Kuratko 8e Chapter 07

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CHAPTER 7: LEGAL CHALLENGES OF ENTREPRENEURIAL VENTURES

TRUE/FALSE

1. Entrepreneurs should be knowledgeable about certain legal concepts that affect their business venture.

ANS: T PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

KEY: pg 178

2. Laws governing intellectual property rights include copyrights, trademarks, and leases.

ANS: F PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

KEY: pg 179

3. A patent is an intellectual property right.

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4. Design patents last for 20 years.

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5. Patents eventually expire.

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6. The patent process is not complex, and does not require careful planning.

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7. The two parts of a patent application are specification and claims.

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8. The object of a patent is to provide the holder with a temporary monopoly on his or her innovation.

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9. A copyright provides exclusive rights to creative individuals for the protection of their artistic productions.

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10. Works created and copyrighted after January 1, 1978, are protected for the life of the author plus 70 years.

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11. Anyone who violates an author’s exclusive rights under a copyright is liable for infringement.

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12. Because of the “fair use” doctrine, it is sometimes difficult to establish infringement.

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13. Copyrights have to be registered with the Copyright Office.

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14. A trademark is a distinctive name, mark, or symbol that is identified with a company’s product.

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15. An example of a trademark is a logo.

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16. Once issued, the trademark is listed in the Principal Register of the Patent and Trademark Office.

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17. The registration of a trademark is for 40 years.

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18. Trademark registration and search is not costly.

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19. If infringement can be proven in court, an award may be given to the trademark holder.

KEY: pg 187

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ANS: T PTS: 1 NAT: AACSB Ethics | Legal Responsibilities KEY: pg 190

21. The Bankruptcy Act was set up in order to provide assistance to both debtors and creditors.

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22. Chapter 7, Chapter 9, and Chapter 11 are the most common forms of bankruptcy.

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23. Straight bankruptcy is often called liquidation.

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24. Chapter 13 bankruptcy involves a reorganization of the enterprise.

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25. Business owners normally prefer Chapter 7 bankruptcy over any other form of bankruptcy.

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MULTIPLE CHOICE

1. Items that can qualify for patent protection include all of the following except

a. machines. c. processes.

b. products. d. ideas.

ANS: D PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

KEY: pg 184

2. Design patent protection lasts for _____ years.

a. 10 c. 14

b. 12 d. 20

ANS: C PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

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3. Patents that are not design patents have _____ years of protection.

a. l5 c. 22

b. 20 d. 25

ANS: B PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

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4. A patent gives the holder a temporary

a. profit. c. monopoly.

b. oligopoly. d. specification.

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5. There are two parts to a patent application, claims and .

a. percentage c. value

b. specification d. integration

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6. The two parts to a patent application are specification, and .

a. claims c. value

b. percentage d. perception

ANS: A PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

KEY: pg 181

7. The text of a patent application is known as the

a. specification. c. concept.

b. particulars. d. value.

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8. The text of a patent application is known as the

a. presentable data. c. context.

b. claim. d. specification.

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9. That part of a patent application which identifies the features that are protected are known as the

a. particular. c. identification.

b. claim. d. essence.

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10. That part of a patent application which identifies the features that are protected are known as the

a. specification. c. claim.

b. illustration. d. concept.

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11. If an entrepreneur concludes that the innovation will withstand any legal challenge, a patent should be

a. dropped. c. integrated.

b. pursued. d. obfuscated

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12. To effectively pursue a patent, experts recommend that the entrepreneur a. handle all matters personally.

b. prepare a realistic budget for infringement.

c. fill out a preprinted form obtained from a patent office. d. sue as quickly as possible.

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13. The specification section of a patent application should include all of the following except

a. an introduction. c. a summary of invention.

b. examples and/or experimental results. d. a budget for handling infringement.

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14. In order to obtain a patent, an application should be filed with a. the Office of Government Publications.

b. the Patent and Trademark Office of the Department of Commerce. c. Government Accounting Office.

d. the United States Patent Office.

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15. What percentage of issued patents is commercially valuable?

a. a very small percentage c. 40 percent

b. around 20 percent d. 75 percent

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16. A person who loses an infringement battle in court may have to pay a. extra legal fees.

b. damages of up to five times the actual amount. c. higher profits due to the infringement.

d. the taxpayers back.

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17. An infringement budget deals with

a. legal battles. c. the outside molding of a building.

b. government bribes. d. advertising expenditures.

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18. The owner of the copyright may do all of the following except

a. reproduce the work. c. perform the work publicly.

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ANS: B PTS: 1 NAT: AACSB Ethics | Legal Responsibilities KEY: pg 182

19. Anyone who violates an author’s exclusive rights under a copyright is liable for: a. a prison term.

b. infringement.

c. a monetary payment equal to proven damages. d. two times annual sales.

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20. For the author of creative material to obtain a copyright, the material must be in _____ form.

a. nontangible c. tangible

b. technical d. commercial

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21. Because of the doctrine, it is sometimes difficult to establish infringement.

a. fair use c. freedom of information

b. acquisition d. right to publish

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22. The determination of fair use of copyrights is based on a. the effect of use on potential market.

b. the time period involved.

c. specific legal guidelines set forth by OSHA. d. the GAD doctrine.

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23. Under copyright law, which of the following are the rights of the owner? a. the right to reproduce work

b. the right to display the work of others c. the right to perform any work they choose

d. the right to sell any work on the market as demand will bear

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24. Works created after January 1, 1978, have a copyright for the life of the author plus

a. 70 years. c. 14 years.

b. 50 years. d. 10 months.

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25. Copyrights may be expressed in

a. books. c. motion pictures.

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ANS: D PTS: 1 NAT: AACSB Ethics | Legal Responsibilities KEY: pg 182

26. The form of legal protection that computer programs fall under is

a. patents. c. copyrights.

b. trademarks. d. service marks.

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27. Copyrights can be placed on all of the following except

a. ideas. c. books.

b. lectures. d. music.

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28. A trademark is a distinctive _____ that is identified with a company’s product.

a. name c. TV ad

b. billboard d. storefront sign

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29. Which of the following is not a trademark?

a. a sales price c. a symbol

b. a logo d. a name

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30. Which of the following are not trademarks?

a. symbols c. names

b. mottos d. generic words

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31. Which of the following is a useful rule used to avoid pitfalls in selecting a trademark? a. Trust a lawyer’s judgment.

b. Copy a competitor’s trademark. c. Avoid abbreviations and acronyms.

d. Never choose a trademark without first conducting a trademark search.

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32. The registration of a trademark has a lifetime of

a. 20 years plus a 5-year renewable period. c. 10 years plus a 10-year renewable period.

b. 25 years. d. the lifetime of the author.

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33. Which of the following is a way in which a trademark may be invalidated? a. cancellation proceeding

b. a competitor’s lawsuit c. consumer loss of interest

d. once a trademark is established, no legal action can invalidate it

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34. The process of trademark registration is

a. expensive. c. one that must be handled by a lawyer.

b. impossible. d. inexpensive.

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35. All of the following are ways of invalidating a trademark except

a. cleaning-out proceedings. c. abandonment.

b. clearing-out proceedings. d. generic meaning.

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36. When seeking to invalidate a trademark, if a third party challenges the mark’s distinctiveness within 5 years of issuance, this is known as

a. abandonment. c. cleaning-out procedure.

b. cancellation proceedings. d. generic meaning.

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37. When trying to invalidate a trademark, if a party seeks to prove that the trademark has not been used within six years of registration, this is known as

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38. When a party seeks to invalidate a trademark by showing that it has not been used for two consecutive years, the party is making use of a legal approach known as

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39. When a trademark becomes the name of a general group of products or services, the trademark protection may be lost because of

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40. The emerging body of law governing cyberspace is often referred to as:

a. netlaw. c. interlaw.

b. cyberlaw. d. legal web.

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41. Which of the following is an indicator that an entrepreneur’s business is failing? a. other firms selling advanced products

b. retailer overstocked c. liquidation

d. R&D budget proportionally less than competition

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42. Which is not one of the major sections of the bankruptcy act?

a. straight bankruptcy c. adjustments of debts

b. reorganization d. liquidation

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43. Which of the following are suggestions to minimize legal costs? a. visit the lawyer during normal hours

b. have the lawyer custom design forms specifically for you c. always handle matters personally

d. try to avoid hiring a lawyer if and until and emergency requires it

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44. Which of the following fall under Chapter 7 bankruptcy? a. The debtor surrenders most property to a court trustee. b. The debtor fails to file income taxes.

c. The debtor is relieved of obligations. d. The debtor is arrested.

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45. A typical symptom of impending bankruptcy failure is when a. new competition exits the market.

b. other firms seem to be selling products that are a generation ahead. c. retailers always seem to be understocked.

d. the entrepreneur seeks to exit the market.

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46. When considering bankruptcy, entrepreneurs as sole proprietors normally prefer

a. Chapter 5. c. Chapter 11.

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ANS: D PTS: 1 NAT: AACSB Ethics | Legal Responsibilities KEY: pg 200

SHORT ANSWER

1. Define a patent and describe its limitations. ANS:

A patent is a right, granted by the government, of an inventor to protect an idea against infringement. Patents can cover products, machines, and improvements on already patented things. A patent allows the holder to have a temporary monopoly on his or her new creation. Design patents last for 14 years, all others last 20 years. But, patents are expensive and time consuming to secure. Also, if a patent is infringed upon, a court battle decides its validity. A patent can be invalidated for three reasons: A patent holder may wait too long before asserting his or her rights, a patent may be misused, or a patent may be proven not to meet patentability requirements.

PTS: 1 NAT: AACSB Ethics | Legal Responsibilities

2. What does a copyright protect and what are the guidelines for copyright protection? ANS:

A copyright protects a person’s literary and artistic creations. Since 1978, a copyright gives protection for the life of the creator plus 50 years. A copyright allows the holder to reproduce the work, prepare copies, perform the work, and display the work. There are certain important guidelines for copyright protection. It isn’t necessary to register copyrights unless you need to sue someone. Needless

registration only adds unnecessary time and effort. When buying material for internal use, it would be reasonable to duplicate certain parts on occasion. But, duplicating entire pieces on a regular basis would clearly violate a copyright holder’s rights. Care should be taken in using materials such as catalogs. Materials that require a lot of expense to compile many times contain fictitious items to trap people who merely copy material. It may be useful to copyright advertisements that may be of use to competitors. Government documents cannot be copyrighted, but their format can. Therefore, you can’t simply duplicate a page of text. And finally, use common sense in using copyrighted material. It is illegal to rephrase another person’s material and call it your own.

3. What are the uses of trademarks and how can they be invalidated? ANS:

A trademark is a distinctive symbol of a company. A trademark can be used to distinguish goods, services, quality, and materials used. A trademark must be in some way unique to the object. A trademark can be invalidated in any of four ways. A third party may challenge a trademark’s

distinctiveness within five years. A trademark owner may fail to file an affidavit stating a trademark’s use or lack of use within six years of registration. An owner may fail to use a trademark for two consecutive years without justification. And finally, a trademark may become synonymous with the product itself.

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ANS:

Trademarks registration and research is expensive. Trademark infringement is even more expensive. There are five basic rules to avoid difficulties with trademarks. A corporate name or mark should never be selected without a trademark search. If your attorney recommends against a trademark for legal reasons, trust his judgment. Try to find a unique name or mark. Use a distinctive logotype when using a descriptive name for a product. When an abbreviation or acronym must be used, use a

distinctive logotype.

5. Name the three forms of bankruptcy and describe their functions? ANS:

Bankruptcy was designed for three major reasons. One is to guarantee that assets will be fairly divided among creditors. The second is to project debtors from losing too many of their assets. And debtors are protected from unreasonable demands of creditors. There are three major sections of bankruptcy for small business. Chapter 7 is straight bankruptcy, or liquidation. In Chapter 7, the debtor forfeits all assets of a business, which a court-appointed trustee then sells. All receipts are then divided among the creditors. Chapter 7 allows the debtor to be relieved of all obligations. Chapter 11 is known as reorganization. In this proceeding, the debtor pays a portion of the debt and the remainder is relinquished. The debtor is then allowed to continue his or her venture.

Chapter 13 allows the debtor to repay the debt over a longer period of time. Chapter 13 avoids declaration of bankruptcy, and allows payment in installments, and protection by the court.