Getting ready for Start-up India

By now, everyone must be aware that Government of India has kick-started a #startupindia campaign to boost start-up businesses in India. With rest of the country, I’m also pleased to see the policy taking its shape.

Apart from tax benefits announced for the start-ups, intellectual property rights too has taken importance cognizance this time around. The Govt. of India has announced 80% reduction in filing fees for start-ups. Following the announcement, Indian patent office (IPO) released a scheme for facilitating Start-Ups intellectual property protection (SIPP).

First of all, I’m happy that the IPO has taken an initiative to help start-ups to file patents, trademark and design for their innovations. In the announcement, the IPO has clarified the definition of start-up. For the purpose, start-up means an entity, incorporated or registered in India not prior to five years with annual turnover not exceeding INR 25 crores in any preceding financial year. So, not only the new start-ups will be covered under the scheme, even the start-ups that began their business within the span of 5 years are eligible for reduction under the scheme. Further, the IPO has announced that they will empanel facilitators, such as patent agents, lawyers, trademark agents to help the start-ups in drafting and filing patents and trademarks for them. One surprising factor in the announcement is that the facilitator will be paid by the Central Government for their services through IPO. So, the start-ups will only have to pay the Govt. fee for filing the application and the professional fees for the facilitators will be borne by the Central Government. The fees for the professional services offered by the facilitators are fixed at INR 10,000 for filing of patent and INR 5000 for filing of Trademark. On personal note, I wonder how many patent agents will be willing to work at that cost.

Nevertheless, in the larger interest of people, the scheme announced by the IPO is very good for India and I welcome the initiatives by PM Narendra Modi and IPO to boost start-up businesses in India.

Author, Chandrasekhar is Manager and Patent Agent at IP Astra

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Why accelerators should look into IP

Why accelerators should look into IP

Recent years have seen a surge of entrepreneur activity all over the world. Introduction of a number of early stage companies has spawned a number of entities which facilitate such companies, examples of such entities being venture capitalists, angel investors, incubators, and accelerators. Each type of entity caters to a different problem faced by start-up companies.

India is going through a phase where there is lot of traction and buzz on start-ups. Several multinational funding agencies have set their foot in India, let alone the scores of domestic funding agencies. One needs to be extra cautious in categorizing the domestic funding agencies as VC’s or accelerators or angel investors as the lines that differentiate them from one another are rather bleak. Added to that, India being multi-lingual and multi-cultural, regionally there exists hordes of funding agencies which are associated with various terminologies colloquially.

Venture capitalists, angel investors, and incubators are nothing new. In fact, they were in existence in one form or another as early as mankind has known to do business. However, a new breed of start-up supporting entities has been introduced in the market in the recent years: The accelerators. The accelerator, or seed accelerator as it is popularly known, is an entity that provides financial support, counselling and infrastructure for start-up companies at early stages of formation. The accelerators make significant effort to market themselves to potential candidates resulting in a large number of applicants vying for small number of seats. The accelerators not only look into the ideas; they look into the talent working in pursuit of the idea as well. The companies are chosen on the basis of both the applicability of the idea as well as the people constituting the team of the company. The funding varies, sometimes in small tranches of few thousand dollars and at times in hundreds of thousand dollars.

It is critical to understand the importance of Intellectual Property protection for start-ups by accelerators. Intellectual property protection which was considered as a nuisance in the past amongst Indian corporates has started getting attention in the last 10 years. More and more corporates have initiated several in house strategies in protecting IP. The various IP forums, associations, and conferences all add fuel to the IP eco system in India. Earlier, during an M&A deal in India, IP was associated only to brand equity and good will. Today, things have evolved and people have started recognizing IP during deals, especially patents. There are several factors that accelerators need to look into before inducing a company into their programs. Not just among the start-up companies, but in among any group of tech-based companies, the risk of patent litigation is very real. So even if the start-up does have patents, and even if you have an exit strategy in place, it is imperative for the investors to play the devil’s advocate and do a thorough prior art search to avoid any future litigation.

The trouble with the start-up companies today is that though they are encouraged by the wide array of VCs, accelerators, incubators, and such, they are also targeted. They are targeted by patent trolls who sniff out the deals occurring between start-ups companies and their funding agencies and target those start-ups for million dollar settlements. As a result, unless the start-up does find a way out of the troll litigation, it would not be viable for the accelerators to invest in such companies. Hence, it is important that accelerators ensure there is a good IP strategy in place before they invest in start-ups.

Startups and Intellectual Property

So you want to start a start-up. You believe that you have the next big idea in you. The idea that would take you into the leagues of other legendary men who had brilliant ideas like Steve Jobs, Mark Zuckerberg and Sergey Brin. So what next?

The most important step you take at this stage towards sustainable development would be keeping your idea sealed unless it is protected by an efficient non-disclosure agreement. That’s right, that one big idea should stay in your head before you protect it. Do not disclose it to anyone.

There are chiefly three types of intellectual property that you should consider before getting into your business:

  • Trademarks
  • Copyrights
  • Patents

Trademarks:

       Trademark is often regarded as the oldest and yet most ambiguous form of intellectual property and quite rightly so. For example trademark issues could potentially arise between a company named “bar space” and a company named “space bar” because of their names, though they sound differently. So it is highly advised to consult a professional with expertise in the field of trademarks before trademarking your product.

        Trademarks include crucial aspects of your company like company name, brand name, logo design, taglines, among other things.

Copyrights:

         Copyrighting your content is also a nice way to ensure that your work won’t be blatantly copied by others. As much as copyrights help you, they could prove a hazard unless you are careful not to infringe others copyrights. Cases of start-ups made to pay penalties for infringing copyrights occur occasionally.

         Your website design, content in your brochure, layout, etc all come under the domain of copyrights.

Patents:

         A right to stop anyone from making, using, and selling your invention, sometimes patents don the role of the game-changer, sometimes of an expensive wallflower. Depending on the practise areas covered by your start-up, patents could well be the most critical factor in achieving market success.

         The sum total of all the intellectual property rights make up the IP portfolio of your company. A good IP portfolio is critical for success in today’s IP driven economy. The foundation for a good IP portfolio is laid during the earliest stages of a start-up company. The first few patents and trademarks filed for a company goes a long way. Take for example, US patent US6285999, or more famously, the first patent by google. The patent “Method for node ranking in a linked database” lists Google co-founder Lawrence Page as inventor. However, the patent was assigned to Stanford University. Google licensed the patent from Stanford for a 2% stake in the company. In 2004, Stanford University cashed its stake in the company for a sum of 337 million dollars. The single patent served as the cornerstone for what was to become Google’s mighty IP portfolio.

         As far as semiconductor and bio-technology start-ups are concerned, the IP portfolio, especially the patent portfolio of the company is of vital importance, and not without reason:

                  1. Strategically placed patents ensures competitive advantage for the company. A strategic patent is one which ensures that the competition cannot operate within the market space without infringement.

                  2. A good patent portfolio convinces the customers and prospective investors that you take matters related to your technology seriously.  It convinces them that you invest in your technology and your company is strong from the inside.

                  3.  It garners respect for your organization from the big corporates. Patents enable you to compete with people who have deeper pockets. Good, strategically placed patents inhibit others from operating in your space and as a result, add value to your business.

                  4.  It provides venture capitalists confidence to fund you. Especially, because of the potential revenue stream received through licensing. The venture capitalists have the confidence that even if your company fails, they can make the leased amount by licensing the patent. Some even go to the extent of seeking the help of patent trolls to gain back the money leased.

                  5.  Patents also enhance the bargaining power of your company, especially in cases where your company is in the process of cross licensing patents with another company. A good patent portfolio provides leverage in such circumstances.

                  6. The number of potential revenue sources has increased in the past decade. Patents are monetised in a number of ways such as securitization and auctions.

         Building an efficient patent portfolio requires vision. Necessity for vision arises from the fact that there is no such thing as a global patent. Patents are subject to jurisdictions, and as a result, the first step towards building a patent portfolio would be to decide the number of jurisdictions you would want to practise the invention. In any case, to file a patent abroad, you would require filing a domestic patent first. So naturally, the next step would be to file a domestic patent in your respective jurisdiction.

         Filing a domestic patent would provide you the exclusive right to practise the invention within your jurisdiction, and would further provide you with a limited period of time to file the patent in other countries.

         Filing a patent in another country, in the case it has already been filed domestically is called national phase entry. Depending on the mode for performing national phase entry, the time and expense varies. Moreover, various nuances of the patent law are different in different counties. So you are advised to select the countries where you would like to file the patent carefully.

         The first step towards patenting an invention should be to consider the following questions:

  1.  Is my invention patentable?
  2.  How much could I afford to patent the invention?

         The first question, about patentability, can be answered by understanding the four concepts for patentability:

  1.  Novelty
  2.  Non-obviousness
  3.  Usefulness
  4. Patentability issues that are subject to jurisdictions.

        Novelty and obviousness of an invention can be determined by searching in various paid and public databases. Patent consultancies offer prior art searches that serve the same purpose.

        Usefulness of an invention generally refers to industrial applicability, as in the invention can be made or used in an industry for commercial purposes.

         Patentability largely refers to whether the inventions that is deemed to be patentable according to the patent law of the jurisdiction. For example, inventions relating to atomic energy, food materials and agricultural practises are non-patentable in India.

         The answer to the second question determines the number of patents you will be filing and the patent attorney you will be hiring for the purpose. Selecting a patent attorney is a tricky process. One of the most common mistakes that start-ups make is that they overvalue their patents and overspend for patent drafting. Always remember that your chief concern must be executing your idea rather than protecting it. Moreover, spending money for a patent makes sense only if you make more money from the patent than what you have spent for it.

            So, money spent for the patents should be kept at an optimal level. Ideally, the selected patent attorney must charge well within the budget allocated yet should be able to deliver with required amount of correctness. So you are advised to do a lot of groundwork before selecting your patent attorney. One method of reducing the cost would be to outsource to places which are reputed to perform, yet are affordable.

             Once after the patent attorney has been selected, the patent attorney most likely would take an invention disclosure interview with you. After a few days after the invention disclosure, the patent attorney sends you the first draft of the drafted patent. The patent attorney files your patent after he considers all your opinions about the first draft.

             If you want to buy more time before filing the patent, you are advised to file a provisional and then file the complete specification at least one year later.

             Once the patent has been filed, comes the long and arduous process of patent prosecution. In India, the specification is published after eighteen months of filing the patent. After this, the patent office accepts opposition to the grant of patents. Further, the applicant should request the examiner to examine the application.

              On average, a patent takes 2 to 5 years to get granted based on the jurisdiction. Once granted, the patent provides the owners 20 years of monopoly for practising the invention. The twenty years of monopoly is a fitting reward for the strenuous effort of coming up with the patentable idea and further, patenting the idea.

              It is significant that the patent right is a negative right. Patent right is a sword, not a shield. It does not protect you from infringement. However, it does provide you with the right to take legal action against people who infringe your product. The patent right helps you to stop others from making, using or selling your invention. Moreover, it enables you to obtain an injunction against other people who are already using your invention and even acquire money from infringers as compensation.

            Inventions result from investments of considerable amount of time, energy and money. Patents provide a channel for the inventors and the enterprises backing them to obtain high returns for the time, energy and money invested on their part. Intellectual property rights is what keeps world innovating. As Abraham Lincoln rightly said, ”Intellectual property feeds fuel of interest to the fire of genius.”

Author, Leo Paul Johnson is a patent engineer at IP ASTRA