Intellectual property management in Start-ups: An Evolving Indian Prospective

The write-up is divided into three parts in order to identify the start-up culture in India from the legal point of view, where the first part sets out the definition of a start-up in the Indian context. The second section addresses the regulatory structures the Indian law makers have taken up to promotea country's start-Up ecosystem. After that, the paper ends by reviewing recent developments in government policies, including a detailed analysis of SIPP.
Estimated Reading Time: 11 minutes

Introduction

The most commonly used word in the present era is a start-up. It has a significant influence on a country’s economy. A start-up is a youthful, enthusiastic company founded on know-how and creativity in which the founders seek to capitalise on launching a product or service for which they believe there is a need. Those with an ambitious idea launch their start-ups with minimal capital.Skills are the only way we can build a stable economy while beginning a new business system. Start-up India is synonymous with Stand-up India’s was the phrase that echoed some of the top CEOs and over young entrepreneurs who attended the unveiling of the Start-Up India action plan by the Prime Minister. In the first time ever, the MCA has incorporated the idea of “start-up” into company law. The Government of India has approved and launched the “Scheme for Promoting Start-Up Intellectual Property Security (SIPP)” to foster their innovation and creativity and promote awareness amongst Start-Ups and to encourage IPR protection. The scheme aims at fostering and mentoring creative and emerging technologies among start-ups and helping them protect and market them by providing them with access to high-quality IP services and resources. Copyright can be in the form of patents, trademarks, designs or copyrights. In whatever type, IPR can be capitalised on to boost a company’s finances as well as its economic reputation. IPR is an inviolable property. This means that at the start of the company, care must be taken to protect those precious properties. The writing-up is divided into three parts in order to identify the start-up culture in India from the legal point of view, where the first part sets out the definition of a ‘start-up’ in the Indian context. The second section addresses the regulatory structures the Indian law makers have taken up to promotea  country’s start-Up ecosystem. After that, the paper ends by reviewing recent developments in government policies, including a detailed analysis of SIPP.

The Broadened Definition of Start-up: An Evolving Concept

A start-up venture may be described as a new business that begins to develop and is usually funded by a person or small group of individuals in the initial stages of operation. This is a young, scalable business model based on technology and innovation in which the founders create a product or service for which they anticipate demand. Because of the subjectivity and complexity involved, there is currently no clear definition of a ‘Start-Up’ in the Indian context. According to the preceding definition of Start-Up by Department of Industrial Policy and Promotion (DIPP), a Start-Up is an organisation incorporated as a private limited company, a company in a partnership or as a Limited Liability Partnership (LLP) with revenues up to Rs 25 Crores. An organisation is able to gain a Start-Up tag until the initial seven years from the start date. This definition failed to take into account numerous small businesses within the start-up ecosystem that eventually resulted in the need for a much more inclusive start-up concept in India. The Department of Industrial Policy and Promotion ( DIPP) under the Ministry of Commerce and Industry of the Union has developed a new inclusive definition of start-ups, taking into account the cultural and technological hurdles faced by Indian companies. An entity shall be considered as a Start-Up up to a period of 7 years from the date of its incorporation or registration, according to the fresh Department of Industrial Policy and Promotion (DIPP). The corporation in question must be incorporated under the Companies Act, 2013 as a private limited company, or registered as a partnership under Section 59 of the Partnership Act,1932. Furthermore, definition incorporated the provision that the organisation will work for innovation, creation or enhancement of products or processes or services, or whether it is a scalable business model with a high job generation potential.

India: A Legal Business Guide for Start-Ups

India is often described as “the emerging market’s posterchild for its vast commercial start-up potential.” A NASSCOM survey reported India is the world’s fastest growing Start-Up base and ranks third among global start-Ups. Zooming on Bengaluru, the country’s Start-Up capital, is ranked as the world’s 15th largest Start-Up city. Every Start-Up has IP rights which must be understood and secured for excellence in their sector. Each Start-Up uses trade names, brand names, logos, advertising, inventions, designs, products or a website that holds valuable IP rights. IP rights cover various business facets, and each form of IP Rights has its own advantages.

The Three Most important Intellectual Rights and the laws governing them in India are the following:

  • A patent is the right to intellectual property given to the inventor of the government office concerned for its Novel technological innovation. The word invention means the solution tosome problem about the product or process growth. Patents are considered the most important of the various forms of IPR, and understandably so.

The patentability of an invention needs to fulfil the following criteria

  1. Usefulness: Industrial invention Applicability, or practical application.
  2. Novelty: New technology must be an invention which wasn’t published or available in State prior literature, or elsewhere in the world  in advance of the patent filing deadline
  3.  Non-evident: Innovation that can be made it is obvious to any ordinary qualified human, and cannot be patented and the patentability of the invention must not be apparent.

As per Section 3 of the Patent Act, 1970 the following are not patentable

  1. Frivolous invention
  2.  The invention of natural laws
  3.  Inventions that are harmful to Human , animal, plant life as well as the climate
  4. As against public order or morality
  5.  Discovery of a living thing; discovery of a living thing
  6. Non-living substances which occur in nature;
  7. Formulation of some abstract theory;

The rules pursuant to the Patent Act, 1970 were subsequently also amended, which became effective from May 2003. Patents (Amendment) Rules 2005 w.e.f 01.01.2005 further modified those rules. The Patent Amendment Act, 2005 is thus now fully in force and fully operational.

  • The Trademark Act,1999

The trademark law is also being modernised under the 1999 Trademarks Act. A trademark is a special emblem for distinguishing between products being offered for sale or put on the market by one dealer. In India, the trademarks have been protected for more than four decades under the 1958 Trade and Merchandise Mark Act provisions. From its inception, India joined the World Trade Organization. India acceded to the Paris Convention in December 1998.

The Salient features of the Trademark Act, 1999

  1. Only goods and services covered in the past were registered, but the infringement has broadened its meaning in this Act as it also includes unauthorised use of a similar mark or confusingly similar mark where goods and services are very similar and create confusion or confusion.
  2. Although where the unauthorised use of a mark is made of any well-known Indian trademark and the owner’s interest is infringed in any way, the infringement action may be brought against the same
  3. In addition, it gave police more power by allowing them to seize infringing content without issuing a warrant

Among other items, the Trade Marks Act provides for registration of service marks, filing multi-class applications, extending the registration period of a trademark to ten years, as well as an acknowledgement of the definition of well-known marks, etc. The Indian judiciary has been proactive in defense of trademarks and extended trademark rights to Domain Names as held in the landmark judgements of “Tata Sons Ltd. v Manu Kosuri” & Ors and “Yahoo Inc. v Akash Arora “

 India accepts the “Well-known Brand” definition and the “Transboundary Credibility Theory.” A well-known trademark in relation to any goods or services is a mark that has become so in relation to a large segment of the population that uses such goods or provides such services that the use of such a mark in relation to other goods and services is likely to be taken as an indication of such goods and services.

  • Copyright Act, 1957

The 1957 Copyright Act is one of the oldest existing pieces of intellectual property law. It has been modified quite a few times to align with world trade and commerce. The Act relates to the creativity of the individual, it preserves the right to literary, creative, musical works and recordings of sound and cinematographic films. For example, it grants the author’s copyright for his lifetime and 60 years after his death. To be eligible for the registered under this Act it does not require qualitative work, any unique work with very little in common with any other work may be considered eligible for that purpose.

The most important take away from the Act is the Idea-Expression merger doctrine. This theory implies that enclosing the expression in copyright would deprive free use of the concept because there are few ways of expressing a concept, for example in mathematical questions etc. For example, the use of alpha numeric’s, describing articles or combinations etc. cannot lead to legitimate claims for copyright.

The Supreme Court, in its decision in “Indian Performing Right Society, evocatively described copyright as “Felicitous Blend, beautiful totality, a constellation of stars that ensemble which is the finished orchestral production created by each of the various participants, although the components may often be elegant entities in themselves.

India: Schemes, Policies and Programmes for Growth of Start-Up

With the advent of the intellectual property regime in India, both the central Government and state Government have launched fresh initiatives, policies and programs to raise awareness of intellectual property rights (IPRs) and to extend assistance to educational institutions, governmental organisations, start-ups, etc. Some of these schemes and programs work with the help of professional IP practitioners engaged in departments, programs or schemes, while others provide monetary assistance to start-ups, inventors, institutions, etc. 

The Government of India has been increasingly concentrating on a wide universe of growing new companies in the ongoing years, and for this, the legislature has been having new ventures and opening doors to attract the best of these organisations and support them of growth and sustainability. The initiative was set up to provide funding support and opportunities in areas such as patent filing and simplification of the Start-Up process with a vision to create a forum where aspiring entrepreneurs could develop themselves without any hassles. The Start-Up India Action Plan was released five months later, in January 2016.

Scheme for Facilitating Start-Ups Intellectual Property Protection (SIPP)

Technological advances have reached a rapid pace which has led to intense competition in industry. Big companies are spending large sums of money to defend their IPRs. On the other hand, Start-Ups with limited capital and manpower fail to file for their IPR security. Yet preserving their creations is equally critical for them too. The central Government has launched a Scheme to Facilitate Intellectual Property Protection Start-Ups (SIPP) with a vision to protect and encourage start-up intellectual property rights, thereby promoting innovation and creativity amongst them. SIPP is intended to promote the security of creative and interested start-ups’ patents, trademarks and designs. The scheme’s mission is to protect and encourage start-up intellectual property rights, and foster innovation and creativity among them. The SIPP scheme aims at promoting awareness and adoption amongst Start-Ups of intellectual property rights. .Scheme is inclined to promote and mentor creative and emerging technologies amongst start-ups and to help them protect and market them by providing them with access to high-quality IP services and resources.

Documents that are required for the Start-Up to fall under the scheme of SIPP

Start-Ups must apply a basic application containing any of the following documents:

  1. Recommendation (in terms of business innovativeness), in the format defined by DIPP, from any Incubator founded in a postgraduate college in India or Letter of support from any incubator supported (in connection with the project) by the Government of India or the Government of any State as part of any particular innovation promotion scheme.
  1. A letter of funding of not less than 20 per cent in equity from any Incubation Fund,/Angel Fund / Private Equity Fund / Angel Network duly registered with the Indian Securities and Exchange Board which endorses the creative nature of the company. The Industrial Policy and Promotion Department may include any such fund in a negative list for reasons it may deem appropriate.

Exemptions available to Start-Ups underScheme for Facilitating Start-Ups Intellectual Property Protection (SIPP)

  1. Mended Patent rules 2016 accepted Start-Ups as an alternative fourth group of applicants and established an analogous minimum fee structure for natural persons. Start-ups can also seek timely approval of patent applications under new laws.Most companies are basing on patents. This indicates they are making or selling exclusive products or services. We have to pay a high cost to file their patents which is known as the Patent Value.Through this program, the Government is offering a refund of 80 per cent on patent costs. In addition, the patent approval procedure and associated process is faster for them.
  2. A Start-Up is not now needed to obtain an Eligibility Certificate from DIPP’s Inter-Ministerial Board and DIPP Certificate will be appropriate along with the application form under this scheme.
  3. Income tax exemption is granted to a Start-Up under provisions of The Finance Act 2016 for three years in a period of 5 years. Tax exemption on investments above Fair Market Value have been introduced for investments made in Start-Ups
  4. Start-Ups falling under the list of 36 “clean” category industries were exempted from all relevant compliances under three environmental laws.
  5. In the Procurement Policy and Ministry of MSME, relaxed requirements on previous experience and turnover for public procurement for micro and small businesses have been issued. Insolvency and bankruptcy code 2016 has been released with provisions enabling companies to terminate in 3 months. The Apprentices Act 1961 and Rules 1992 also allow for exemptions.
  6. Because of high fees and large programs, everybody wants to receive government tenders. But acquiring the government tenders isn’t fast. The Start-Ups are given preference under this scheme in getting government tenders. They are also not expected to have previous experience.

The facilitators shall be empanelled by the Controller General for Patent, Trademark and Design (CGPDTM) for the effective implementation of the scheme. The CGPDTM may periodically update the list of facilitators. The CGPDTM shall from time to time, control the behaviour and functions of the facilitators being empanelled.The CGPDTM may withdraw the facilitator from the panel without warning in the event of any complaint from a Start-Up about a facilitator or facilitator failure to provide services to the Start-Up or to obtain information about professional misconduct from any source.

Conclusion

With regard to the number of Start-Ups, India is ranked third after the expansively formed United States and Britain after the Government has started to take significant measures for them. The Government has implemented over 50 + start-up policies in the past few years, each of which is aimed at enhancing the Indian start-up ecosystem.Every Start-Up has IP rights which must be understood and secured for excellence in their sector. Each Start-Up uses trade names, brand names, logos, advertising, inventions, designs, products or a website that holds valuable IP rights. IP rights cover various business facets and each form of IP Rights has its own advantages.The action plan is largely optimistic as it demonstrates the Government’s positive intent. However it is important, that the government creates a team of founders, investors, angels, lawyers and accountants who can ensure that the final policies relating to start-ups are as perfect as possible and strike the right balance of accountability, openness and business.

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