By Amishi Sodani
Abstract:
This article explains the interplay between startups and Intellectual Property Rights, emphasizing the benefits to start-ups upon receiving intellectual property protection. It discusses the important Intellectual Property Rights that affect startups that are, patents, trademarks, industrial designs and trade secrets. The article also discusses the significance and relevance of building an intellectual property portfolio for the start-up and discusses the various schemes formulated by the Government of India to facilitate intellectual property registration by startups. The article aims to highlight that IP protection is a necessity for start-ups. It also analyses the importance of due diligence and building an IP strategy for a start-up.
Intellectual Property Rights (hereinafter “IPR(s)”) are exclusive rights granted for the specific time period for innovations or creations. It protects inventions, designs, logos, artistic or literary or dramatic works and also confidential information of any business that enables it to succeed. IPRs are granted to encourage research and development in order to promote better innovation and foster growth in society.
Start-ups are disruptors that bridge the gap between a problem and solution by offering novel and innovative measures to solve the problem. They develop their own unique product or service and provide it at a reasonable cost and such innovations are creations of the intellect. It, therefore, becomes pertinent to protect the intellectual property (hereinafter “IP(s)”) of these start-ups to ensure their success. The most pertinent benefits of IP protection are as follows: Firstly, it encourages the start-ups to indulge in more research and development for new innovations, it provides the return on investment that is put into the start-up. Secondly, it levels the playing field for the start-ups against the incumbents, thereby preventing exploitation of innovations. Furthermore, competitive advantage increases the revenue of start-ups and enlarges its consumer base. Thirdly, the surety of protected IP assets attracts large investments as there is guarantee that the start-up is capable enough to protect itself. Fourthly, the start-ups have to maintain their reputation and brand value that requires protection of confidential business information and trademarks against infringement. Overall, IP protection provides start-ups with brand image and credibility, thereby reducing the risk of exploitation.
Important IPRs related to Start-ups:
Patent are exclusive rights granted to for an invention that new, involved an inventive step and is capable of industrial application. During this period, the inventor is entitled to exclude anyone else from commercially exploiting his invention. The governing statute is the Patents Act, 1970. A trademark includes any device, brand, heading, label, ticket, name, shape of goods, packaging or combinations of colour or any combination thereof. A trademark can be represented graphically and should also be capable of distinguishing the goods or services of one brand from another. The governing law is The Trademarks Act, 1999. The registration of the trademark is valid for a period of 10 years and renewable every 10 years.
Trade secret is confidential information of a business or enterprise. It has commercial value and leads to huge economic advantage over the competitors and therefore, it must be protected at all costs. For example, the recipe of Coca-Cola. Information that exists in public domain, has been voluntarily revealed, undergone reverse engineering and not protected properly cannot be protected. There is no statute in the Indian law which governs the protection of trade secrets, however, as per judicial precedents trade secrets can be protected under Copyright Act, 1957, Indian Contract Act, 1872, actions like breach of confidence. Industrial Designs protect shapes, patterns that can be applied on two-dimensional or three dimensional or in both form by an industrial process and can be judged solely by eye. It excludes the functional part of any design and is protected under the Designs Act, 2000.
Building an IP Portfolio:
Start-ups do not possess large financial resources or capital to obtain IP protection, which therefore becomes and expensive option and most start-ups tend to avoid investing into it. The challenges faced include high registration cost, litigation cost in case of infringement allegations. However, the risk of not registering the IP is far greater compared to the cons of IP registration, or else, it can cause grave damage to the start-up. Therefore, it is pertinent that a start-up develops a robust strategy to obtain IP protection in a seamless manner without financial obstacles. It is pertinent for start-ups to build an IP strategy just like building a finance or marketing strategy. The purpose of an IP strategy is to govern the creation, ownership and management of own IP assets by the start-up itself, and increase economic growth. It is imperative that every start-up must think formulate an IP strategy before commencing business to avoid exploitation by large businesses. The Government of India has formulated certain schemes to ensure that start-ups can obtain IP protection at cheaper cost.
- Scheme for Facilitating Start-ups Intellectual Property Protection (SIPP):
The Government has introduced SIPP to facilitate certain categories under start-ups that cannot afford IP registration with affordable options to register and protect their IP. Through SIPP, start-ups have affordable options to protect Patents, Trademark and Designs. It started on 16th January, 2016 for a period of one year and was later extended repeatedly until 31st March, 2023. The following start-ups are eligible to enroll themselves in this scheme:
- Start-ups that are certified to have an “innovative business” by Certification Inter-Ministerial Board which is established by the Department of Industrial Policy and Promotion (DIPP).
- An entity that is considered to be a start-up up to five years from their date of incorporation/registration.
- If the entity’s turnover for any financial year does not exceed Rs. 25 crores.
- If the entity is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property and this happens when it develops:
- A new product or service or process
- An improved existing product/service/process which creates value for the customers
To implement the aforesaid scheme the Controller General of Patent, Trademark and Design (CGPDTM) have empanelled facilitators to provide start-ups with advice on IPR, filing for IP registration, drafting patent applications, and more. These facilitators provide all possible help to the start-ups to protect their IP in an affordable manner.
- Support for International Patent Protection in Electronics and Information Technology (SIP-EIT):
The Department for the Promotion of Industry and Internal Trade (DPIIT) formulated various schemes to create a supportive start-up ecosystem. The Ministry of Electronics and Information Technology launched a scheme to provide financial support to the Micro, Small and Medium Enterprises (MSMEs) and technology start-ups for filing international patents in order to encourage innovation and emphasize the importance of global IP protection. Total reimbursement will not exceed Rs. 15 lakhs or 50% of the total expenses, whichever is less. To avail the benefit of the scheme the following is the eligibility criteria:
- Registered under MSME Development Act, 2006 as an MSME unit, OR
- Should be registered under the Companies Act and fulfil investment limits in plant and machinery or equipment as under the MSME Development Act, 2006; OR
- The applicant should be a registered STP Unit and should fulfil the investment limits in plant and machinery or equipment as defined in the MSME Development Act 2006, OR
- The applicant is a technology incubation enterprise or a start-up located in an incubation centre/ park and registered as a company (a certification from the incubation centre/ park, in this case, is mandatory) and should fulfil the investment limits in plant and machinery or equipment as defined in the MSME Development Act 2006 of Government of.
While building an IP strategy, start-ups must consider the above two schemes. To build a proper strategy, the start-ups need to carry out proper due diligence to assess their own IP assets, their value with a detailed examination. It will help the start-up understand its position of IP assets and how a strategy needs to be formulated. While formulating a strategy, the core assets must be evaluated and it must be done at the initial stage after conducting a cost-benefit analysis to ensure that IP protection can be obtained at the earliest.
Therefore, it is a necessity for start-ups to formulate an IP strategy in to manage their IP assets and prevent infringement. Without IP protection, start-ups cannot succeed as they become susceptible to exploitation. Start-ups must protect all their trademark and trade secrets to maintain their reputation and brand value. It is pertinent to build a robust strategy that involved carrying out a due diligence procedure and is properly planned to ensure that the start-up seamlessly obtains IP protection. Hence, IP protection is imperative for start-ups.