Before we delve into what value-adds intellectual property, commonly known in its acronym as IP, can bring to start-ups, let us briefly touch upon what is intellectual property for the benefit of few of the readers who may not have sufficient awareness about it. One of the challenges start-ups and even established companies face is their lack of awareness and understanding of the scope, need, value and nuances of intellectual property or negligence of it all along.
What is Intellectual Property?
According to the World Intellectual Property Organization (WIPO), Intellectual Property refers to creations of the human mind, such as inventions; literary and artistic works: designs: and symbols, names and images in commerce. In short IP is a category of original non-physical or intangible property that is the creation of the human intellect.
In other words, like businesses own physical assets they also own intangible assets, many of which come under the definition of IP. Intellectual Property Right is about owning such intangible assets and registering the exclusive rights to such assets with the relevant authorities under relevant laws.
There is a tendency among organizations particularly start-ups to overlook the need to look at the IP not just from a compliance perspective but also from the perspective of the value it adds to the business. Investors look at IP as the most valuable assets of a start-up as physical assets may be added only after sufficient funding comes in and /or business starts generating sufficient cash flows. Studies have shown that roughly 75-80% of the value of a typical start-up comes from Intellectual Property. Hence, it is of paramount importance for start-ups to have a portfolio of IP and get them protected from infringement under relevant laws of the country.
The central government of India brought a Scheme for Facilitating Start-Ups Intellectual Property Protection (SIPP) in 2016 (now extended up to March 2023) with a vision to protect and promote intellectual property rights of start-ups and thus encourage innovation and creativity among them. SIPP is envisaged to facilitate protection of Patents, Trademarks and Designs of innovative and interested start-ups. This scheme under Start-Up India is very helpful to the start-ups in protecting their Intellectual Property assets.
If and when a start-up plans to enter the international market, it is important to understand the provisions of Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which is an international legal agreement between all the member nations of the World Trade Organization (WTO). It establishes minimum standards for the regulation by national governments of different forms of intellectual property (IP) as applied to nationals of other WTO member nations.
The question is how a start-up can add value to its business with IP with respect and reference to various Indian laws and statutes that govern Intellectual Property applicable to start-up ecosystems in India.The major types of IP are patents, copyright, trade mark, design, and trade secrets.
Studies have shown that roughly 75-80% of the value of a typical start-up comes from Intellectual Property.
Is your business eligible to file a patent?
This is the kind of IP that grants a legal right to the owner of such patent against unauthorised selling, marketing, using of such inventions for a limited period of time which is 20 years in India.
For an invention to be eligible for patenting, it should meet the following criteria tests
Patent subject: whether the Invention relates to a patent subject matter.
Novelty: is an important criterion in determining the patent potential of an invention. Simply, it means that an invention that should never have been published in the public domain.
Inventive steps or non-clarity: This means that the invention should not be obvious to a person skilled in the same field where the invention is concerned.
Useful for industrial application: It must be capable of being applied in any industry, which means that it must have practical utility in respect of patent.
In spite of all the laws, rules and statutes in force, there are many rejections of patent applications leading to lack of enough clarity in the applicability of the provisions of laws and mostly this is subject to judgement of the authorities.
Major types or examples of patents are Utility patents meant for tangible inventions, such as machines, devices, new and useful processes, Design patents for the shape, configuration, ornamental designs on manufactured products; mostly applicable to hardware and other tangible products, Plant patents for new varieties of plants
Patentability of an idea is one of the most controversial topics all over the world as there is a very thin line difference between an idea and invention. Though patenting an idea or business method or software or algorithm is possible to an extent in the USA, it is highly unlikely in India. Indian laws don’t accept them as innovations per se. Software will be looked at from an object code vs source code perspective to decide on the criteria of innovation. However, an alternative option of getting an idea, software etc. protected under Copyright laws stands a better chance to succeed. We will not go into the great details of this aspect at this juncture.
We see many players pursuing similar business models in the same domain, like in e-commerce marketplace, technology solutions and aggregator business to name a few. It is, therefore, suggested that startups should not waste time, effort and money in trying to patent an idea that is just on paper. Even when ideas are translated into business, the likelihood of getting an idea patented is remote, else there would have been or can be only one player in one business domain or segment. We are aware of, for example, OLA coming with almost the same UBER business idea or OYO doing something similar to AIRBNB or Yatra and MakeMyTrip or Amazon, Flipkart and Snapdeal or Urban Company and HouseJoy in almost the same business. However, all these companies have many patents registered in their name for individual innovations that have been created during the course of their journey.
There has to be a proper plan and strategy in place on what should be pursued for patents, understanding the laws and procedures so that money and effort spent on creating such inventions will not go drain. An important aspect to be remembered here is the Indian system of ‘ first to file’ norm. This means whoever files an application for a patent for an invention first, gets priority.
There is no doubt about the value add that patents bring to start-ups. Patents provide an edge to patent holders over competitors. It is a catalyst to growth and can be leveraged for business advantage. More importantly for start-ups, patents derive great value in business valuation done by investors depending on the potential of such patents for the future of the business.
Let us look at some benefits of patents
Exclusivity: It gives you the legal power to stop others from copying, manufacturing, selling or importing your patented invention without your consent. If anyone tries to violate them, then they will be liable to legal action in the form of patent infringement. This is applicable throughout the entire lifespan of the patent which is 20 years from the date of patent filing in India.
ROI (Return On Investment) on Patents: Companies including start-ups can generate return on the investment made for developing and obtaining a patent for the innovation. Patents can help companies command premium prices for their products or services. Patents can be monetized through licensing or selling the invention.
Safeguarding market status: IP can help attract leading business partners, investors, and shareholders towards you or your organization for doing business. In India, this also helps in building a good relationship with competitor firms and enhances the value of the company. This will ultimately encourage small firms to participate in the industry as well.
Major challenges in obtaining a patent is that the entire patent registration process requires a lot of investment in terms of time, effort and money. It also requires a fair amount of knowledge about market scenarios, patent laws, and its competitors. It is safe to say that the process is not an easy and straightforward task. It is time consuming but worth trying if proper homework is done.
How trademarks help to promote your products and services
Trademarks, known among laymen as Brands, are the names, phrases, word signature, logos, tagline, sounds, combination of colours, label, device, symbols etc. that differentiate a brand or a company from other brands or companies in the business. They are distinctive and used in business to market, sell or promote a product or service.
Trademarks may be arguably the most important IP that can add value to a startup or any organisation for that matter. In fact, all what goes into patents, designs, trade secrets help enhance brand value. Trademark sums up the visibility and recognition of a company’s value in the public. It can act as a catalyst for increasing the value of a start-up business. Thus, it is important to use a trademark for marketing strategies to aid the enhancement of brand recognition and to draw in more consumers.
Once a startup has attained positive repute for its product or service, consumers will associate its trademark with what the business is offering to its customers. Trademarks are significantly beneficial when a business wants to diversify its products or services, get into franchising through licensing, attain more value by putting itself up for sale.
To ensure that start-ups do not need to get into the hassle of changing names at a later stage, they must conduct a thorough trademark search to determine whether the trade name, trademark or tag-line is currently being used. Not doing this can lead to the start-up losing all the brand advantage it has built till then.
For a brand to gain the value and distinguishability, visibility of the trade mark or brand needs to be built up. This calls for lots of efforts and is achieved by way of marketing including branding, advertising, blogs, posts through various media like social media and other online platforms to name a few.
The value adds that come with a trademark are manifold and some are listed below
Creates brand recognition in public
Builds trust among customers
Creates value in the market
Enhances reputation and goodwill
Distinguishes it from other companies in same business
Helps in marketing and branding
Increases visibility in search engines
What is Copyright?
Copyright grants legal rights to anything you create that expresses or embodies an idea. It gives you exclusive rights to copy, distribute, reproduce, display, and license the work. Copyright consists mainly the following categories of works:
Original literary, dramatic, musical and artistic works.
Generally, the relevance of copyright in business is limited to creative and literary works. However, as discussed earlier, copyright can come as a help for safeguarding ideas, business methods, software etc. if safeguarding them under Patent law becomes difficult and cumbersome.
What do you mean by Trade Secrets?
Trade secrets include any confidential business information related to manufacturing or industrial or commercial secrets, formula, practice, process, design, method, etc. which provide an enterprise a competitive edge over others.
It may be noted that there are no Intellectual Property statutes under which trade secrets can be registered. Either, trade secrets can be registered under patent laws or copyright laws if it is possible by complying with the required criteria. Trade secret infringements are questioned in courts under common civil and criminal laws as applicable. If the trade secret is not published or available in public domain, generally companies sign a NDA (Non-Disclosure Agreement) with stakeholders like prospective investors, customers, vendors, banks, employees and such other stakeholders to safeguard it to help the organisation in litigation if that becomes inevitable.
Trademarks are significantly beneficial when a business wants to diversify its products or services, get into franchising through licensing or attain more value by putting itself up for sale.
Value Adds of Intellectual Property in nutshell
Studies published by WIPO have indicated that a potential start-up investor would want to know as to whether an invention, innovation or idea is worth investing in. Accordingly, they would carefully want to evaluate the strengths of these ideas/innovations and the ability of the entrepreneur to commercialize the idea by way of sales and potential revenues.
There are many advantages to securing intellectual property rights. For example, protecting your IP can help in the following ways:
Business Valuation: This may arguably be the most valuable benefits of IP for the start-ups when they engage with investors for funding, dilution, acquisition or buy-out.
Market value of your business : This is another one of the most important benefits of having a protected IP. Companies can generate revenues through royalties etc for your business through licensing, sale, franchising or commercialisation of protected products or services. This can, in turn, help improve market share or increase the profits of the company..
Market share for the products and services : Trade marks, logos, tag lines or the design of the products can help differentiate your products and services in the market and promote them to your customers.
Debt Financing: IP assets can be monetized through sale, licensing or using them as collateral for debt financing. As well as this, you can use your IP as an advantage when applying for government funding, grants, tax benefits, subsidies or loans.
Safeguarding your innovation: Protection against competitors or new entrants copying the innovation or trademark to gain market share at the cost of the efforts and money spent by you on creating the IP.
IP will help start-ups a lot if they give due importance to creating and protecting it. What is crucial for start-ups is to have a solid strategy in place on what IP portfolio needs to be created, what needs to be protected, what kind of budget to be allocated for creating and protecting the IP portfolio in such a way that no money and effort is not lost and maximum benefits are reaped.