Speed and Timing
The first to offer a productin a particular market
Lead-time advantage
Locations
Suppliers
Learning curve advantage
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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
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WILL A NEW COMPANY PROFIT?
Three factors determine whether a newcompany will profit from introducing a
new product: The ability to secure a strong patent
The absence of a dominant design
The presence of complementary assetsin marketing and distribution
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WHICH IS MOST IMPORTANT?
Complementary Assets AreMore Important
Being Innovative Is MoreImportant
When patents are not very
effective
When patents are very effective
When a dominant design exists Before a dominant design exists
When learning curves areshallow or not proprietary
When learning curves are steepor proprietary
When knowledge is codified When knowledge is tacit
When products are observable When products are notobservable