Intellectual property or IP is perhaps one of the most important components of any startup’s business. There are some founders who do not give IP the attention it deserves, while some defend theirs in a manner which makes it counter-productive. As an intangible asset, its value is often based on fairly subjective criteria and, therefore, it is important to have some basic understanding when starting a business.
IP consists of multiple types of intangible assets such as patents, trademarks, copyrights, geographical indications and designs. At this juncture, note that “trade secrets” are not per se protected under any specific statute. They are contractually secured through Confidentiality Agreements/Non-Disclosure Agreements. For others, there are specific legislations which are explained in brief:
Patents: Invention is the key word for patents and is governed by The Patents Act, 1970. As per this statute, the following criteria need to be satisfied before a product or process can be patented, namely: (i) it must be novel; (ii) capable of industrial application, (iii) should be non-obvious and (iv) useful. An analysis of whether an invention fulfills the key ingredients should be done in consultation with an attorney. Further, patent protection is granted for a term of 20 years after which the invention falls under public domain.
A common question that is often asked by founders is whether they can get their software patented. The short answer to this is “no- software cannot be patented per se,” i.e. a computer program is not independently patentable. However, note that if the software is part of a mechanical device or system where it assists in the operation of a device, a patent filing may be possible. For example, Google was granted a patent for generating user information for use in targeted advertising.
So, if software algorithm cannot be patented per se, how does one protect it? Well, through a copyright registration.
Copyright: Copyright is governed by The Copyright Act, 1957, and provides protection for creative works, literary works, and computer programs, etc. The duration of protection is generally for the author’s life plus 60 years. So, if I get a copyright registration for the source code/algorithm of my computer program, it will remain in my name for as long as I live plus 60 years. However, copyright registration is not mandatory, though a registered copyright shifts the burden of proof in case there is any infringement claim. In other words, if I write a song and e-mail it to a friend but do not get it registered with the copyright office, I will have to prove that I wrote the song before the person who is now claiming ownership. On the other hand, if I get my copyright registered, the person who now claims the song belongs to him will have to prove that I am not the rightful owner. As a matter of abundant caution, founders who create any copyrightable work should e-mail the work to a close family relative or friend as proof of prior creation.
But what about the most visible part of a startup’s IP? The name and logo!
Trademark: Trademarks are regulated through The Trade Marks Act, 1999, and protect a brand, logo, symbol, and domain name, etc. The term of protection is 10 years and can be renewed thereafter by paying fees. Like copyright, trademarks also do not mandatorily require registration but if registered, are generally deemed as proof of ownership. Copying an unregistered trademark is classified as “passing-off” and typically results in passing-off suits as opposed to trademark infringement suits. Again, let us take a hypothetical example. “Suber” is a globally known mark in the taxi aggregation space. However, Suber does not get its name registered with the Indian Trademark Registry. Mr. ABC wants to start a food delivery business and is in the process of building an app. He consults his lawyer who does a search with the Trademark Registry and confirms that “Suber” is not owned by anybody in India. This was just the kind of re-assurance Mr. ABC wanted. He now calls his app “Suber Foods” and starts work. Since the mark “Suber” is not registered in India, Suber will have to file a passing-off suit against Mr. ABC (or his company, depending upon who owns Suber Foods). Alternately, if “Suber” was registered in India, a trademark infringement suit would be filed where Mr. ABC would have the burden of proving prior use of the mark “Suber Foods”.
Unfortunately, any IP registration is a time consuming process. Copyright registration is perhaps the quickest, but if not managed effectively, can take up to a year. Trademark registration typically takes anywhere between 16-36 months, depending upon any objections and oppositions filed. Similarly, a patent registration can also take upwards of 20-24 months. It is important for founders to be aware of this so that they can plan their IP registrations and not presume that they will manage to complete registrations in a span of a few months just before they are looking for funding.
While the aforementioned summarizes some key aspects of IP laws, I have some suggestions for founders and startups. These are based on my interaction with clients who have either handled their IP portfolio very efficiently or taken decisions they regret because they did not consult experts.
- Have a general discussion on IP counsels to understand specifically what part of your business is your intellectual property. Sometimes companies do not even realize they have created IP till much later. Employees, agents, licensors, contractors and even interns are IP creators!
- Not all IP is important. It is important to be able to draw a distinction between what is worth protecting and spending money on and what is not. In case an employee makes a design that you may or may not use but find out that a third party has copied it, you may want to evaluate whether that design is worth expending time, money and energy over. Always discuss this with your lawyers.
- Enter into legal contracts with your employees, agents, consultants, contractors, vendors and anyone else who is likely to create IP for you or have access to your IP (or any other confidential information). It is important to specifically state that all IP created by an employee, agent, consultant, and inter, etc. shall vest with and assigned to your company. Similarly, strict confidentiality obligations ought to be carved out. Any startup lawyer will be able to provide you with a standard employment contract template that can then be modified based on the contracting parties.
- Execute NDAs with vendors, customers, and consultants, etc. who are likely to know details of your business, clients, financials, and IP, etc.
- Registering a domain name does not automatically give you a right over the name. Trademark registration may still be important. You definitely don’t want to be in a situation where you run your business under brand “X” for a year and then have to change it because all this while it was infringing (or passing-off) someone else’s IP.
- One of my startup clients told me that he does not want to worry about IP till the company gets to a Series A round of funding. While I understand the approach, it is critical to evaluate on how best to protect your IP from early days itself. Registrations are not expensive and drafting sound legal contracts is a healthy business practice which should definitely never be put in the backseat!
- Another myth is that only big companies get into IP law suits. While this is true because big companies have the money and recourses to file or defend such law suits, the more conscious and proactive a startup is towards its IP, the less would be the risk of it having to enter into such law suits as it grows bigger.
- Have a strategy surrounding your IP. Since it is an intangible asset, its valuation models are extremely subjective. For example, if you are selling and licensing a product or a service, assess with your lawyer and accountant whether the price breakup should have a higher IP license fee as opposed to the cost of the product. This can have an impact when your startup is valued by potential investors.
- Finally, as you grow big, adopt internal practices and encourage self-diligence of IP. The manner of doing this varies from industry to industry but is something that should be on the founder’s radar if the business is very IP-centric.
To conclude, running a startup is like raising a child. While it is important that it grows, founders also have to take measures to ensure that they value and protect what they create!
Image Credit : Shutterstock
(The author was assisted by Devvrat Shekhawat)
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)