A start-up is a new business, which has a small scale of operation. In order for these firms to survive in the marketplace, they need to compete with the larger already existing firms in that industry. These start-ups need to be fully protected and should make the most of their intellectual property by registering them as early as possible, in order to avoid any risk of infringement. The protection also ensures that the firm benefits from its creations, and helps in attracting better investments from potential investors. This article aims to discuss the importance of protecting intellectual property for start-ups. It also talks about the benefits of such protection, some of the issues that a start-up is confronted with while registering their IP, and the kinds of intellectual property rights and their respective benefits.
The Cambridge dictionary defines a start-up as “A small business that has just been started.” A start-up is generally a small business that is in the nascent stage of its operation, has a small workforce, and is generally financed by an entrepreneur or an individual/agency known as an ‘angel investor’.
Lately, the start-up culture in India has been booming. The number of start-ups in our country keeps on rising by the day. Some of the reasons for this increase are the technological advancements, wide internet availability, and the mentality of the young entrepreneurs to be their own boss. The upturn can also be attributed to the government’s measures to promote the small businesses. The government launched the “Make in India” campaign in the year 2014 to promote the Indian companies to engage in the manufacturing process. The “Stand-Up India” scheme was also launched by the government to help the women and SC/ST entrepreneurs in financing. Moreover, a portal for start-ups, i.e., “the www.startupindia.gov.in” was set up to help the entrepreneurs with networking and other services.
With the upsurge of this culture, an important concern for the entrepreneurs is the protection of their Intellectual Property (IP). According to the World Intellectual Property Organisation (WIPO), IP is defined as “The creations of mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.” Intellectual Property Rights for an organisation can be in the form of Patents, Trademarks, Designs, and Trade secrets, etc. The protection of these IP rights are crucial for these small businesses as it helps them to derive monetary benefits by licensing these rights, and as they are more vulnerable to exploitation, IP protection prevents them from potential infringements.
Reasons for protection of IPR
- Prevents exploitation
The protection of Intellectual Property provides a defence mechanism to the organisations against the potential infringement of their rights by the bigger companies in the industry. As these larger corporation have access to better resources, both financially and otherwise, they can easily take advantage of the hard work of the entrepreneurs. As an example, if we consider an engineer who developed a new software after putting his sweat and blood in years of research and experimentation, then the only way for him to protect his invention from being imitated and to prevent any unauthorized use of his software, is to get the software patented. Only then can he ensure that the large businesses do not exploit him by buying his invention for a petty sum or derive profits out of his product by claiming it to be theirs.
- Licensing and sale
Another reason why the protection is necessary for the start-ups is because it helps them to monetise the use of their products by licensing it to others. Once the IPRs are registered in the name of the person, he is recognised as he owner of such product, and he alone has the right to derive economic benefit from it. He has a right to license his IP rights in favour of any other person for a sum. Moreover, these rights can also be sold to others in exchange for a consideration.
- Better Finances and investments
A start-up which has Intellectual Property registered in its name, are more likely to attract better investors. It provides an edge over the others as an investor would be more inclined to provide finance to a start-up which has its innovations and creations properly protected. Moreover, an entity that has superior or patented technology is in a position to get better finances. This is because the investor gets access to these technologies, and therefore, would be more eager to invest.
- Provides a competitive advantage
A competitive advantage can be defined as something that a firm does better than its competitors, or something that the firm does or has that its competitors don’t. The firms which have their IP adequately protected, enjoy a competitive advantage over a firm which does not protect their IP. This is because the non-protected firms are more susceptible to exploitation by larger firms and also to unauthorized use of their unique creations. It has also been observed that in many cases, the firms who have proper IPR system in place are more successful than those who do not. It has also been seen to increase the market value of the firm.
- Reward for creation
Intellectual Property Rights act as a reward for the creator. It compensates the inventor for his inventions. In the absence of such a system, a creator or an inventor would not be able to reap full benefits from his own creations.
- Fosters innovation
The Intellectual Property Rights regime fosters innovation in the society. By providing protection to the ideas and innovations, it encourages research and development in various fields. If these rights were not provided to the creators, there would be no incentive for people to carry out research and develop new products. Thus, it promotes progress and innovation.
- Especially useful if the firm wants to expand its operation internationally
The protection of intellectual property rights becomes even more important if the start-up wants to expand its operations to international markets in the future. The international market has larger competition, and more risk of infringement of the IP rights of the firm. Hence, it is advisable for the start-ups to protect their rights before entering such markets.
- Supports in infringement claims
The start-ups needs to take a proactive approach rather than going for a defensive approach later. Thus, if the intellectual property is protected and registered, it would help the firm in future infringement claims as it would provide a proof of ownership in favour of the firm.
Issues with protection of IPR
- New businesses are apprehensive of registering their IP
They consider IP protection as just another “start-up cost” and they consider it non-essential as they don’t anticipate anyone trying to imitate their products. They consider it not important because it is not one of the legal essentials to start a business. It is not considered necessary by the start-ups because they think that they might not even need it as the response to their product can’t be predicted beforehand, and therefore, nobody knows for sure whether their product will “take off” so as to require protection.
- IP protection is costly
Although the start-ups are provided concessions in registration fee and other charges, considering the limited financial resources that they have at hand, the complete process of registration, opposition, etc of the intellectual property involves a lot of cost. Also, the fee to be paid to the attorney for all these puts additional pressure on the already financially challenged start-up.
- Not enough awareness about the IP rights
Currently, many start-ups are aware of the rights in their intellectual property, but still there is scope for some improvements. People need to be made aware about the benefits of an early registration, and need to be encouraged to make use of the IP regime in the country. The start-ups need to be educated about how they can recognise their IP rights, what types of protections can be provided for their products, and how to protect them.
- Cumbersome Procedures
The registration procedures for IPR are very complex, and a layman would not be able to go about it without the help of a professional. In some cases, a single firm might want to register more than one type of intellectual property, which proves to be a really tedious task unless proper expert help is sought.
Different types of IPR and their benefits
Section 2(m) of The Patents Act 1970 defines “patent” as a patent which is granted under this Act for any invention. A patent is a type of intellectual property which grants an exclusive right of use and sale of an invention which is developed by the person. A patent is usually granted for an invention which is novel, useful and non-obvious. Patents hold special importance for the tech start-ups, as they develop new technologies and processes to ease the lives of people. Patents are a driving factor in attracting better investments, as the investors would be more willing to invest in a start-up which has patented technology in its name so that they can get access to it.
Patents grant a right to the owner to exclude others from making, using, offering for sale, importing, or selling the invention without his consent. It gives exclusive rights to the person in whose name it is registered for a period of 20 years. It can also be licensed and sold to other persons for a fixed sum. Patents prove to be an invaluable asset for the company, as no other person can manufacture or sell it except the owner.
- Trade Mark
Section 2 (zb) of the Trade Marks Act 1999 defines a “trade mark” as a mark which can be represented graphically and which is able to distinguish the goods and services of one person from those of the others. It further states that it can be in the form of a shape, combination of colours, or the packaging of the goods. In other words, a trade mark is a sign that is used to identify certain goods or services as those produced by a specific person or enterprise. Lately, some non-conventional trademarks have also been granted, like in the form of music, and fragrances, etc. They play an important role in the incorporation of the start-up as the unique name, brand logo, product packaging, or the shape of the product, etc can be very well protected by a trade mark. This ensures that no other player in the market can copy these aspects. It is granted for a period of 10 years and can be renewed further after the expiry of the said period.
A trade mark helps the start-up in setting its foot in the market and developing a brand image for its products and services, as it helps in distinguishing its product or services from the already existing firms’. It also helps in developing customer loyalty for its products. The most important benefit of a trade mark is that it prevents any other person from using the mark and deceiving the customers. If it happens, the owner of the trade mark can bring an action against the offender.
Copyrights are a kind of protection that are offered to the original works of authorship, such as literary, artistic, dramatic, and musical works. Copyrights subsist in a work from the moment it is produced in a tangible form. They last for a term of the lifetime of the author plus 60 years from the beginning of the calendar year next following the year in which the author dies. Copyrights provide an exclusive right to the owner to reproduce, distribute, public performance, broadcasting and communication, translation, and adaptations. The start-ups can use copyright protection for protecting their jingles or advertisement, if any, graphics and interface of any app, and other creative works like, the articles written, or any online content that they produce, etc. Also, under the Copyright Act 1957, computer programs and software can be copyrighted.
The major advantage of registering a copyright is that it helps in any copyright infringement that a start-up may be confronted with. It acts as a proof that the copyright in infringed work belongs to the start-up.
According to Section 2 (d) of the Designs Act 2000, a “design” is something which is applied to a finished article and appeals or is judged solely by the eye, and includes a shape, configuration, pattern, ornament, or composition of lines or colours that are applied to any product. It further provides that it can either be a two dimensional or a three dimensional figure, and it should have been made by an industrial process. So, a design is something which is concerned with the appearance of a product. Protection under the Designs Act lasts for a term of 10 years.
The registration of designs protect the aesthetic aspect of the product. It is the part which appeals to the customers the most, and it is therefore important to protect the same in order to avoid any unauthorized use. It can also be licensed or sold to others.
- Trade Secret
The World intellectual Property Organisation (WIPO) defines Trade Secret as the kind of intellectual property which provides protection to the confidential information which may be sold or licensed. Trade Secrets are used to protect the secret technologies, processes, or ingredients of the product, etc. of the start-up. The only requirement is that the start-up needs to take active measures to keep that thing a secret. If any of the processes or aspects of the start-up are such, that are unique and the entity does not want others to know about it, then it should be protected as a trade secret.
An important consideration for a start-up is to decide whether to go for patent protection, or to protect the technology as a trade secret. The advantage of patent is that it ensures no other person can use or produce the patented product or technology for the next 20 years except for the owner. But the downside is that it lasts only for 20 years, after that time period, the technology or the process falls in public domain, and anyone can access it or produce it. On the other hand, the advantage of trade secrets is that it lasts as long as the entity is able to keep it a secret, no matter how long that period might be . But, once the information is leaked, it can no longer enjoy the protection. Another disadvantage of trade secrets is that once the product is in the market, there might be someone who is able to reverse-engineer it and reproduce that product, and in that case the protection would be of no use.
It is amply clear that the start-up culture in India has picked up its pace. The new businesses have been conscious of their intellectual property, and have been taking proactive steps to protect them. However, India was ranked 48 on the global innovation index, which shows that there is still room for some development. People need to be made more aware of the importance that the protection of IPRs hold. Therefore, th54ere is a need to take a broader approach to the contributions of IP in innovation for start-ups. Moreover, the registration processes need to be made even more user friendly, so that the people with minimum knowledge of the subject are also able to register their IP with ease.