Intellectual Property for StartUps and Entrepreneurs

Entrepreneurs have many questions about IP protection. This is particularly relevant in these times, when we talk of innovation and creativity … driving the next wave of entrepreneurship.

Here is a detailed guest post on this topic by Dr. Kalyan C. Kankanala, co-founder Brain League IP Services. Brain League is a company that was incubated at NSRCEL, IIMB and IP protection is their area of expertise and interest. Read on to get Kalyan’s tips for IP protection…

Intellectual Property protection provides business and competitive advantage to a company. While IP is important for all companies, its value for A Start Up Company, especially, a technology or knowledge based company, is very high. In addition to providing business and competitive advantage, IP can play a very important role in enabling a Start Up company to build business relationships, raise funds, face cut throat competition and so on. In the light of the value that can be derived by a Start Up company from IP, its protection and management is very important. Despite the value IP can provide to Start Up Companies, the lack of financial resources in such companies poses challenges for protecting and managing IP.

This note provides an overview of steps that can be taken by a Start Up company to safeguard its IP and strategic options that are available for optimizing IP protection in the light of its limited financial resources. The following are the most important steps to be taken by a Start Up Company:

Protection of Patentable Inventions

The first and the most important step for a Start Up company is to protect its inventions. Patent protection is an important step for Technology Start Ups for which the following steps may be taken:

Patent Search and Analysis

Though entrepreneurs are generally well aware of the progress of technology, it is important to carry out a patent search and patentability analysis before making a decision on filing for patent protection. Such an analysis will help in the following ways:

  • Provide an understanding of patentability of the invention;
  • Help in making a decision on the protection mechanism and strategy;
  • Give an idea of the competing technologies in the market; and
  • Provide an insight into positioning of the invention.

Patent filing

Once a decision on patent protection is made, the Start Up company could seriously consider filing a patent application at the earliest. Depending on the status of the invention and financial resources, the company may choose any of the following filing options:

i. Provisional Filing

A provisional application is generally filed when the inventor needs time to perfect the invention or reduce it to practice. Having said that, a provisional application may also be filed even when the invention is ready. Filing a provisional application enables the Start Up company to safeguard its rights over the patent as the date of filing will be considered as the priority date of the patent application. On filing a provisional application, the applicant will get (12) months time to file a complete application.

Filing of a provisional application provides the following advantages to a Start Up company:

  • The application can be filed  in a day or two as claims need not be included in it;
  • The cost for drafting a provisional application is much less than that of drafting a complete application; and
  • Filing a provisional gives twelve (12) months time to the Start Up company to file a complete application, nationally and internationally, during which time the Start Up company can take necessary steps to raise funds or test the business value of the invention.

ii. Complete Application Filing

A Start Up company may file a complete patent application instead of a provisional one when the invention has been completely reduced to practice. Filing a complete patent application requires more time and money than a provisional as it must be expertly drafted to cover the territory of the invention. Filing of a complete application provides the following advantages:

  • The patent application will be examined earlier than if a provisional application is filed;
  • The patent application would be granted earlier and legal action maybe taken against competitors violating the Start Up’s patent rights;
  • The Start Up company may file international applications within twelve months from the date of complete application and claim its priority; and
  • The value given to a complete application is higher than that of a provisional application.

iii. PCT application

A Start Up Company may file a PCT application if the company wishes to acquire international patent protection at a later stage. The PCT process is an international filing process, which allows the applicant to file national applications in chosen countries after twenty or thirty months. Filing a PCT application is more expensive than the Indian national filing but provides the following advantages:

  • It Gives the Start Up twenty (20) or thirty (30) months time to test the business or market value of the invention and also to make a decision on the countries in which the company wishes to file patent applications;
  • Provides the Start Up company with a formal search and patentability report that can enhance the value of the patent; and
  • Gives additional time to raise funds or make business decisions.

Based on the financial resources of the company and the strategy, a Start Up company may safeguard its rights over the invention by choosing any of the aforesaid filing options.

Patent Notice

On filing a patent application, the Start UP company must incorporate a notice on its marketing and other materials indicating that the company has a pending patent.  The notice must indicate the status of the application and application number. Incorporating the notice provides the following advantages to the Start Up company:

  • Gives information to potential investors, collaborators, consumers, competitors and so on that the Start Up company has filed a patent application and holds rights over the invention; and
  • Value is immediately attached to the company and its products by the investors, consumers and business partners.

Trade Mark Protection

It is very important for a start Up Company to protect its company’s name or product’s name. The first step towards effective protection of the name or logo is the choice of name or logo.  The Start Up company must choose a name that is coined or arbitrary, which does not have any link with the business to get strongest form of protection. Choosing suggestive names would also accord protection but such protection would not be as strong as a coined or arbitrary name. Before finalizing on a name, an entrepreneur must carry out a trademark search.

Trade Mark Search and Analysis

A trade mark search and analysis provides the following advantages:

  • It enables the entrepreneur to understand the protectability of his chosen name based on existing trade marks in same or similar business; and
  • It helps the entrepreneur understand the registrability of the name as a trade mark.

Trade Mark Protection

After finalizing the mark to be protected, a trade mark application can be filed by the Start Up Company. On filing an Indian application, a foreign application may be filed within six (6) months in other countries in order to claim priority of the Indian application. Filing of a trade mark is generally quite cost effective and can be taken up at the earliest. Care should be taken to ensure that the trade mark is protected by the Start Up company for all relevant business areas.

Confidential Information Protection

Protection of confidential information by a Start Up company is very important but is generally neglected. More often than not, entrepreneurs take decisions or make disclosures based on good faith and trust without any legal measures, which may result in loss of confidential information. The following measures have to be taken by a Start Up company to protect confidential information and gain business advantage:

  • Agreements with co-founders and employees must have stringent confidentiality clauses;
  • Disclosure of any confidential information to any person must be made only under non-disclosure agreement;
  • Appropriate physical and information security measures such as restricted access, encryption and so on must be taken to protect secrecy; and
  • Confidentiality notices must be incorporated on all confidential documents and materials. The notice must indicate the confidential nature of information, purpose of disclosure and limitations of use.

Copyright Protection

Copyright protection over a work starts from the date of creation of the work and registration is not mandatory. However, registration gives certain benefits such as presumption of ownership. A Start Up company may protect copyrightable works by taking the following steps:

i. Incorporating copyright notices on copyrightable materials such as websites, presentations, software, interfaces, brochures and so on. The format of copyright notice is: Copyright, xxx (Name of the company), xxx (Year of creation of the work).; and

ii. Registering important copyrightable works such as interfaces of software, code, artistic works and so on. Registration of a copyright is very cost effective and application may be filed very fast.

Avoid IP Risks

A Start Up company must take necessary steps to avoid risks of infringing third party’s IP. Avoiding or mitigating risks is some times more important than protecting a Start Up company’s intellectual assets because one instance of infringement may destroy the company. Appropriate due diligence must be carried out by a Start Up company to ensure that infringement risks are mitigated. Technology driven Start Ups must carry out freedom to operate analysis before launching their products.

Optimizing IP Protection

A Start Up company with limited financial resources may optimize IP protection by working with IP attorneys under mutually beneficial models. Some of the models that are generally followed and that may be considered by a Start UP Company are:

i. Deferred Payment Model

Under this model a Start Up Company generally pays a small percentage of the professional fee charged by the IP attorney and agrees to pay the remaining fee with an increment at a later stage. By following this model the Start Up Company can acquire IP protection with minimal cost and can pay the IP attorney after generating revenue or raising funds. The IP attorney is happy with the model as the attorney will start a relationship with a new client and will be paid extra money at a later stage.

ii. Equity model

A Start Up Company can work with an IP attorney without paying any fee or by paying minimal professional fee and giving equity in the company for the services offered by the attorney.  The model allows the Start Up company to get necessary IP support without incurring any cost. On the other hand, the attorney will be comfortable with the model because he is locking the client and hopes to get good returns at a later stage. While this model is quite popular in developed countries, IP attorneys in India are generally not comfortable with the model.

Start Up companies are generally creative and work with attorneys on a variety of models. The models are generally hybrid and include a variety of benefits for both parties. It must be noted that most IP attorneys generally have special offers for Start Up companies having the potential to grow fast.

Quality of IP Services

While cost is important for a Start Up company, it must be borne in mind that the quality of services offered by an IP attorney is very important. The business or competitive advantage that is derived by a Start Up company from IP depends on the strength of IP protection, which is inturn dependant on the quality of IP services offered by the attorney. The expertise, experience and capability of the attorney to understand business issues must be considered before choosing the IP attorney. Weak IP protection can impede the company’s business progress as much as violation of third party IP.

The author can be contacted at kalyan@brainleague.com

Disclaimer: The opinion provided in this paper is based on the experience of the author and may not be considered as legal opinion. Please consult with a lawyer before taking necessary legal steps.

Anjana Vivek
About Anjana Vivek 45 Articles

Anjana Vivek, Director, VentureBean Consulting Private Limited, is a consultant, teacher, writer; CA & visiting faculty at IIM(B). Her specialties are business models, funding strategy, entrepreneurship, M&A and valuation.