CHAPTER 09 LEGAL CHALLENGES OF ENTREPRENEURIAL

VENTURES

TRUEFALSE

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (B)

3. A patent is an intellectual property right.

(A) True

(B) False

Answer : (A)

4. Design patents last for 20 years.

(A) True

(B) False

Answer : (B)

5. Patents eventually expire.

(A) True

(B) False

Answer : (A)

6. The patent process is not complex; neither does it require careful planning.
(A) True

(B) False

Answer : (B)

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)
12. Because of the fair use doctrine, it is sometimes difficult to establish infringement.

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (B)

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

(A) True

(B) False

Answer : (A)

15. An example of a trademark is a motto.

(A) True

(B) False

Answer : (A)

16. Once issued, the trademark is registered with the Patent and Trademark Office.

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (B)

18. Trademark registration and search is not costly.

(A) True

(B) False

Answer : (B)

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

(A) True

(B) False

Answer : (A)

20. Every business at some point needs the services of an attorney.

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (B)

23. One of the principal advantages of a corporation is that the stockholder's liability (the most
money a person can lose) is limited to an individual's investment.

(A) True

(B) False

Answer : (A)
24. At present, the courts have held that the unauthorized use of another's mark in a domain name
may constitute trademark infringement.

(A) True

(B) False

Answer : (A)

25. Because corporate law makes it difficult for businesses to consider employee, community, and
environmental interests in their decision making, the B corporation has been introduced.

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (B)

28. In bankruptcy terms, Chapter 7 is often called liquidation.

(A) True

(B) False

Answer : (A)

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

(A) True

(B) False

Answer : (B)
30. Business owners normally prefer Chapter 7 bankruptcy over any other form of bankruptcy.

(A) True

(B) False

Answer : (B)

MULTICHOICE

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

(A) machines.

(B) products.

(C) processes.

(D) ideas.

Answer : (D)

32. Design patent protection lasts for _____ years.

(A) 10

(B) 12

(C) 14

(D) 20

Answer : (C)

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

(A) l5

(B) 20

(C) 22

(D) 25

Answer : (B)

34. A patent gives the holder a temporary

(A) profit.
(B) oligopoly.

(C) monopoly.

(D) specification.

Answer : (C)

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

(A) percentage

(B) specification

(C) value

(D) integration

Answer : (B)

36. A series of short paragraphs, each of which identifies a particular feature that is protected by
the patent, are known as_______.

(A) claims

(B) journals

(C) values

(D) plans

Answer : (A)

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

(A) specification.

(B) particulars.

(C) concept.

(D) value.

Answer : (A)

38. According to the U.S. Patent Office, the process of obtaining a patent takes how many years?

(A) about 2 years

(B) about 3 years

(C) about 4 years

(D) about 6 years

Answer : (B)

39. The part of a patent application that identifies the features that are protected is known as the

(A) particular.

(B) claim.

(C) identification.

(D) essence.

Answer : (B)

40. The part of a patent application that defines and limits the patented invention is known as the

(A) specification.

(B) illustration.

(C) claim.

(D) concept.

Answer : (C)

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

(A) dropped.

(B) pursued.

(C) integrated.

(D) obfuscated

Answer : (B)

42. 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.

Answer : (B)

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

(A) an introduction.

(B) examples and/or experimental results.

(C) a summary of invention.

(D) a budget for handling infringement.

Answer : (D)

44. 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 Small Business Association.

Answer : (B)

45. What percentage of issued patents is considered commercially valuable?

(A) a very small percentage

(B) a very large percentage

(C) about a third

(D) about half

Answer : (A)

46. A patent infringer can be liable for all _______ resulting from the infringement as well as for legal
fees.

(A) profits

(B) damages

(C) claims

(D) costs
Answer : (A)

47. An infringement budget deals with

(A) legal battles.

(B) government bribes.

(C) the outside molding of a building.

(D) advertising expenditures.

Answer : (A)

48. 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.

Answer : (B)

49. 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.

Answer : (B)

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

(A) nontangible

(B) technical

(C) tangible

(D) commercial

Answer : (C)
51. Because of the doctrine, it is sometimes difficult to establish infringement.

(A) fair use

(B) acquisition

(C) freedom of information

(D) right to publish

Answer : (A)

52. The determination of fair use of copyrighted material 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.

Answer : (A)

53. 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.

Answer : (A)

54. Copyrights may be expressed in all of the following except

(A) books.

(B) periodicals.

(C) motion pictures.

(D) records.

Answer : (D)

55. Legal protection is granted to computer programs in what form?

(A) patent
(B) trademark

(C) copyright

(D) service mark

Answer : (C)

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

(A) ideas.

(B) lectures.

(C) books.

(D) music.

Answer : (A)

57. A trademark is a distinctive _____ that is identified with a company's product.

(A) name

(B) billboard

(C) TV ad

(D) storefront sign

Answer : (A)

58. Which of the following is not a trademark?

(A) a sales price

(B) a logo

(C) a symbol

(D) a name

Answer : (A)

59. A trademark may be invalidated in all of the following ways except

(A) cancellation proceedings.

(B) cleaning-out procedure.

(C) abandonment.
(D) generic words.

Answer : (D)

60. 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.

Answer : (D)

61. 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.

Answer : (C)

62. The failure of a trademark owner to file an affidavit stating it is in use is referred to as which of
the following trademark invalidation reasons?

(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

Answer : (A)

63. The process of trademark registration is

(A) expensive.

(B) impossible.

(C) one that must be handled by a lawyer.

(D) inexpensive.
Answer : (A)

64. To establish a sole proprietorship, a person needs to

(A) obtain whatever local and state licenses are necessary.

(B) legalize financial documents.

(C) carefully assume their shares in the profits.

(D) obtain owner stock.

Answer : (A)

65. In the context of trademark invalidation, if a party seeks to prove that a trademark has not been
used within six years of registration, it is known as

(A) abandonment.

(B) cancellation proceedings.

(C) cleaning-out procedure.

(D) generic meaning.

Answer : (C)

66. 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.

Answer : (D)

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

(A) netlaw.

(B) cyberlaw.

(C) interlaw.

(D) legal web.

Answer : (B)
68. B corporations' legal structure expands corporate accountability to encompass all of the
following except

(A) higher legal accountability standards.

(B) ​comprehensive and transparent internet standards.

(C) comprehensive and transparent social performance standards.

(D) society's greater good.

Answer : (C)

69. Of the following statements, which is true of sole proprietorships?

(A) A sole proprietorship is a business that is owned and operated by one person.

(B) Proprietors have limited liability for the operation.

(C) Proprietors are taxed as businesses.

(D) Ordinarily, proprietorships have amounts of capital available to them equal to that available to
other types of business organizations.

Answer : (A)

70. 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.

Answer : (B)

71. Who defined the corporation as "an artificial being, invisible, intangible, and existing only in
contemplation of the law."

(A) Karl Marx

(B) Justice John Marshall

(C) Henry Ford

(D) Thomas Jefferson

Answer : (B)
72. How does death affect the duration of a corporation?

(A) A corporation usually terminates on the death of a founding shareholder.

(B) A corporation is unaffected by the death of a shareholder.

(C) A corporation is usually unaffected by the death of a shareholder.

(D) A corporation is usually unaffected by the death of a shareholder unless a general partner dies.

Answer : (B)

73. 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

Answer : (B)

74. From where does an S corporation take its name?

(A) Subchapter S

(B) state law

(C) S Lab

(D) Uniform Commercial Code

Answer : (A)

75. 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

Answer : (C)

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

(A) straight bankruptcy

(B) reorganization

(C) adjustments of debts

(D) liquidation

Answer : (D)

77. Which of the following are suggestions to minimize legal costs?

(A) visit the lawyer during normal hours of operation

(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 an emergency requires it

Answer : (A)

78. 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.

Answer : (C)

79. 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.

Answer : (B)

80. The purpose of filing for Chapter 7 bankruptcy is

(A) liquidation.

(B) adjustment.

(C) reorganization.
(D) allocation changes.

Answer : (D)

ESSAY

81. Define a patent as it relates to intellectual property protection.

Graders Info :

A patent provides the owner with exclusive rights to hold, transfer, and license the production and
sale of the patented product or process. Design patents last for 14 years; all others last for 20 years.
The objective of a patent is to provide the holder with a temporary monopoly on his or her innovation
and thus to encourage the creation and disclosure of new ideas and innovations in the marketplace.
Securing a patent, however, is not always an easy process.

A patent is an intellectual property right. It is the result of a unique discovery, and patent holders
are provided protection against infringement by others. In general, a number of items can qualify for
patent protection, among them processes, machines, products, plants, compositions of elements
(chemical compounds), and improvements on already existing items.

82. What does a copyright protect?

Graders Info :

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.

83. What are the legal structures for entrepreneurial ventures?

Graders Info :
​

A sole proprietorship is a business that is owned and operated by one person. The enterprise has
no existence apart from its owner. This individual has a right to all of the profits and bears all of the
liability for the debts and obligations of the business. The individual also has unlimited liability,
which means that his or her business and personal assets stand behind the operation. If the company
cannot meet its financial obligations, the owner may be forced to sell the family car, house, and
whatever assets would satisfy the creditors.

A partnership, as defined by the Revised Uniform Partnership Act (RUPA), is an association of two
or more persons who act as co-owners of a business for profit. Each partner contributes money,
property, labor, or skills, and each shares in the profits (as well as the losses) of the business.
Though not specifically required, written articles of partnership are usually executed and are always
recommended. This is because, unless otherwise agreed to in writing, the courts assume equal
partnership-that is, equal sharing of profits, losses, assets, management, and other aspects of the
business.

A corporation is "an artificial being, invisible, intangible, and existing only in contemplation of the
law." As such, a corporation is a separate legal entity apart from the individuals who own it. A
corporation is created by the authority of state laws and usually is formed when a transfer of money
or property by prospective shareholders (owners) takes place in exchange for capital stock
(ownership certificates) in the corporation. The procedures ordinarily required to form a corporation
are (1) subscriptions for capital stock must be taken and a tentative organization created, and (2)
approval must be obtained from the secretary of state in the state in which the corporation is to be
formed.

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

Graders Info :

Trademark registration and research is expensive. Trademark infringement is even more expensive.
There are five basic rules to avoid difficulties with trademarks.

• Never select a corporate name or a mark without first doing a trademark search.

• If your attorney says you have a potential problem with a mark, trust his or her judgment.

• Seek a coined or fanciful name or mark before you settle for a descriptive or highly suggestive one.

• Whenever marketing or other considerations dictate the use of a name or mark that is highly
suggestive of the product, select a distinctive logotype for the descriptive or suggestive words.

• Avoid abbreviations and acronyms wherever possible, and when no alternative is acceptable, select
a distinctive logotype in which the abbreviation or acronym appears.

85. Identify and describe the three major sections of the Bankruptcy Act.
Graders Info :

​ 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.