An Overview of Patents, Trademarks and More:
Intellectual Property is an important asset for any business. Most businesses have some form of intellectual property, whether they realize it or not. Be it an invention, a logo, an industry article, a marketing plan or whatnot, it is property that should be protected and maintained to provide your business with the optimal benefits available.
What is Intellectual Property?
In general, "Intellectual Property" refers to the creations of someone's intellect that are generally intangible but are granted certain ownership rights under the law that are similar to that of tangible property rights. By law, owners are granted certain rights to use and benefit from their intellectual property to the exclusion of others. Common types of intellectual property include patents, trade secrets, trademarks and copyrights.
Some intellectual property can embody more than one type or form. In such an instance, a choice between intellectual property protections should be considered. Of consideration should be (1) the type and characteristics of protection a particular form will provide, (2) the ease and cost of obtaining the desired form, (3) the cost of maintaining and protecting the particular form, (4) the intended use of the intellectual property and therefore whether the form will give the protection needed to meet the company's objectives, and more.
Understanding the interrelationship between the various forms is important to not only determine which form should be sought, but also how it will function within the company. For example, a patent right is granted for a specific period of time, while a trade secret may be maintained forever. However, a trade secret is lost once it is made public. Therefore, if public disclosure is necessary for obtaining any benefit from intellectual property, then a patent would be preferred over a trade secret, even if it will expire. However, if public disclosure is not necessary, then a trade secret may be the preferred form, since it can be for an indefinite period, so long as it is properly maintained and shielded from public disclosure.
What is a Patent?
A patent is an ownership right granted by the government on a particular product or process that excludes others from copying, making, using, selling, or importing the invented product or process covered by the patent. The policy behind patent rights is to encourage the creation and invention of new products and processes by providing the owner protection from losses associated with investing tremendous resources into developing an invention only to have it immediately copied, produced and profited by someone else. The patent gives the creator a sort of monopoly over the invention for a period of time that should be sufficient to provide the creator an opportunity to receive a return on their investment before a competitor, who did not have to incur the expense of the invention, is able to copy and compete with a substantially similar product or process.
There are basically three types of patents; utility patents, design patents and plant patents. Utility patents usually include processes, machines, manufactures or compositions of matter. However, they do not include abstract principles, mathematical formulas or aesthetic or emotional reactions of human beings. Design patents provide protection for the ornamental aspects of a product. However, if the design is primarily functional rather than ornamental then it will not qualify for patent protection. A design may also be copyrightable, however unlike copyright protection, the design patent will not cover the design if it is applied to a type of product that is not covered by the patent. Plant patents encompass a very narrow area of patent law. Only asexually reproducible plants are patentable. Plants reproduced by seeds are not.
Because of the exclusive rights patents impose on the market place, they are granted discriminately. To be patentable, the invention must possess (1) utility, (2) novelty and (3) non-obviousness. "Utility" means that the invention must be operable, capable of use or able to achieve some sort of purpose. "Novelty" means something that is not reasonably "anticipated" by the public or an average person. To be "non-obvious" a product or process would not be obvious to a person of ordinary skill in the pertinent art at the time of its invention. The invention cannot be a mere minor variation or modification of an old process, product or technology.
What is a Trade Secret?
A trade secret consists of confidential information that has been developed by an owner that gives the owner a competitive advantage in the market place. It must (1) have an identifiable actual value, (2) be secret and (3) be something the owner takes reasonable steps to keep secret. Examples of information that may qualify as trade secrets include customer lists, business processes, pricing information, marketing programs and more.
What is a Trademark?
A trademark is defined by law as "any word, name, symbol, or device, or any combination thereof... used by a person... to identify and distinguish his or her goods, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown." Similar to trademarks are "service marks" which are marks that relate to services as opposed to a product, "collective marks" which are marks that relate to a group or organization, and "certification marks" which are marks that relate to a government or private entity that certifies products or services.
To qualify for trademark protection, a mark must be "distinctive". There are basically five categories of "distinctiveness". The strongest is "fanciful" marks. They are marks that are basically a made up term, like "GOOGLE" or "KODAK". Fanciful marks are the easiest to receive trademark protection, assuming there are no similar marks in relation to similar products or services. The next type of mark with the strongest likelihood of obtaining trademark protection is "arbitrary". An arbitrary mark is one that is an actual word, but has no meaning in relation to the product or service attributed to it. Examples of arbitrary marks would be "STARBUCKS" for a brand of coffee, "AMAZON" for a bookseller or "APPLE" for a computer company. "Suggestive" marks can receive trademark protection but may be more difficult to trademark if they are too "descriptive." They include marks that merely suggest or hint at the nature of the goods or services they are related to. Examples would include "COPPERTONE" for sun tan oil or "HANDIWIPES" for dust or cleaning cloths.
"Descriptive" marks are much more difficult to obtain trademark protection. Descriptive marks are those that provide an immediate idea of the ingredients, qualities or characteristics of the goods or services. For example, "CLAIMS MAGAZINE" for an insurance industry magazine or "SOAKER" for a toy water gun. To qualify for protection, a descriptive mark must acquire a "secondary meaning" to the point where the public primarily associates the mark with a particular seller or owner. Otherwise, a descriptive mark will not receive protection. The intentional misspelling of a descriptive term does not change it from descriptive to suggestive.
The weakest category of "distinctiveness" includes marks that are "generic." A generic mark is one that is simply a common name of the goods or service. A generic mark cannot receive trade mark protection. Some examples of marks that were found to be generic include "GOLD CARD" for a credit card and "HOAGIE" for a sandwich. Sometimes a mark can be so commonly used that while it was not generic when adopted, it can become generic. Examples or trade marks that were at risk of becoming generic include "COKE" for a carbonated soft drink or "KLEENEX" for facial tissues. Although the marketing advantage to having your trademark become so common that it begins to take on a generic meaning could be desirable ("Just 'google' it", meaning research it on the Internet, or "Will you 'xerox' this?" meaning make a copy on a copy machine), it can also cost you your trademark protections. Therefore, vigorous marketing efforts must be maintained by a trademark owner to prevent its mark from become so generic that people stop associating the name with the brand owner.
What is a Copyright?
A copyright is a protection that is granted to "original works of authorship." It generally includes works that are literary, dramatic, musical or artistic. Copyright protection is automatically conferred on an original work and includes the exclusive right to control who can use, copy or make works derivative of the original work (with a few exceptions). However, copyright protection does not extend to an idea, procedure, process, system, method of operation, concept, principle or discovery no matter what form they take. While a work does not need to be registered with the government to receive copyright protection, if there is an infringement, then the type of damages that can be legally recovered are limited and less than what is available if the work is registered.
A work receives copyright protection when it is "created." A work is created when it is "fixed in a tangible medium of expression." For example, a song or speech given in a live performance is not protected if and until it is somehow recorded or written down.
Copyright protection can cover a wide range of subject matter with minimal originality, and registration of a work is simple and inexpensive to obtain.
Buying fixer uppers is a great way to get started in real estate. They can be bought cheap and if bought right, with a little work be resold at a higher price or rented out for monthly cash flow.
Always inspect the property thoroughly before buying. Look for structural defects and any hidden issues which will add costs to the repairs. Check the roof, the foundation, the joists, sill plates, look for termites, water damage, dry rot, these types of problems can be very expensive to fix and you should stay away from them. Also check out the mechanical system, HVAC, electrical and plumbing problems should be avoided.
You will want to repaint everything, change out the light switches and outlet plates, light fixtures, and add new carpeting. If possible save the kitchen cabinets by painting them with a good quality paint, add new countertops, a new sink and faucets will brighten up the kitchen. Pay particular attention to the kitchen and bathrooms, you will want these looking bright & clean. The exterior of the house should be painted or power washed, the lawn cleaned up and mowed, add some flowers and some mulch for curb appeal.
If you bought the house right you should be able to rehab and sell for a profit. Always have an exit plan in case you cannot get the property sold after rehab, such as renting for cash flow. When renting always screen the prospective tenant, you do not want your newly rehabbed house trashed by your tenants.
The Capital Gain Tax Rate will increase in 2011 from 15% to 20% per the sunset provisions in the current law. On top of the 5% increase, starting in 2013 a new Medicare Contribution Tax, IRC § 1411, will subject the “net investment income” of individuals, estates and trusts to an additional 3.8% tax to the extent the taxpayer’s “modified adjusted gross income” (MAGI) exceeds threshold amounts. “Net investment income” includes capital gains from sales on investment properties and rentals (property held in a passive activity). Thus, it will apply to most 1031 properties held by individuals, or by partnerships and S corporation. It will not apply to properties used in an active trade or business or by a C corporation. The income thresholds are $250,000 for married couples and $200,000 for other taxpayers.
The definition of net investment income applies the tax to MAGI above the threshold levels “to the extent taken into account in computing taxable income.” Thus, gain deferred under Section 1031 should not be subject to the tax, although regulations have yet to be issued.
A single taxpayer has MAJI of $150,000, including $100,000 of gain from a rental home. The tax does not apply because the MAJI is less than $200K.
A single taxpayer has MAJI of $250,000, including $100,000 of gain from a rental home. The tax applies to $50,000 of the gain (the net investment income in excess of MAJI).
A single taxpayer has MAJI of $300,000, including $100,000 of gain from a rental home. The tax applies to the full $100,000 of gain.
One of the more talked about subjects for small real estate investors is the tax-deferred exchange.
You hear the term "1031 Exchange" or "Starker Exchange" from business associates, friends at the ballgame, even parishioners after church.
What exactly is the history, and intent, of this vehicle that enables consumers to defer capital-gains tax on the sale of investment real estate?
This original process is called a 1031 Delayed Exchange, or Starker Exchange. It is named after T.J. Starker, an Oregon man who made a deal with Crown Zellerbach in 1967 to exchange some of his forested property for some "suitable" future property.
That agreement ended up in court. Starker's battle was the basis for Congressional approval of delayed exchanges through the Internal Revenue Service.
Section 1031 specifically requires that an exchange take place. The transaction will proceed just as a "sale" for you, your real estate agent and parties associated with the deal.
However, provided you closely follow the exchange rules, the IRS will "sanction" the transaction and allow you to characterize it as an exchange rather than as a sale. Thus, you are permitted to defer paying the capital gain tax.
"The IRS has basically said all along that it will closely scrutinize exchanges without an exchange document and a facilitator in the middle of the exchange," said Richard Morse, president of Washington Exchange Services.
To totally defer capital-gains tax, you must pass the IRS acid test by: Trading even or up in value. - Trading even or up in equity. - Not pocketing any cash from the first sale. - Identifying the new (or old) property, or properties within 45 days of the sale. (Forms are available through a facilitator.) - Closing the transaction within 180 days.
In an exchange, you must trade an interest in real estate, (sole ownership, joint tenancy, tenancy in common), that you have held for trade, business, or investment purposes for another "like-kind" interest in real estate.
The like-kind definition is very broad. You can dispose of and acquire any interest in real property other than a home or a second residence. For example, you can trade raw land for income property, a rental house for a multiplex, or a rental house for a retail property.
A house that is the owner's primary residence cannot be traded for investment property. Nor do stocks, bonds, securities and similar equity investments qualify as "like kind." Likewise, if you own land and build a structure on it with 1031 exchange funds, the IRS will probably not consider your investment an exchange.
If the taxpayer actually receives the proceeds from the disposition of the relinquished property, the transaction will be treated as a sale and not as an exchange.
Even if the taxpayer does not actually receive the proceeds from the disposition of the property, the exchange will be disallowed if the tax-payer is considered to have "constructively" received them.
The code regulations provide that income, even though it is not actually reduced to a taxpayer's possession, is "constructively" received by the taxpayer if it is credited to his or her account, set apart for him or her, or otherwise made available so that he or she may draw upon it at any time.
The day you have to pay your capital-gains tax will come eventually - unless you leave the property in an instrument like a charitable remainder trust.
So if you want to sell your investment property, you should weigh the costs of a like-kind exchange against the amount you would have to pay in capital-gains tax if you simply sell the property.
Professional facilitators charge about $1,300 to $1,500; private attorneys could cost more.
To find a competent exchange facilitator in your area, consult a real-estate broker, escrow agent, title company or attorney for references.
They may be able to help you do a like-kind exchange that allows your retirement nest egg to grow even bigger until the day you really need the cash.
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