Intellectual Property - All that startup founders needs to know

20 Jun
Intellectual Property - All that startup founders needs to know

Intellectual Property - All that startup founders needs to know

Intellectual Property (IP) is an intangible asset that is the outcome of ideas, information and knowledge generated by human minds. Basically, it is the property of mind. IP can give a business a sharp competitive edge in the market, but at the same time, it is vulnerable to being stolen or copied by rivals if not protected. Hence, IP is said to have both moral and commercial value. Startups should consider four types of IP – Patent, Trademark, Copyright and Trade Secret.

Why Startups Need to Take IP Seriously

The most valuable asset that perhaps any startup owns is their Intellectual Property (IP). So, shouldn’t it be obvious that a startup should consider protecting its IP? Just the way you insure your physical assets and intangible assets such as brand and logo, you should also safeguard its IP. Here are some reasons how IP can prove beneficial for your startup.

Commercializes Your Inventions and Trade Secrets

IP can help you commercialize your products and earn profits from them. You can sell the products directly and even license the rights to someone in lieu of royalty.

Creates Brand Name

IP gives a distinct identity to your startup among the minds of your customers. Higher brand value also means higher market value.

Gives First-Mover Advantage

IP gives you a legal right to manufacture market and sell your products without being worried about your idea being stolen or infringed by the competitor. You can move to market much earlier than your competitors and even fetch premium prices.

Raises Investor Appeal

Usually, the value of IP increases with the period of time, unlike other physical assets, which are prone to depreciation and market fluctuations. IP also opens up alternative income generation streams such as licensing and franchising. Both these factors work favourably in attracting investors for the startup.

Acts as a Financial Security

IP can be put as collateral to secure debt finance or sold at a significant price during exit, mergers or acquisition. If you are applying for a government grant, subsidy or loan, IP can give you an upper hand.

Things Startups Should Bear in Mind Regarding IP

Identification of the IP

This is the first step towards protecting your IP. List down all things that you think come under the category of patents, copyrights, trademarks or trade secrets. Ideally, you should hire an IP lawyer to help you do this exercise.

Ownership of IP

It is very important to know who will get the ownership of IP – founders, employees, investors or any third party. If the founders are the owner of the IP and one of them leaves the company, then he can set up a competing business. If the investor has funded the creation of IP, then he may decide to own it. Usually, the IP creation by employees is owned by the company unless otherwise agreed upon. Third parties come into picture when the startup has outsourced its product design, software development or other such work to independent contractors/agencies. In that case, the third party may want to own it. Deciding the ownership and rights to use the IP can avoid disputes later on.

Confidentiality of Agreement

Whenever you are working on IP creation, make sure you make all concerned stakeholders sign a mutual non-disclosure agreement. It is advisable to keep a written record of each and every person who is involved in IP and enter into suitable confidentiality agreements with them.

Understanding IP Laws

In India, IP laws are primarily governed under The Copyright Act (1957), The Patents Act (1970) and amendments thereof (1999, 2002 and 2005), The Trademarks Act (1999) and The Designs Act (2000). The Union Cabinet of India approved the National Intellectual Property Rights (IPR) Policy in May 2016. The policy aims to bring all IPRs on a single platform and set up an institutional mechanism to implement, monitor and review IPRs by adopting the best global practices.

The central government had also announced the Startups Intellectual Property Protection (SIPP) scheme in 2016 to enable entrepreneurs to protect their patents and trademarks. This scheme aims to help startups by giving them access to high-quality IPR services. This scheme is currently applicable until March 2020.

However, in order to make the policy clearer and inclusive for more startups, the Department For Promotion of Industry and Internal Trade (DIPP) published the draft Patent (Amendment) Rules 2018 in December same year. The draft policy advocates online application of documents for international applications, expansion of beneficiary list to expedite examination of patent applications, constitution of opposition board to deal with pre-grant opposition, and also review of IPR fees.

Registration of IP

A startup can file for a patent in the Patent Office of its territorial jurisdiction or electronically on www.ipindia.nic.in, the official website of Patent Office in India. Startups should also consider protecting their IP under international laws if they are planning to operate in foreign locations. The IP law usually differs from one country to another.

In spite of the advantages that IP protection provides, most startups put it somewhere middle in the list of issues they have to handle. It is imperative for startups to understand that IP strategy is integral to their overall business strategy. They need to protect what is their own and consider it as the first act of priority.