This article is written by Poonam Nahar, pursuing a Diploma in Intellectual Property, Media, and Entertainment Laws from LawSikho.com.
Table of Contents
Introduction
Ideas are just that – “Ideas!” until they are put into action. Putting an idea into practice successfully is what transforms small startups into multibillion-dollar corporations. Here, is when Intellectual property (IP) comes into action. Intellectual property for startups includes copyrights, trademarks, designs, trade secrets, and patents. Safeguarding IP is much easier in the beginning phases of the business than after those ideas have become successful. Establishing IP rights is essential for start-ups or businesses of all sizes to differentiate their products, protect their assets, put legal checks on the competition, prevent others from infringing on and profiting from your property, earn customer trust, grow their business, and offer more security with any potential success.
As it is always said “Prevention is better than cure”, the same is with Intellectual Property Laws. If precautionary steps are taken in advance, then we can save ourselves from legal hassles and huge legal costs, infringement of products, exploitation of our business ideas, strategy, etc. as IP is an asset to the startup businesses it brings commercial value. Startups are often heavily dependent on their IP for competitive advantage, so the unprotected intellectual property could be potentially fatal to a new company. This article deals with the IP protection for start-ups, its importance, its benefits, mistakes that start-up makes, case analyses with references.
IP mistakes made by start-ups
As a result of the high demand for such services, startups from all across the nation have sprung like mushrooms. Initiatives like “Make in India” and “Startup India” launched by the present government have aided the growth of these SMEs. Many fledgling firms fail to grasp the range of their prospective IP assets or their relevance when it comes to business and IP. Mishandling IP can doom a startup before it can develop. Here, are the biggest IP mistakes start-up’s makes:
1. Undervaluing IP
Intangible assets such as intellectual property are regarded to be the most valuable. Most companies fail to identify and safeguard their intellectual property assets in their hurry to market their goods. The lack of intellectual property may result in a reduced valuation of the start-funding ups and acquisition prospects. IP is more than just a legal concern. In fact, the more successful a firm is, the more valuable its intellectual property becomes. IP accounts for up to 90% of the value of firms on the S&P 500, for example. Therefore, IP should never be undervalued especially in the start-up stage.
2. Fails to protect the confidentiality
Most startups are born due to passion for a certain field or a certain idea. Tradesecrets are one of the most potentially IP assets. To avoid breaches of confidentiality, make sure that the employees, partners, and suppliers of the start-up business sign non-disclosure agreements (NDAs). As such pro forma documentation rarely meets the actual needs of the business. There is also a need to protect all computers with passwords, limit employees to have access to certain information, and limit the type of information employees can access on personal devices. There are many elements that are required to be maintained for a sound legal position with respect to intellectual property.
3. Fails to do a proper trademark search
This component contains two key concepts:
- protecting one’s own intellectual property, and
- preventing oneself from intruding on the intellectual property of others.
It is critical for a startup to do a comprehensive review of third-party Intellectual property rights to verify that no infringing activity on others’ intellectual property rights is taking place. The Trademark Electronic Search System (TESS) is a free service available through the USPTO. If a start-up doesn’t take this step before starting to build a brand and associating it with that mark or name, a startup may lose its investment in that IP if a business finds out after the fact that it is infringing on a trademark from another individual or company. A TESS search will let a business know early on if it is infringing a mark, hence the search can keep losses minimal and preventing from reworks.
To guarantee that a firm is protected against infringement, it is advisable to hire a trademark attorney to do a clearance check for the desired trademark, or a patent attorney to conduct a freedom-to-operate search to ensure that the technology in issue is free of infringement.
4. Fails to create and implement an IP strategy
A start-up to grow must develop an IP plan. A concrete IP plan should include what IP assets a start-up has, how and when a plan to protect those assets, and how a start-up will protect its business from being sued over IP. If a start-up does not create and implement an IP strategy, then it may face infringement issues in the future and this can cause heavy damages in monetary terms, affects the brand reputation, loses customers and may impact sales, etc. thus, Involving an IP expert will help the organisation understand its strengths and help in drawing out a suitable intellectual property strategy for the successful growth of the organisation.
5. Fails proper documentation
Only making of agreements should not be the sole motive to protect the IP of business, but the clauses included in that agreement matters. Such as lets’ take the example of the NDA agreement. Is it true that the NDA restricts the use of the sensitive information it protects for a certain purpose? What about clauses in the NDA that prohibit any implicit license for IP, as well as the return or destruction of such material in the recipient’s possession? Assignment clauses may be essential in some circumstances to guarantee that any notions that naturally emerge from the recipient as a consequence of NDA talks (such as enhancements to underlying IP revealed under the NDA made by the recipient) are captured by the disclosing party. Hence, this is also considered one of the biggest mistakes by start-ups.
6. The do it yourself approach
Many legal processes and proceedings have become more user-friendly and accessible to the general public thanks to the internet. Intellectual property rights are an important component of a company’s assets, and it’s always a good idea to have an expert’s advice, or even better, get expert help with all Intellectual Property registration and maintenance operations. Startups should hire skilled IP counsel right once to assist them to identify requirements and develop solutions. An IP consultation will assist in laying the basis for any IP rights that the startup may have (or seek) as well as any associated IP requirements. It will, at the absolute least, provide the firm a better knowledge of what it needs to accomplish so that it can prepare properly.
How to avoid such IP mistakes?
Intellectual property rights and their importance in start-ups
Over the years, there has been a sincere attempt to raise awareness about the value of IPR among entrepreneurs by emphasizing its importance in today’s world and by providing different incentives for businesses to maintain their IPR rights, such as tax breaks and refunds. Despite best efforts, there is a significant vacuum among entrepreneurs in terms of comprehending the value of intellectual property rights before or during the operation of a business. Let us first look at the different types of intellectual property and how they are protected under Indian law in the startup environment. The IPR legislation in India is split into many categories, each of which provides distinct protection. The following are the categories:
Trademarks
Every startup that aspires to be successful must defend its brand from the start. The Trade Marks Act of 1999 allows any individual/proprietor/company to register a trademark not only for names/logos/marks that are currently in use but also for those that are being considered for adoption on a “proposed to be used basis.” This aids in claiming ownership of a certain name/logo/mark so that no other entity may use and profit from it in the future. Trademarks are extremely important because they not only prevent other parties from exploiting the brand but also help the brand develop an economic worth of its own that may be economically utilized in the future to reap advantages.
Copyrights
Another critical component for startups is the preservation of their ideas, which may be represented in a variety of ways such as writing, performance, and so on. Many companies invest a lot of time and effort into building the most appealing yet functional website/software/applications that are copyrightable under the Copyright Act of 1957. Because the majority of startups’ websites, apps, and software are their lifeblood, particular care and attention must be paid to their security. If they are not protected in a timely manner, a rival or competitor may be able to exploit any representation of a concept in different ways, as previously indicated.
Patents
The protection of their inventions under the Patent Act of 1970 is another critical factor for entrepreneurs. In fact, obtaining a patent for a startup’s unique product might be the first step toward obtaining protection. The concept underlying the invention can be protected under the Patents Act of 1970 if it is original, non-obvious, and has an industrial application. It is a crucial stage in the process of protecting IPR since once an innovation is registered, no one else may use it without permission.
Industrial designs
The Designs Act of 2000 defines design as the elements of shape, configuration patterns, or decoration applied to any object that is both useful and attractive in nature. Under the Designs Act, any such industrial design can be registered. Any startup that registers a design from the start can prevent others from utilizing it without permission. For example, suppose a startup is in the beverage business, and the beverages are given in a distinctively designed bottle that was created after a lot of thought. If the bottle design is registered under the Designs Act, the startup will have the legal right to prevent others from duplicating it and will be allowed to commercialise it.
Trade secrets
Any confidential company knowledge that offers its owner a competitive advantage over other market competitors is considered a trade secret. Manufacturing or industrial secrets, commercial secrets, formulas, practices, processes, designs, instruments, patterns, commercial methods, or compilations of information that are not widely known or reasonably ascertainable by others are all examples of trade secrets. Unauthorized usage of the same is seen as unethical. Although India has a written law for the regulation and protection of trade secrets, trade secrets are governed by a number of laws such as contract law, copyright law, and equity principles, among others. Protecting intellectual property is a long-term, high-return investment; it’s a gift that keeps on giving. Having IPR protection can help a company acquire a competitive advantage over its market competitors.
Importance of IP rights
Most companies must create a good IPR strategy, as well as a variety of other strategies relating to other modalities such as finance and sales. However, the IPR protection strategy is frequently pushed to the side and, in some cases, totally ignored by numerous startups. This is generally due to a rush to enter the market to take advantage of the market’s rapid opening. In their rush, many companies neglect to safeguard their basic intellectual property rights, which many competitors subsequently take unfair advantage of and abuse their ideas and brand value. As a result, taking a piecemeal approach not only costs more, but it also deprives startups of their important intangible rights, which will cost them severely in the future.
The necessity of the hour for startups is to pay attention to crucial ideas like signing into Non-Disclosure Agreements (NDA) when disclosing any sensitive information related to IPR in order to avoid any exploitation of their IP rights and assets. Any individual, business, or company that wants to utilise their IP assets in any manner can obtain a legal license to do so. Furthermore, in order to obtain funding, many startups wind up exposing their fundamental concept and invention to investors. However, if the IPR is not effectively secured, the investor or partner may be able to take unfair advantage of the situation by utilising a similar idea in a different form. As a result, competent legal counsel from the start may assist companies in protecting their intellectual property rights and eventually turning them into assets.
Conclusion
If suitable proactive actions are taken, mistakes can be avoided. Startups must take reasonable efforts from the start to help establish the groundwork for future success and avoid IP asset issues. To succeed, startups must overcome the odds. New businesses face constant competition, and they can’t afford to make costly mistakes. Protecting your intellectual property (IP) from the start is one method to help secure your new business and keep it on track for success. Not only will the business be protected against legal issues in the future, but it will also be in a stronger position to attract investors, partners, suppliers, consumers, and other stakeholders. At every stage of the creation of a service or product, whether it is ideation, production, execution, or expansion, brands must actively participate in talks with IP law companies. Despite the obstacles, the future appears bright as more businesses recognize the value of an intellectual property and the dangers of violating it.
References
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