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As a startup and small business owner, How Can You Protect Your Intellectual Property Rights?

Monica Behura — Thu, 08 Apr 2021 10:33:32 +0000

With India witnessing the burgeoning of the startup space, it makes it corollary the rise of IPR infringement cases in India, wherein nearly 50% of all Intellectual Property (IP) cases being trademark infringement cases. Startups will collapse if they do not protect their Intellectual Property Rights (IPR), as it gives them the legal right to prevent companies from stealing the intangible assets that is the core of their businesses affecting its success and failure. India is home to over 73,000 start-ups, these startups contribute substantially to India’s economy. With over 35 unicorn startup companies, India is home to the third largest startup ecosystem, behind only the US and China. By 2025, India could be home to over 100,000 startups, employing over 4 million people and have over 100 unicorns with a total market value of $500 billion.

The above numbers are the reason for India to have a strong intellectual property system in place. But that is not the case with India, as it was placed 36th out of 50 shortlisted countries in the International Intellectual Property Index, scoring a low of 16.22 out of 45 identifiers. The indian government is therefore making an effort to spread awareness about the importance of IPR amongst the startups by offering incentives for startups to protect their IPR rights such as giving tax rebates. With its new National IPR policy, it aims to push IPRs as marketable financial assets, promote innovation and entrepreneurship, while protecting public interest. This policy helps in promoting technologies in startup culture.Intellectual Property Rights are reasons for fast innovation especially in the Tech startup industry.

The ministry of commerce and industry, for the purpose of ease of doing business, has stated that the businesses now have to get a certificate of recognition from DIPP which will be sufficient to avail all benefits pertaining to IPR provided by the Startup India programme. It is a welcome move as earlier startups had to go through an elaborate and lengthy process of approaching inter-ministerial boards to get the IP benefits. Start-ups are now eligible for expedited examination of patent applications. To avail benefits startups need to get a certificate of recognition from DIPP, the process which has been simplified for those who have applied for a patent.

As part of its policy, the Indian government in its “Scheme for facilitating Start-Ups Intellectual Property Protection (SIPP), is meant to nurture and mentor innovative and emerging technologies and assist them in protecting and commercialising it by providing them the access to high quality IP services and resources.

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Your “intellectual property or asset” will be your competitive edge that will get revenue and drive profits for you.

Intellectual Property Rights and Startups

The asset of a startup is its innovation, its unique idea or its business model. It becomes imperative to protect the “intellectual assets”- that differentiates from your competitors. It is your Unique Selling Proposition (USP), in front of your prospective clients, customers. Your “intellectual property or asset” will be your competitive edge that will get revenue and drive profits for you. It needs to be protected in the form of patents, copyrights, trademarks, design rights. The three basic types of intellectual property that startups need to know are:

Patent
Trademark
Copyright

Not all startups need to invest its resources in building a patent portfolio, but it requires to know the role of IPR not only to protect its innovation but also to have the knowledge of the risk involved in not protecting its assets. Knowledge of IPR and its role is critical to avoid risk of being exposed to assertions of IPR infringement by competitors.

This is where the root of all problems lie- lack of education when it comes to IPR practices. Startups are busy in growing their company that failure to exercise IP rights often leads to the persistent problem of trademark infringement. Not filing for its intellectual property for trademark, copyrights or patents at the right time will results in giving birth to copycats imitating company’s trade name or a variant of it, cyber/domain squatting, widespread confusion about the actual service provider, and facing the music targeted at a copycat. Established entities like Sony, Apple, Tesla, Samsung among many others therefore spend a fortune on their Intellectual Property Rights. A significant portion of their budget goes into protecting their products; they have spent billions in its R&D.

Recently, many trademark infringement cases have set precedents for startups. Flipkart, has been bitten twice in the Intellectual Property Rights infringement cases- One from Electric appliance manufacturer Marc Enterprises, accusing the e-commerce marketplace of naming its private label MarQ, that sounds similar to the later’s brand name. Earlier, Metro shoes filed a trademark infringement case against the unicorn startup of its private label Metronaut. Delhi High court fined Policybazaar of Rs 1 million in a Intellectual Property Rights infringement case by Acko resurfaced. Hyderabad based startup GrabOn won a trademark infringement case against it by Bangalore based rental platform GrabOnRent, in a case wherein the former accused the rental company of using its goodwill for its own profit and even targeting the branded keywords on Google Adwords.

Need for Intellectual Property Strategy

The challenge for founders of startups is that resources both financial and physical are mostly limited, and so, hard decisions need to be made about how to allocate them. This makes it crucial that startups link their IP strategy starting early and be smart to keep their costs down. For instance, by keeping their details of their innovation confidential, an inventor can p[rotect it as a trade secret, and so defer the costs of applying for a patent until the startup is funded. By checking the assignment provisions in their agreements with consultants, a founder can ensure that the business owns the IP rights in the materials it pays for. It doesn’t mean that if you pay for something to be developed does not mean one owns it. Formulating a clear and practical strategy to manage and protect your IP and aligning this with your business plan is key.

A well thought out IP strategy is based on the needs not only of the business in the present, but also provides a framework for protecting the business as it grows. It will put simple processes in place to identify a business’s IP as it is created, then capture it and finally protect it. It will also help a startup business in taking measures to check and make sure that it isnt infringing on someone else’s IP. Protecting IP will mean different things to different businesses. It could mean protecting software, or AI technology, designs, or brands logos. It may involve preserving copyright and trade secrets, or perhaps registering patents, designs, domain names or trademarks.

Many startups will not have the resources to apply and protect all of their potentially registrable IP rights at the outset. Financial constraints will mean that difficult decisions will need to be made regarding which IP right or rights to prioritize. This is where a clear strategy comes handy as it enables a startup to plan step by step, and budget sequentially. When the budget is low or insufficient and hard decisions need to be made, so long as this is recognised at an early stage, strategies can be employed to limit, or delay. So the lesson learnt is spent until the business develops.

Therefore, developing a diligent and an intelligent IP strategy at an early stage is imperative.

Hire a IP law firm or General Counsel
The law firm or a General Counsel will help the startup to consider their general strategies relating to six IP concerns commonly encountered by start-ups. They are:

Choosing outside IP counsel
Protecting company’s innovations
Trade secrets
Copyrights and the internet
Protecting company’s brand name
Enforcing its IP rights

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Startups should beware of over-reliance on “fair use” because the exception is narrow.

The best starting point is to find a boutique IP law firm, or a law firm that has an excellent IP team. Look for firms with industry or sector focuses that align with your business. Since many startups revolve around innovative technology, the more experienced the firm is in your technology the better. Consider hiring different firms for different matters with sensible pricing structures. Patent law is niche even outside IP law, so hire a dedicated patent attorney in the company’s particular industry sector.

Not every invention qualifies for a patent, even if it does, startups may not want to pursue patent protection for every invention. The patent application process is expensive and time consuming, so outside counsel should be hired to conduct searches on the relevant field of invention to know what other patents exist, to monitor the competitive landscape, to file the patent application.

How do startups protect trade secrets?

Trade secret protection is very different from acquiring a patent or a trademark. Companies do not apply for or register trade secrets, they formulate Non disclosure agreements and labeling documents “confidential” or “trade secrets”. Therefore, general counsels help the company carefully develop contract documents with employees that will maintain reasonable and effective safeguards for its confidential information.

When using works copyrighted by others, the marketing team should identify what copyrighted works you need in your everyday basis so that the IP counsel or law firm hired can acquire necessary permissions and attributing authorship. Startups should beware of overreliance on “fair use” because the exception is narrow. Just because an image, article or content is available on the internet does not mean that it is free for all to use. GCs should enter into a strong licencing agreement for the company’s own copyrighted works and educate the team on why they should be seeking copyright protection for works they create.

Trademarks – your brand name and symbol gain significant recognition with time and resources spent on the same. Telling the marketing team the scope of trademarks protection you want to achieve, is vital. As with patents, startups may want to consider hiring outside trademark counsel that has expertise in its market and can provide strategic advice on which marks to file for and how to prioritise them, advice on designing an effective trademark strategy.

Start-ups should register domain names as soon as they are identified including prior to applying for a trademark—to ensure that they are available.
There are many options to enforcing IP rights besides filing a lawsuit that may be more effective in certain circumstances. The first step is to assess the potential costs of an IP dispute. Costs of IP litigation can quickly escalate and drag on for years. It can also have unexpected repercussions on a company’s public image.

A startup GC is well advised to assess all options with outside counsel before taking action that includes doing due diligence to make sure the company is not violating someone else’s rights. In-house counsel must educate their management about litigation costs, monetary, and non-monetary. IP infringement lawsuits should be initiated with careful deliberation because in some cases, a cease and desist letter or licensing agreement can be a cost effective alternative.

There certainly are additional IP considerations that GCs at startups will need to consider which may include joint development agreements, IP strategy development. But in terms of getting started, making sure the six core aspects of IP are addressed early gives a startup the best chance of avoiding costly IP related missteps in the company’s formation period.

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How Can A Start-up Add Value To Its business With Intellectual Property?

Joseph Varughese — Thu, 04 Mar 2021 10:46:00 +0000

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.

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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.
Cinematograph films.
Sound recordings.

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.

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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.

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