Introduction
What Is Startup Intellectual Property?
Intellectual property (IP) for startups includes using copyrights, trademarks, and patents.
Safeguarding IP is much easier in the beginning phases of your business than after those ideas have
become successful. IP protection puts legal checks on your competition, preventing others from
infringing on and profiting from your property. A sound IP strategy from the beginning can also
help attract investors, suppliers, partners, and more because this form of protection offers more
security with any potential success.
Typically, startups seek protection for inventions, logos, business names, and software. Different
types of IP protection apply to these various works. For example, patents would protect an
invention, copyrights would protect software, and trademarks would protect a startup's brand name
and logo.
Why is IP protection important for Startups?
When starting a business, there are many factors to consider, ranging from branding and targeting
markets to financial growth. However, Intellectual Property (IP) protection is one of the crucial
parts of the market challenges. IP for any company, especially a startup, is an intangible asset. It
levels the playing field between entrepreneurs and incumbents and is more likely to attract lucrative
opportunities. Although patents are the most costly and time-consuming form of acquired IP, they
provide an unparalleled protection. When a startup patents its inventions, its value rises, and
financial perspectives expand. Moreover, investors are more likely to acquire a startup which
possesses well-protected IPRs. This is because it forms a greater resource while competing with
industry giants. Hence, patentable ideas are vital to the success of a startup business.
IP can be a unique selling proposition (USP) of the product or service in today’s competitive and
dynamic world. It helps create a sustainable and defensible differentiator for the startup. Moreover,
by creating a high entry barrier, it helps startups to grow faster with respect to its competitors. Since
it creates good value for the venture, IP faces higher priority and hence, makes IP protection
important for startups.
Additionally, the Startup Genome Project, seeks to chart, model and evaluate what it takes to make
startups tick. IP forms the key ingredient for startups around the world to gain a competitive edge in
the market. This gives investors, consumers, and other stakeholders a profound sense of trust in the
startup. This trust is not only to succeed, but also to become a market leader in its domain.
Additionally, in engineering startups the generation of inventions take place every day. IP protection
assumes much greater importance in both manufacturing and engineering industries. Hence, IP
protection faces huge brand value attachment.
IP in Startups - A crucial element
It is critical for start-ups to secure all legal elements of their venture and to have a clear strategy on
how to proceed with their concept. For instance, after you’ve chosen the ideal name for your firm,
you must protect it with a trademark, prohibiting others from using it. Understanding legal rights
enables start-ups to avoid intellectual property issues that might result in significant fines, litigation
costs, or even closure.
The most essential intellectual property rights that a startup may use to protect its intangible assets
and profit from its use are patents, trademarks, and designs. A patent is considered the gold standard
of intellectual property protection and may be used to enclose an invention that brings a new
method of doing something. It is the most successful method of promoting continuous innovation
and development of goods, processes, and services while also ensuring that inventors get proper
credit for their efforts. On the other hand, trademarks are unique indicators used to identify certain
services and items.
Registered trademarks may include words, phrases, numerals, logos, graphics, and threedimensional forms. The notion is that by registering a trademark, one may represent the quality,
history, and uniqueness of their work via a legally recognized mark that distinguishes it from rivals’
work. Designs may help safeguard a product’s aesthetics. The protection is limited to the visual
characteristics of the objects and does not include their functioning or functionalities.
The majority of start-ups have an informal work environment since they are mostly comprised of
friends, colleagues, and family. Such start-ups may run into difficulties in the long term, particularly
if certain formal criteria are not met. Legal agreements in the form of non-disclosure agreements
between founders, employees, and suppliers are critical for protecting an organization’s intellectual
assets and trade secrets from infringement. Throughout commercialization, a start-up should
constantly bear in mind the need for previous disclosure of the creative product or method, since IP
rights are useless without prior disclosure.
As a result, innovators must seek professional advice on product commercialization and process
disclosure prior to filing for patents or applying for industrial design. After strategizing these points
and implementing necessary safeguards, the product may be released into the public realm.
Quite often startups fail to understand that Intellectual Property Rights go hand in hand with
innovation. In the hyper competitive world, there is a need to foresee and analyze the events
especially when it comes to startups. Being new in the market they need to be two steps ahead of
their competitors as well as stay clued up on all the business and economic developments taking
place around them. Let’s take some example:
· Twitter took over Atebits that made hugely popular Tweetie applications for iPhone and Mac OS
X, days after Tweetie filed for a patent application on the ‘pull down to refresh’ feature.
· Multinational IT giant Google acquired two small IT startups Apture and Katango, with multiple
pending patent applications which were related to Google’s work.
· In 2004, Pakistani-American electrical engineer Ashar Aziz founded a cyber-security startup
FireEye. He got his method of identifying and responding to a specific network security risk
patented in 2005. His vision evolved into development of FireEye Malware Protection System
which is the main product line of the company. Later in 2013, FireEye had a hugely successful IPO
on NASDAQ.
· There is another case where a tech company facing financial crunch was able to license its IP and
stay afloat with help from the proceeds.
Going by the above examples, it is clear that IPRs equip startups to grab the right opportunity at the
right time. Hence, IP management strategy should be devised early on in the process of setting up a
business. IPRs not only help startups to take their business forward but become an important factor
for startup funding as well. As per a survey, ‘start-ups that filed at least one patent before applying
for VC funding obtained a 51.7% higher amount of VC funding as compared to those that did not
file any patent.’ In case a startup arrives at a situation which calls for its acquisition, IPRs provide
better grounds for negotiating a good deal. After all, well protected IPs always fetch better price.
Seemingly small mistakes but big repercussions:
As discussed before, some startups completely ignore IP protection until they have to face the
repercussions. Contrary to the popular belief, the corrective measures are not only expensive for
startups but may also not be enough to protect the company or its brand. Along with patents, which
hold immense importance for technology based firms, trademarks also need to be taken seriously by
startups. Failure to prepare a thorough IP roadmap at the outset can expose the company to potential
third-party infringement risk. Let’s take the help of following example to make it further clear.
Koalect SA is a Belgian start-up which offers the largest donation and reward-based crowd-funding
software tool in Belgium. Koalect is involved in building online fundraising platforms tailored to
the needs and strategies of social-profit organisations, allowing communities to collect money in a
trouble-free way. But initially, Koalect SA had launched its business project under a different nameElefund, with an elephant logo. The company intended to register the brand but, in the meantime, it
started to operate under the name ‘Elefund’, launching its website, and communicating all materials
to third parties under this name. The company used this brand to identify itself in the market
without conducting a trade mark search in order to determine if a similar or identical mark for
similar or identical goods and services was registered by a third party. As a result, the startup was
soon confronted by the German company Elefunds GmbH, who had two registered EU and German
trade marks for ‘Elefunds’, with an elephant logo and in one of the classes corresponding to
activities that this startup was involved in ( fundraising activities).
At this point, the Belgian Company realized that there were only two possible solutions to this
issue. First - they face court action against Elefunds GmbH or second- they stop using the name
‘Elefund’ and find a completely new brand name! This was a big setback for a company that had
just started out and had begun carving a niche for itself. It tried to negotiate with Elefunds GmbH if
it could keep its brand name ‘Elefund’ on a condition that it will not compete with Elefunds GmbH
even if they operated in the same geographic markets. The negotiation was fruitless with Elefunds
GmbH giving the startup ultimatums to change the brand name and to close down all its marketing
communications and e-mail addresses. At this point, the company understood that, as a young startup, it could not afford litigation due to its monetary and time costs. It considered professional
advice and it was decided that they should stop using ‘Elefund’ and find a new name. Eventually the
name was changed to Koalect S.A.
The above example shows that ignorance regarding IPR can even cost a company its name! But it’s
not always the ignorance that keeps startups from availing benefits of IPR. Money is a big factor
too. Usually money is a scarce resource for startups and considering the financial constraints, they
tend to neglect their IP issues to focus more finances on their core work and its marketing. But little
do they realize that not prioritizing their IP needs may be troublesome in future. It is important for
them to balance their finances accordingly between their core work and IP needs.
Reasons to Secure IP Rights for Your Startup
Many startups simply can't afford not to secure rights in their IP. A startup doesn't need millions of
dollars and a team of attorneys to get basic IP protections. Getting basic domestic IP protection
usually involves only a few small fees and some legal research. The benefits, by comparison, are
huge:
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Deterring other companies from unfairly profiting off your material. Formal IP
protection comes with registration, which puts the world on notice that your patent, logo, or
software belongs to you. This protection can help your company avoid litigation in many
cases. Other companies should first check with the United States Patent and Trademark
Office (USPTO) to see if material like yours is already in use.
Presumption of ownership. When you successfully gain legal rights in a copyright, patent,
or other type of IP, you create a rebuttable presumption that the property belongs to you. In
other words, when another company infringes on your IP and you sue, the courts will
presume that the IP belongs to you unless the other company proves otherwise. This position
gives you an advantage in infringement litigation.
Protection from infringement suits. If your startup doesn't go through the process of
securing IP rights, you have no way of knowing whether what you're using already belongs
to someone else. Properly acquiring IP rights protects your startup from expensive
infringement litigation later when you discover that someone else already owns the rights.
The key ingredient to competitive advantage. According to the Startup Genome Project,
the most critical step in gaining competitive advantage in your market is intellectual
property, which is even more true for tech-based startups.
Security and investor appeal. If your startup connects with a novel idea or type of
software, not protecting your IP could put your entire business at risk. IP protection
advertises stability and security to investors who like to see startups with a well-developed
IP strategy from the beginning.
Analysis
On 22nd October, 2014 a National Intellectual Property Rights think tank was set up by the
government with the motive of solving Intellectual Property Rights related issues. It was setup to
review the new intellectual property rights policy which later came to be known as the National
Intellectual Property Rights policy. The main focus was on augmenting the intellectual resources
and bringing the utility model of the same. However there are some loopholes. The draft almost
does not mention the principle of knowledge sharing and knowledge access and also it does not talk
about the ways to increase the domestic patent in startups. The policy is said to be in relation with
the schemes launched by the government such as Make in India and Digital India but there is such
evidence that the implementation of the policy is properly done and that these laws are in
consonance with intellectual property protection in foreign investment13.
The measures of patent ling in the country are very low and this is a reason why such policy is
drafted, but the NIPR does not speci cally mention this thing in its draft. One of the major factors
in any innovation is the utility models, which refers to any kind of modi cations and changes in
order to make it more useful and gives strong competition in terms of foreign products, however in
India, such models are considered petty and does not gives strong impetus on such factor. As a
major policy it is very important to cover such aspects which these policies fail to cover. Apart from
that there should be strong promotion of these policies which is a major setback from the side of the
Indian government14. Every state should implement these policies very ef ciently covering all the
loopholes of the same. SIPP on the other hand also have many loopholes which is very petty in
nature but there is a great need of changing or modifying the same. The policy should aim more on
the weak entrepreneurs and that their interests are not jeopardize. There should be a proper balance
between economic and social reforms which the policy fails to address. It has been observed that
these policies initiated by the government for better protection of the rights of innovators are not
being properly implemented, which frustrates the basic objective of the policy so created15.
Conclusion
The critical importance of intellectual property protection cannot be overstated. A company is
simply unlikely to succeed without strong management of its intellectual property. Some of the
more typical mistakes companies make, such as neglecting to get an IP address for the business,
may be very difficult to rectify if not caught early on. As mentioned before, registration is often
conditional on timeliness, and failing to register on time may result in another corporation acquiring
the disputed rights. Clearly, protecting intellectual property must be a key component of every
startup’s business plan in order to allow development, avoid infringement, and boost income.
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Also, IPR filing behaviour varies broadly from one industry to another. Policy intervention in every
country has helped in increasing IPR awareness among different stakeholders and associated
patenting activity. The corresponding evidence regarding IPR awareness, engagement and effects of
policy interventions from a developing country's perspective is limited. This report contributes to
the literature by providing the IPR awareness and usage among Indian technology start-ups based
on firsthand account of their experience in dealing with IPR system.
Startups became a worldwide trend during the last decade all over the world. The number of people
wanting to set up a business without or with minimum resources is rapidly increasing. The largest
investments in IT and technology firms were mainly in the United States. Currently, the European
market, as well as the Asian market is catching up fast.
Intellectual property represents an important financial and legal asset for companies, including
startups. Intellectual property protects whatever value there is in the company (brands, inventions,
design), and also contributes to its increase. Appro- priate protection of intellectual property owned
or used allows to gain competitive advantage, become recognisable, build reliability and reputation.
To sum up, the role of the Intellectual Property Protection in startups can be considered as one the
most crucial in today’s highly competitive busi- ness environment. To survive in such environment,
newly based businesses have to manage intellectual property effectively.