CHAPTER 9: LEGAL CHALLENGES OF ENTREPRENEURIAL VENTURES

True/False:

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

ANS: F

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

ANS: T

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

ANS: T

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

ANS: T

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

ANS: T

6. The registration of a trademark last for 40 years, with continuous renewal every 10 years.

ANS: F

7. Three primary legal forms of organization are the sole proprietorship, the partnership, and the
corporation.

ANS: T

8. It often is possible to obtain more capital and a better range of skills in a sole proprietorship than in a
partnership.

ANS: F

9. One of the principal advantages of a corporate form of ownership is that liability (the most money a
person can lose) is limited to an individual’s investment.

ANS: T

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

ANS: F
Multiple Choice:

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

a. percentage
b. specification
c. value
d. integration
ANS: B

2. That part of a patent application which identifies the features that are protected are known as the
a. particular.
b. claim.
c. identification.
d. essence.
ANS: B

3. To effectively pursue a patent violation, 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.
ANS: B

4. The owner of a copyright may do all of the following except

a. reproduce the work.
b. deduct the intrinsic value of the rights from one’s taxes
c. perform the work publicly.
d. display the work publicly.
ANS: B

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

a. fair use
b. acquisition
c. freedom of information
d. right to publish
ANS: A

6. Works created after January 1, 1978, have a copyright for the life of the author plus
a. 70 years.
b. 50 years.
c. 14 years.
d. 10 months.
ANS: A
 7. Which of the following are not trademarks?
a. symbols
b. mottos
c. names
d. generic words
ANS: D

8.. The registration of a trademark has a lifetime of

a. 20 years plus 5-year renewable periods.
b. 25 years.
c. 10 years plus 10-year renewable periods.
d. the lifetime of the owner.
ANS: C

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

a. cleaning-out proceedings.
b. clearing-out proceedings.
c. abandonment.
d. generic meaning.
ANS: B

10. When a trademark becomes the name of a general group of products or services, the trademark protection
may be lost because of
a. abandonment.
b. cancellation proceedings.
c. cleaning-out procedure.
d. generic meaning.
ANS: D

11. All of the following are recognized as advantages of partnerships except:

a. ease of formation
b. possible tax advantages
c. direct rewards
d. lack of continuity
ANS: B

12. Specific forms of partnership include which of the following?

a. limited partnerships
b. limited partnerships and limited liability partnerships
c. limited partnerships and S partnerships
d. S partnerships and limited liability companies
ANS: B
 13. From where does an S corporation take its name? corporation takes its name from
a. Subchapter S of the Internal Revenue Code
b. state law
c. S Lab
d. Uniform Commercial Code
ANS: A

14. Which of the following falls 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.
ANS: C

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

a. Chapter 5.
b. Chapter 7.
c. Chapter 11.
d. Chapter 13.
ANS: D

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.
2. What does a copyright protect?

ANS:
A copyright provides exclusive rights to creative individuals for the protection of their literary or artistic
productions. It is not possible to copyright an idea, but the particular mode for expression of that idea
often can be copyrighted. This expression can take many forms, including books, periodicals, dramatic or
musical compositions, art, motion pictures, lectures, sound recordings, and computer programs. The
Copyright Act specifically excludes copyright protection for any “idea, procedure, process, system,
method of operation, concept, principle, or discovery, regardless of the form in which it is described,
explained, illustrated, or embodied.” Note that it is not possible to copyright an idea—the underlying
ideas embodied in a work may be used freely by others. What is copyrightable is the particular way an
idea is expressed. Whenever an idea and an expression are inseparable, the expression cannot be
copyrighted.

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.

4. What are the rules for avoiding pitfalls in selecting trademarks?

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. Identify the three major sections of the Bankruptcy Act.

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.