LEARNING MODULE SURIGAO STATE COLLEGE OF TECHNOLOGY

Module
ENTREPRENEURSHIP

Topics 5:

I. Patents
II. Copyright
III. Industrial design rights
IV. Trademarks
V. Trade dress
VI. Trade secrets

Time Frame: 6 hrs

Introduction:
Intellectual property (IP) is a category of property that includes intangible creations
of the human intellect. There are many types of intellectual property, and some
countries recognize more than others The most well-known types
are copyrights, patents, trademarks, and trade secrets. The modern concept of
intellectual property developed in England in the 17th and 18th centuries. The term
"intellectual property" began to be used in the 19th century, though it was not until the
late 20th century that intellectual property became commonplace in the majority of the
world's legal systems.The main purpose of intellectual property law is to encourage the
creation of a wide variety of intellectual goods. To achieve this, the law gives people
and businesses property rights to the information and intellectual goods they create,
usually for a limited period of time. This gives economic incentive for their creation,
because it allows people to benefit from the information and intellectual goods they
create, and allows them to protect their ideas and prevent copying. These economic
incentives are expected to stimulate innovation and contribute to the technological
progress of countries, which depends on the extent of protection granted to innovators.
The intangible nature of intellectual property presents difficulties when compared with
traditional property like land or goods. Unlike traditional property, intellectual property
is "indivisible", since an unlimited number of people can "consume" an intellectual good
without it being depleted. Additionally, investments in intellectual goods suffer from
problems of appropriation: a landowner can surround their land with a robust fence and
hire armed guards to protect it, but a producer of information or literature can usually
do very little to stop their first buyer from replicating it and selling it at a lower price.
Balancing rights so that they are strong enough to encourage the creation of intellectual
goods but not so strong that they prevent the goods' wide use is the primary focus of
modern intellectual property law.

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Objectives:
To encourage innovation and to provide incentives for innovation by granting
protection to investors that will allow them to recover research and development
investments and reap the benefits of their inventions for a limited period of time.

Learning Activities

Let’s do this! Students will be assigned to a breakout room (either for Google meet or
zoom) and allow them to discuss the following questions. Right after the discussion, a
representative from every group will be assigned to report their output thru a concept
map.

PRE-TEST

Questions:

1. Why is it important to protect intellectual property?

2. How to protect intellectual property rights in the innovation process?
3. How the copyrights law differ from laws of intellectual property rights?

I. PATENTS

A patent is a form of right granted by the government to an inventor or their successor-

in-title, giving the owner the right to exclude others from making, using, selling,
offering to sell, and importing an invention for a limited period of time, in exchange for
the public disclosure of the invention. An invention is a solution to a specific
technological problem, which may be a product or a process and generally has to fulfill
three main requirements: it has to be new, not obvious and there needs to be
an industrial applicability. To enrich the body of knowledge and stimulate innovation, it
is an obligation for patent owners to disclose valuable information about their
inventions to the public.

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What can be patented?

An invention can be defined as a product or process that offers a new way of doing
something, or a new technical solution to a problem. To qualify for patent protection,
an invention must be of some practical use and must offer something new which is not
part of the existing body of knowledge in the relevant technical field (what lawyers call
the prior art). But these requirements of utility and novelty are not enough; the
invention must also involve an inventive step – something non-obvious that could not
just have been deduced by someone with average knowledge of the technical field.

Obtaining a patent

Like most IP rights, patents are territorial: protection is granted within a country under
its national law.

Different countries have somewhat different laws, but generally in order to gain
protection, an inventor or firm will need to file an application with a patent office
describing the invention clearly and in sufficient detail to allow

someone with an average knowledge of the technical field to use or reproduce it. Such

descriptions usually include drawings, plans or diagrams. The application also contains

various claims, that is, information to help determine the extent of protection to be
granted by the patent. The application will then be examined by the patent office to
determine if it qualifies for protection.

Patent rights and enforcement

Patent owners have the exclusive right to commercially make, sell, distribute, import
and use their patented inventions within the territory covered by the patent during the
period of protection.

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They may choose to make, sell or use the invention themselves, let someone else make
or use it for a fee (known as licensing), or sell the patent outright to someone else who
then becomes the patent owner. Or they may decide not to use the patented invention

themselves, but to stop their competitors from using it during the patent period. If
someone else uses a patented invention without the patent owner’s permission, the
patent owner can seek to enforce the rights by suing for patent infringement in the
relevant national court. Courts usually have the power to stop infringing behavior and
may also award financial compensation to the patent owner for the unauthorized use of
the invention. But a patent can also be challenged in court, and if it is judged to be
invalid, for example because the court decides it is insufficiently novel, it will be struck
down and the owner will lose protection in that territory.

II. COPYRIGHTS

A copyright gives the creator of an original work exclusive rights to it, usually for a
limited time. Copyright may apply to a wide range of creative, intellectual, or artistic
forms, or "works". Copyright does not cover ideas and information themselves, only the
form or manner in which they are expressed.

Copyright is protected by a mixture of national and international laws. These recognize

the cultural and social importance of creative endeavor as well as its considerable
economic value. The underlying aim of copyright law is to strike the right balance
between the interests of content creators, developers and investors and the public
interest in being able to access and use creative content.

What works does copyright cover?

Copyright applies to the creative expression of ideas in many different forms – text, still

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or moving pictures, sound works, three-dimensional shapes such as sculptures and

architecture, reference works and collections of data. National copyright laws rarely
provide an exhaustive list of everything that is covered. However, copyright does not
generally cover ideas themselves, procedures, methods of operation, or mathematical
concepts.

What rights does copyright provide?

Copyright includes both economic and moral rights. Essentially, economic rights

involve the right to control the distribution of a work. In other words, a copyright owner
can stop anyone from copying or using a work without permission – including, for
example, by translating it, reproducing it, performing it or broadcasting it.

Copyright also includes certain moral rights of the creator – including, among others,
the right to be acknowledged as the author of a work and to prevent it from being
altered in a way that might damage the creator’s reputation.

Transferring and trading copyright

Generally, economic rights can be transferred and divided. A right owner may agree to
let someone use a work under certain conditions ( licensing), or they may give or sell
the rights to someone who then becomes the new owner ( assignment). And if a
copyright owner dies, their heirs or successors will inherit their economic rights. It is
very common for rights to be transferred. For example:

• Book authors, music composers and recording artists often license or assign rights to
publishers in exchange for payments known as royalties.

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• In many countries, creators can license or assign their rights to collective

management organizations which will monitor how works are used and collect
payments from users on the creator’s behalf.

• Copyright owners may choose to give away their work for free, or to let other people

use it freely based on certain conditions. For example, they may allow use based on
standard Creative Commons licenses.

National and international copyright law

There are different national laws on copyright in different territories, as with other
forms of intellectual property. However, international law establishes certain minimum
standards of protection:

• Copyright arises as soon as a work is created. There is no need for a creator to

register a work or complete any other formalities in order to gain protection (though
some countries do operate voluntary copyright registration schemes).

• Countries are required to protect most copyrighted works throughout the life of the
creator and for at least 50 years after the creator’s death.

• International law means that copyrighted works are generally protected in most
countries, not just the country in which they were created.

Related rights

The law also protects the rights of certain people or groups who are involved in creative
work but do not qualify for copyright protection in many jurisdictions, including
performers such as singers and actors, broadcasting organizations, and organizations

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such as record companies that produce sound recordings.

These are known as related rights or neighboring rights, because they are related to
copyright. The protection offered is similar to copyright. Generally, right owners can
stop people from recording, communicating or broadcasting their work without their
permission. However, the term of protection is usually shorter than copyright; in most
countries, it lasts for 50 years from the date of the performance, recording or broadcast.

III. Industrial design rights

An industrial design right (sometimes called "design right" or design patent) protects
the visual design of objects that are not purely utilitarian. An industrial design consists
of the creation of a shape, configuration or composition of pattern or color, or
combination of pattern and color in three-dimensional form containing aesthetic value.
An industrial design can be a two- or three-dimensional pattern used to produce a
product, industrial commodity or handicraft. Generally speaking, it is what makes a
product look appealing, and as such, it increases the commercial value of goods.

What designs can be protected?

Industrial design law only protects those aspects of a product that are ornamental; its
technical features may be protected by patent, if they meet the requirements for patent
protection. A design may consist of three-dimensional features, such as the shape or
surface of an article, or twodimensional features such as patterns, lines or color. To
qualify for protection as an industrial design under most national laws, the design must
be new and show a degree of originality or individuality, meaning that it is not identical
or very similar to any previous design. Moreover, it must be capable of being produced
industrially, so unique artworks are not covered.

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Industrial design rights

Industrial design rights entitle the right holder to control the commercial production,

importation and sale of products with the protected design. As with most other forms of

IP, owners can exploit design rights themselves, or license or sell them to others, and
can sue in the relevant national court to prevent infringement of their rights. This
means that owners have a fair chance to recoup their investment in design,
encouraging such investment. Industrial design rights last for a limited period. This
varies among countries, but the maximum period of protection in a country will be at
least ten years. In many countries, owners need to renew their registration every few
years if they want to keep the design protected for the maximum possible period.

Different national design laws

Industrial designs are protected in different ways in different countries. In most cases,
a firm or designer will need to register their design in order to protect it, but some
countries also give limited protection to unregistered designs, and in some countries

protection is by means of “design patents”. In certain countries, some industrial designs

may be regarded as artistic works covered by copyright. This can be advantageous to
the right holder because the term of protection for copyright is much longer than for a
registered design. In some countries it may also be possible to protect designs using
national laws against unfair competition.

IV. TRADEMARKS

A trademark is a recognizable sign, design or expression which

distinguishes products or services of a particular trader from similar products or services
of other traders.

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Trademarks have been around for many years. In ancient times, artisans would sign or
mark their work to prove they had made it. Gradually, laws evolved to protect

such marks. These days, trademarks are essential to business. They take many forms
and identify a huge array of goods and services. Enterprises spend enormous amounts
of time and money developing their brands and trademarks.

Legal protection allows the owner of a mark to control who uses it. This means that
enterprises can develop and promote their goods and services without having their
reputation undermined by counterfeiters, and consumers can rely on trademarks being

genuine.

Different types of trademark

All sorts of signs may be used as trademarks – words, letters, numbers, symbols, colors,
pictures, three-dimensional signs such as shapes and packaging, holograms, sounds,
even tastes and smells.

To be eligible for registration, the basic principle is that a

trademark must be distinctive, so it cannot just be a generic description of the

product or service. Nor can it be identical (or very similar) to a trademark already
registered or used for that type of product or service.

Trademarks are not just used to identify the goods and services of a particular
enterprise. There are also collective marks, each owned by an association and used by
its members. For example, professional associations of accountants, engineers and
architects often use this kind of

mark. And there are certification marks which show that a product or service complies
with certain standards, such as Eco labels for products with reduced environmental

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impacts.

Protecting trademarks

The best way of protecting a trademark is to register it. Owners of a registered mark
have the exclusive right to control who uses it: they can use it to identify their own
goods or services, or license or sell it for someone else to use.

To register a mark in a territory, the applicant needs to submit a reproduction of it to

the trademark office plus a full list of the goods or services to which it would apply. As
well as being sufficiently distinctive and not conflicting with any existing mark, the mark
must not be misleading

or deceptive or violate public order or morality.

Once a trademark has been granted, the owner can sue in the relevant national court if
it is infringed by someone else. Equally, a trademark owner could face a legal challenge
from a third party arguing that it is too similar to their own mark.

A trademark will only be granted for a limited period – in most countries, ten years –
but the mark can be renewed as many times as the owner wishes on payment of
additional fees, provided it is still being used, so in practice a trademark can be
protected indefinitely.

V. TRADE DRESS

Trade dress is a legal term of art that generally refers to characteristics of the visual
and aesthetic appearance of a product or its packaging (or even the design of a

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building) that signify the source of the product to consumers.

VI. TRADE SECRETS

A trade secret is a formula, practice, process, design, instrument, pattern, or

compilation of information which is not generally known or reasonably ascertainable, by
which a business can obtain an economic advantage over competitors and customers.
There is no formal government protection granted; each business must take measures
to guard its own trade secrets (e.g., Formula of its soft drinks is a trade secret for Coca-
Cola.)

A trade secret is a company's process or practice that is not public information, which
provides an economic benefit or advantage to the company or holder of the trade
secret. Trade secrets must be actively protected by the company and are typically the
result of a company's research and development. Examples of trade secrets could be a
design, pattern, recipe, formula, or proprietary process. Trade secrets are used to
create a business model that differentiates the company's offerings to its customers by
providing a competitive advantage.

Self-Evaluation (Copy and paste this part in a new document)

Answer the following questions comprehensively:

1. Are intellectual property rights human rights?

2. Should patents be separated from copyrights in the human rights debate?

Review of Concepts:

The concept of intellectual property relates to the fact that certain products of human
intellect should be afforded the same protective rights that apply to physical property,
which are called tangible assets. Most developed economies have legal measures in
place to protect both forms of property.

POST TEST

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Identify whether the statement is true or false. Write T if true, and F if it is a

false.

1. Intellectual property can consist of many types of assets, including trademarks,

patents, and copyrights.
2. Copyright provides authors and creators of original material the exclusive right to
use, copy, or duplicate their material.
3. A trade secret is a symbol, phrase, or insignia that is recognizable and represents
a product that legally separates it from other products.
4. A trademark is exclusively assigned to a company, meaning the company owns
the trademark so that no others may use or copy it.
5. A trademark is a company's process or practice that is not public information,
which provides an economic benefit or advantage to the company or holder of
the trade secret.
6. Trade dress is a broad categorical description for the set of intangible
assets owned and legally protected by a company from outside use or
implementation without consent.
7. Industrial design rights gives the creator of an original work exclusive rights to
it, usually for a limited time.
8. Industrial design law only protects those aspects of a product that are
ornamental; its technical features may be protected by patent, if they meet the
requirements for patent protection.
9. A patent is a form of right granted by the government to an inventor or their
successor-in-title, giving the owner the right to exclude others from making,
using, selling, offering to sell, and importing an invention for a limited period of
time, in exchange for the public disclosure of the invention.
10. A right owner may agree to let someone use a work under certain conditions
(licensing), or they may give or sell the rights to someone who then becomes the
new owner (assignment).

Citations:
Cornish, William, David Llewelyn, and T. Aplin. Intellectual Property: Patents, Copyright, Trade Marks and
Allied Rights (6th. London, Sweet & Maxwell, 2003.

Bently, Lionel, and Brad Sherman. Intellectual property law. Oxford University Press, USA, 2014.

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POST-TEST ANSWERS

1. T
2. T
3. F
4. T
5. F
6. F
7. F
8. T
9. T
10. T

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Module
ENTREPRENEURSHIP

Topic 6: Company Valuation and Deal Making

1.1 Obtaining Capital
Time Frame: 3 hrs

Introduction:
The term “enterprise” or “company” can be understood as a separate economic
entity, an economic entity producing and selling on its own account goods and services
with the goal to maximize profits. An enterprise is a special form of investment. The
owners, by investing in their own capital resources, expect to obtain certain benefits
resulting from the multiplication of capital invested in this way, which leads directly to
the increase in the value of the enterprise they own. Recognizing at the same time that
the economic essence of ownership issues is closely related to issues of utility and the
problem of the monetary value of the object of ownership, the issues relating to
enterprise value, its specifics, various conditions, as well as methods and training
procedures, are invariably important.
Most entrepreneurs understand that if the fundamentals of a business idea—the
management team, the market opportunities, the operating systems and controls—are
sound, chances are there‟s money out there. The challenge of landing that capital to grow
a company can be exhilarating. But as exciting as the money search may be, it is equally
threatening. Built into the process are certain harsh realities that can seriously damage a
business. Entrepreneurs cannot escape them but, by knowing what they are, can at least
prepare for them.

Objectives:
1. Discover the company‟s valuation and deal making
2. Explain the value of raising capital

Learning Activities

Let’s do this! Students will be assigned to a breakout room (either for Google meet or
zoom) and allow them to discuss the following questions. Right after the discussion, a
representative from every group will be assigned to report their output thru a concept
map.

PRE-TEST
Answer the following questions:
1. In your own understanding why is capital raising important?
2. What will you do to improve your capital raising skills?

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1.1 OBTAINING CAPITAL

Why is capital raising important?

Having an idea is useless if one does not have enough capital to translate it into a
reality. It is believed that a business is almost impossible to start without money. Yet,
ironically enough, you cannot get money until your business is successful enough.
Using up your savings is one option but savings will typically run out. Therefore, raising
funds through other sources is important in order to finance all the business activities.

Choosing the right sources is, however, the next critical step in the process of capital-
raising because it is invariably the determinant of the success and growth of any
business. Extraordinary capital raising skills are required for obtaining funds quickly and
efficiently, through the most appropriate sources.

How to improve capital raising skills

Following are some tips that might prove helpful for improving one‟s capital raising
skills:

 Be realistic about the amount of capital required. Optimism is a trait

commonly found in entrepreneurs. However, the real world is often quite different
than the record sales of the „unique‟ product as well as the slow competitors that
they envision. Therefore, the estimates about required capital should be made as
realistic as possible so that enough money can be obtained. Otherwise, you are
likely to make the usual mistake of asking for too little money for having a chance
at success.
 Determine the value of your company. Since debt and equity capital are both
costly in their own ways, and determining the right mix of both is the ultimate way
of improving one‟s capital raising capabilities, it is important to begin by
determining the value of one‟s company. This is an important step in determining
the cost of new capital when equity additions to the capital structure are sought.
Ensure a mix of debt and equity such that greater ownership of the company is
retained.
 Network as much as possible. When you seek investors, make sure that
everyone in your social circle is aware of the fact that you need money and how
much. Find people who have managed to raise capital prior to you, discuss with
them your needs, and ask for introductions. Getting introduced through a network
is usually preferred by investors as well because it means they have a trusted
connection.

There are two types of capital that a company can use to fund
operations: debt and equity. Prudent corporate finance practice involves determining the

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mix of debt and equity that is most cost-effective.

Debt Capital
Debt capital is also referred to as debt financing. Funding by means of debt
capital happens when a company borrows money and agrees to pay it back to the
lender at a later date. The most common types of debt capital companies use are loans
and bonds, which larger companies use to fuel their expansion plans or to fund new
projects. Smaller businesses may even use credit cards to raise their own capital.

A company looking to raise capital through debt may need to approach a bank
for a loan, where the bank becomes the lender and the company becomes the debtor.
In exchange for the loan, the bank charges interest, which the company will note, along
with the loan, on its balance sheet.

The other option is to issue corporate bonds. These bonds are sold to
investors—also known as bondholders or lenders—and mature after a certain date.
Before reaching maturity, the company is responsible for issuing interest payments on
the bond to investors.

Pros and Cons of Debt Capital

Because corporate bonds generally come with a high amount of risk—the chances of
default are higher than bonds issued by the government—they pay a much higher yield.
The money raised from bond issuance can be used by the company for its expansion
plans.

While this is a great way to raise much-needed money, debt capital does come with a
downside: It comes with the additional burden of interest. This expense, incurred just for
the privilege of accessing funds, is referred to as the cost of debt capital. Interest
payments must be made to lenders regardless of business performance. In a low
season or bad economy, a highly leveraged company may have debt payments that
exceed its revenue.

Example of Debt Capital

Let's look at the loan scenario as an example. Assume a company takes out a $100,000
business loan from a bank that carries a 6% annual interest rate. If the loan is repaid
one year later, the total amount repaid is $100,000 x 1.06, or $106,000. Of course, most
loans are not repaid so quickly, so the actual amount of compounded interest on such a
large loan can add up quickly.

Equity Capital
Equity capital, on the other hand, is generated not by borrowing, but by selling shares of
company stock. If taking on more debt is not financially viable, a company can raise
capital by selling additional shares. These can be either common shares or preferred

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shares.

Common stock gives shareholders voting rights but doesn't really give them much else
in terms of importance. They are at the bottom of the ladder, meaning their ownership
isn't prioritized as other shareholders are. If the company goes under or liquidates, other
creditors and shareholders are paid first. Preferred shares are unique in that payment of
a specified dividend is guaranteed before any such payments are made on common
shares. In exchange, preferred shareholders have limited ownership rights and have no
voting rights.

Important: Debt holders are generally known as lenders, while equity holders are known
as investors.

Pros and Cons of Raising Equity

The primary benefit of raising equity capital is that, unlike debt capital, the company is
not required to repay shareholder investment. Instead, the cost of equity capital refers to
the amount of return-on-investment shareholders expect based on the performance of
the larger market. These returns come from the payment of dividends and stock
valuation.

The disadvantage to equity capital is that each shareholder owns a small piece of the
company, so ownership becomes diluted. Business owners are also beholden to their
shareholders and must ensure the company remains profitable to maintain an elevated
stock valuation while continuing to pay any expected dividends.

Because preferred shareholders have a higher claim on company assets, the risk to
preferred shareholders is lower than to common shareholders, who occupy the bottom
of the payment food chain. Therefore, the cost of capital for the sale of preferred shares
is lower than for the sale of common shares. In comparison, both types of equity capital
are typically more costly than debt capital, since lenders are always guaranteed
payment by law.

Example of Equity Capital

As mentioned above, some companies choose not to borrow more money to raise their
capital. Perhaps they're already leveraged and just can't take on any more debt. They
may turn to the market to raise some cash.

A startup company may raise capital through angel investors and venture capitalists.
Private companies, on the other hand, may decide to go public by issuing an initial
public offering (IPO). This is done by issuing stock on the primary market—usually to
institutional investors—after which shares are traded on the secondary market by
investors. For example, Facebook went public in May 2012, raising $16 billion in capital
through its IPO, which put the company's value at $104 billion. 1

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The Bottom Line

Companies can raise capital through either debt financing or equity financing. Debt
financing requires borrowing money from a bank or other lender or issuing corporate
bonds. The full amount of the loan has to be paid back, plus interest, which is the cost
of borrowing.

Equity financing involves giving up a percentage of ownership in a company to

investors, who purchase shares of the company. This can either be done on a stock
market for public companies, or for private companies, via private investors that receive
a percentage of ownership.

Both types of financing have their pros and cons, and the right choice, or the right mix,
will depend on the type of company, its current business profile, its financing needs, and
its financial condition.

Invest in the brands you love

You use world-class brand names each and every day, and you already know their
products well. What if you could profit from all that knowledge? “Invest in what you
know” is a notorious investment strategy and a great way to get started in stock
investing.

Self-Evaluation (Copy and paste this part in a new document)

Answer the following questions comprehensively:

1. What are the potential risks to a business?

2. As a company owner, how should you value your company?

Review of Concepts:

It is believed that a business is almost impossible to start without money. Yet,

ironically enough, you cannot get money until your business is successful enough.
Using up your savings is one option but savings will typically run out. Therefore, raising
funds through other sources is important in order to finance all the business activities.

Debt capital is also referred to as debt financing. Funding by means of debt capital
happens when a company borrows money and agrees to pay it back to the lender at a
later date.

Equity capital, on the other hand, is generated not by borrowing, but by selling shares of
company stock. If taking on more debt is not financially viable, a company can raise
capital by selling additional shares. These can be either common shares or preferred
shares.

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POST TEST

Identify wheter the statement is true or false. Write T if true, and F if it

is a false.

1. Equity financing involves giving up a percentage of ownership in a company to

investors, who purchase shares of the company.
2. Some companies choose to borrow more money to raise their capital.
3. Extraordinary capital raising skills are not required for obtaining funds quickly and
efficiently, through the most appropriate sources.
4. Debt capital is also referred to as debt funding.

5. Prudent corporate finance practice involves determining the mix of debt and
equity that is most cost-effective.

References:

[Online]: https://www.investopedia.com/ask/answers/032515/what-are-different-ways-
corporations-can-raise-capital.asp

PRE-TEST ANSWERS

11. T
12. F
13. F
14. F
15. T

ES 115 – ENTREPRENEURSHIP FOR ENGINEERS ENGR. VIRNE P. PORTUGUES 19