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CHAPTER 9: 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
2. Laws governing intellectual property rights include copyrights, trademarks, and leases.
ANS: F PTS: 1 NAT: AACSB Ethics | Legal Responsibilities
3. A patent is an intellectual property right.
4. Design patents last for 20 years.
5. Patents eventually expire.
6. The patent process is not complex; neither does it require careful planning.
7. The two parts of a patent application are specification and claims.
8. The object of a patent is to provide the holder with a temporary monopoly on his or her innovation.
9. A copyright provides exclusive rights to creative individuals for the protection of their artistic
productions.
10. Works created and copyrighted after January 1, 1978, are protected for the life of the author plus 70
years.
11. Anyone who violates an author’s exclusive rights under a copyright is liable for infringement.
12. Because of the fair use doctrine, it is sometimes difficult to establish infringement.
13. Copyrights have to be registered with the Copyright Office.
14. A trademark is a distinctive name, mark, or symbol that is identified with a company’s product.
15. An example of a trademark is a logo.
16. Once issued, the trademark is listed with the Patent and Trademark Office.
17. The registration of a trademark last for 40 years, with continuous renewal every 10 years.
18. Trademark registration and search is not costly.
19. If infringement can be proven in court, an award may be given to the trademark holder.
20. Every business at some point needs the services of an attorney.
21. Three primary legal forms of organization are the sole proprietorship, the partnership, and the
corporation.
22. It often is possible to obtain more capital and a better range of skills in a sole proprietorship than in a
partnership.
23. 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.
24. At present, it is illegal to attempt incorporation over the Internet.

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.
26. The Bankruptcy Act was set up in order to provide assistance to both debtors and creditors.
27. Chapter 7, Chapter 9, and Chapter 11 are the most common forms of bankruptcy.
28. Straight bankruptcy is often called liquidation.
29. Chapter 13 bankruptcy involves a reorganization of the enterprise.
30. Business owners normally prefer Chapter 7 bankruptcy over any other form of bankruptcy.
MULTIPLE CHOICE
1. Items that can qualify for patent protection include all of the following except
a. machines.
b. products.
c. processes.
d. ideas.
ANS: D PTS: 1 NAT: AACSB Ethics | Legal Responsibilities
2. Design patent protection lasts for _____ years.

a. 10
b. 12
c. 14
d. 20
ANS: C PTS: 1 NAT: AACSB Ethics | Legal Responsibilities
3. Patents that are not design patents have _____ years of protection.
a. l5
b. 20
c. 22
d. 25
ANS: B PTS: 1 NAT: AACSB Ethics | Legal Responsibilities
4. A patent gives the holder a temporary

a. profit.
b. oligopoly.
c. monopoly.
d. specification.
5. There are two parts to a patent application, claims and .

a. percentage
b. specification
c. value
d. integration
6. The two parts to a patent application are specification, and .

a. claims
b. percentage
c. value
d. perception
ANS: A PTS: 1 NAT: AACSB Ethics | Legal Responsibilities
7. The text of a patent application is known as the

a. specification.
b. particulars.
c. concept.
d. value.
8. According to the U.S. Patent Office, the process of obtaining a patent takes how many months?
a. about 24 months
b. about 36 months
c. about 48 months
d. about 60 months
9. 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.
10. That part of a patent application which identifies the features that are protected are known as the
a. specification.
b. illustration.
c. claim.
d. concept.
11. If an entrepreneur concludes that an innovation will withstand any legal challenge, a patent should be
a. dropped.
b. pursued.
c. integrated.
d. obfuscated
12. 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.
13. 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.
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 Small Business Association.
15. 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
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.
17. An infringement budget deals with

a. legal battles.
b. government bribes.
c. the outside molding of a building.
d. advertising expenditures.
18. 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.
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.
20. For the author of creative material to obtain a copyright, the material must be in _____ form.
a. nontangible
b. technical
c. tangible
d. commercial
21. Because of the _____ doctrine, it is sometimes difficult to establish infringement.

a. fair use
b. acquisition
c. freedom of information
d. right to publish
22. 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.
23. 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.
24. Copyrights may be expressed in

a. books.
b. periodicals.
c. motion pictures.
d. all of the above.
25. Legal protection is granted to computer programs in what form?

a. patent
b. trademark
c. copyright
d. service mark
26. Copyrights can be placed on all of the following except

a. ideas.
b. lectures.
c. books.
d. music.
27. A trademark is a distinctive _____ that is identified with a company’s product.

a. name
b. billboard
c. TV ad
d. storefront sign
28. Which of the following is not a trademark?

a. a sales price
b. a logo
c. a symbol
d. a name
29. Which of the following are not trademarks?

a. symbols
b. mottos
c. names
d. generic words
30. 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.
31. 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.
32. 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
33. The process of trademark registration is

a. expensive.
b. impossible.
c. one that must be handled by a lawyer.
d. inexpensive.
34. All of the following are ways of invalidating a trademark except

a. cleaning-out proceedings.
b. clearing-out proceedings.
c. abandonment.
d. generic meaning.
35. 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.
36. 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.
37. The emerging body of law governing cyberspace is often referred to as:
a. netlaw.
b. cyberlaw.
c. interlaw.
d. legal web.
38. B corporations’ legal structure expands corporate accountability to encompass all of the following
except:
a. lower legal accountability standards
b. comprehensive and transparent environmental standards
c. comprehensive and transparent social performance standards
d. good for society
39. 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.
40. 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
41. 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
42. 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.
43. 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
44. 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
45. 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
46. Which is not one of the major sections of the bankruptcy act?
a. straight bankruptcy
b. reorganization
c. adjustments of debts
d. liquidation
47. 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
48. 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.
49. 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.
50. When considering bankruptcy, entrepreneurs as sole proprietors normally prefer

a. Chapter 5.
b. Chapter 7.
c. Chapter 11.
d. Chapter 13.
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?
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.

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CHAPTER 9: LEGAL CHALLENGES OF ENTREPRENEURIAL VENTURES

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

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

3. A patent is an intellectual property right.

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

4. Design patents last for 20 years.

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

5. Patents eventually expire.

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

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

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

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

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

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

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

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

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

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

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

15. An example of a trademark is a logo.

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

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

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

18. Trademark registration and search is not costly.

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

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

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

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

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

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

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

24. At present, it is illegal to attempt incorporation over the Internet.

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

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

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

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

28. Straight bankruptcy is often called liquidation.

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

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

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

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

2. Design patent protection lasts for _____ years.

4. A patent gives the holder a temporary

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

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

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

14. In order to obtain a patent, an application should be filed with

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

17. An infringement budget deals with

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

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

22. The determination of fair use of copyrighted material is based on

24. Copyrights may be expressed in

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

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

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

28. Which of the following is not a trademark?

29. Which of the following are not trademarks?

31. The registration of a trademark has a lifetime of

32. Which of the following is a way in which a trademark may be invalidated?

33. The process of trademark registration is

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

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

42. How does death affect the duration of a corporation?