Start-ups and IP: The ‘se­cret’ for­mula for suc­cess

Governance Now - - TECH AND LAW - Swathi Suku­mar

The term ‘start-up’ al­lows for a cer­tain le­niency in ex­pec­ta­tions. it refers to a com­pany that is a “a fledg­ling busi­ness en­ter­prise”. A ‘start-up’, as de­fined by the gov­ern­ment in the start up in­dia scheme, is en­ti­tled to var­i­ous con­ces­sions, in­clud­ing re­duced in­come-tax li­a­bil­ity and cut­ting down red-tape in other com­pli­ance re­quire­ments.

The frame­work for start-ups has been one of pro­tec­tion: Pro­tec­tion against bu­reau­cracy, pro­tec­tion against tax; pro­tec­tion against de­lays.

in­tel­lec­tual prop­erty has been a vex­ing prob­lem for start-ups. Most start-ups have adopted de­fen­sive strate­gies, mainly try­ing to stay out of le­gal trou­ble, fo­cus­ing on not in­fring­ing third-party ip rights. Th­ese de­fen­sive strate­gies are in keep­ing with the pro­tec­tion­ist model of start-up de­vel­op­ment. How­ever this frame­work fails when start-ups have to step up to en­force their rights, be­cause the culture around start-ups has not en­abled think­ing of ip as an as­set, and has in­stead fo­cussed on min­i­miz­ing li­a­bil­ity caused by third-party ip.

His­tory has taught us that this is not a promis­ing strat­egy for busi­ness growth.

Take the case of coca cola. The for­mula for the man­u­fac­ture of coca cola has been a se­cret for the past 125 years. it is cu­ri­ous that Dr. John Pem­ber­ton sought to keep it con­fi­den­tial when he in­vented the for­mula in 1886, rather than fil­ing for a patent for it. The first us patent for any in­ven­tion was granted in 1790, so clearly Dr. Pem­ber­ton and the peo­ple he sub­se­quently sold the for­mula to, made a con­scious de­ci­sion to main­tain the for­mula as a trade se­cret rather than fil­ing a patent ap­pli­ca­tion which would give them mo­nop­oly for 20 years af­ter fil­ing, but would re­quire the ap­pli­ca­tion to be pub­lished, mak­ing the for­mula known.

This was a so­phis­ti­cated, well thought-out choice for a start-up in the 1890s, but one that con­tin­ues to sus­tain the busi­ness of the com­pany.

on the other hand, there are com­pa­nies like linux, who have made their soft­ware avail­able for free un­der an open source li­cence, but earn rev­enue from add-ons and premium ser­vices that their clients may need to op­ti­mise the free soft­ware. The choice to make the soft­ware avail­able un­der an open source li­cence was made when the com­pany was started in 1991.

The lessons from coke and linux are sur­pris­ingly sim­ple. start-ups need to think about ip as a busi­ness as­set along­side their busi­ness plans. not af­ter­wards.

Think­ing about ip de­fen­sively has many prob­lem­atic con­se­quences. start-ups miss the boat on pro­tect­ing in­ven­tions for which they could have patent pro­tec­tion, be­cause patents and de­signs have to be ap­plied for be­fore pub­lic use. se­condly, busi­nesses of­ten do not have a re­al­is­tic idea of what they can seek pro­tec­tion for, leav­ing them feeling cheated and their busi­ness plans at risk when a com­peti­tor uses the same busi­ness method, which by it­self can­not be patented by any party in in­dia. Thirdly, they are at higher risk of be­ing ex­ploited by larger, more de­vel­oped busi­nesses which are able to ne­go­ti­ate agree­ments with them where the start-up’s ip is at risk.

start-ups need to iden­tify, pro­tect, and most im­por­tantly en­force their ip against in­fringers. Peo­ple of­ten re­sort to the fa­mil­iar trope that in­dian courts are slow and that le­gal ac­tion is ex­pen­sive, but no one would make that ar­gu­ment if a tres­passer en­tered their

Peo­ple of­ten re­sort to the fa­mil­iar trope that In­dian courts are slow and that le­gal ac­tion is ex­pen­sive, but no one would make that ar­gu­ment if a tres­passer en­tered their build­ing and threat­ened to di­vest them of prop­erty. Like tan­gi­ble prop­erty, fail­ure to en­force IP is as good as giv­ing up the right to the as­set, and start-ups need to in­vest in pro­tect­ing IP if they want to sur­vive.

build­ing and threat­ened to di­vest them of prop­erty. like tan­gi­ble prop­erty, fail­ure to en­force ip is as good as giv­ing up the right to the as­set, and start-ups need to in­vest in pro­tect­ing ip if they want to sur­vive.

con­sider the case of prom­i­nent in­dian start-up reverie lan­guage Tech­nolo­gies. reverie is known for its pi­o­neer­ing lan­guage tech­nol­ogy soft­ware so­lu­tions that al­low in­di­ans to ac­cess var­i­ous ser­vices such as op­er­at­ing a set-top box, us­ing their phones in the user’s lan­guage of choice.

a com­pany based in china and in­dia pos­ing as a cus­tomer ob­tained trial soft­ware for its mo­bile phones from reverie. af­ter ob­tain­ing the trial soft­ware, they stopped com­mu­ni­cat­ing with reverie and used the trial soft­ware for lakhs of its prod­ucts with­out pay­ment. reverie sued this com­pany be­fore the Delhi high court and was able to ob­tain an in­junc­tion and to con­duct raids on sev­eral fac­to­ries and of­fices of the in­fring­ing com­pany, find­ing in­crim­i­nat­ing ev­i­dence against them. reverie’s will­ing­ness to en­force its ip sent an im­por­tant mes­sage to all po­ten­tial cus­tomers that there would be con­se­quences for in­fringe­ment of ip.

un­der in­dian law, con­se­quences of ip in­fringe­ment are se­ri­ous. apart from the dis­rup­tions caused to an in­fringer’s rep­u­ta­tion and busi­ness by raids and in­junc­tion or­ders, in­fringe­ment could en­tail pay­ment of dam­ages. Th­ese dam­ages would be as­sessed on the ba­sis of ac­tual use of ip as well as puni­tive dam­ages for in­fringe­ment, which could to­gether run into crores of ru­pees.

How­ever, a com­pany will have con­fi­dence to en­force its IP only if it has clar­ity on the rights and en­ti­tle­ments, and the sooner start-ups seek le­gal ad­vice, the bet­ter it is.

some­times, a founder could re­alise that she has stum­bled on a mil­lion­dol­lar idea, and de­cide to cen­tre all her busi­ness around pro­tect­ing that idea. How­ever, even when this does not hap­pen and the ip re­port card looks bleak, start-ups could re­alise that while they can­not pro­tect their main op­er­a­tions as ip, they could still go ahead with the busi­ness, un­der­stand­ing this vul­ner­a­bil­ity and plan­ning busi­ness ac­cord­ingly. on the other hand, a com­pany could de­cide to be ip-free and gen­er­ate rev­enue from ad­ver­tis­ing, “freemium” and add-ons. But th­ese choices have to be made con­sciously and have to in­form busi­ness op­er­a­tions.

There is no ‘se­cret for­mula’ for a start-up to se­cure ip pro­tec­tion and we should not look for one. start-ups should be­have like any other busi­ness and think of ip as an as­set-build­ing ac­tiv­ity and not as a risk-mit­i­ga­tion mea­sure. aware­ness of ip, good le­gal ad­vice, and mak­ing im­por­tant philo­soph­i­cal choices for the com­pany are key, as his­tory has taught us.n

Suku­mar, a Delhi-based in­tel­lec­tual prop­erty lawyer, is co-founder of iprobono In­dia, which pro­vides pro bono le­gal as­sis­tance to in­di­vid­u­als and civil so­ci­ety or­ga­ni­za­tions in In­dia. She is a court-ap­pointed me­di­a­tor for trade­mark mat­ters.

Ashish asthana

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