Intellectual property rights: What startups should know

By Rajesh Begur and Pooja Chitalia, ARA LAW
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Branding, customer data, technology such as software, mobile applications, etc., form an integral part of the intellectual property (IP) portfolio of any start-up company. Protection of IP is crucial for startups in view of the value it brings to the business right from attracting investors and making financing easier to leveraging against competition, generating revenue from licensing, assignment or transfer arrangements, and contributing to the company’s branding and marketing strategy. Given the above, startups need to invest and take as many measures as they can to protect their IP.

Perils of infringement

In addition to protecting their IP from third party infringement, startups should be aware of others’ IP rights to ensure that someone else’s rights will not limit them or prevent them from operating their business. There have been various cases where prominent brand names or logos have been infringed and the courts have passed restraining orders or injunctions in relation to the infringements.

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Rajesh Begur

In December 2014, Delhi High Court in Make My Trip (India) Pvt Ltd v Make My Tours Pvt Ltd held that the defendant (Make My Tours) had infringed the mark and logo of the plaintiff (Make My Trip) on the grounds that use of the mark and logo by the defendant was likely to cause confusion and deception and was bound to mislead the public to believe that the plaintiff was the source of the defendant’s services. Hence the court ordered an injunction to prevent the defendant from using the same mark and logo.

In another case, Tata Sons moved the World Intellectual Property Organization’s WIPO Arbitration and Mediation Center demanding the transfer of the domain name “oktatabyebye.com” from the owners of the name on the grounds that “tata” in oktatabyebye was similar to Tata. The court held in favour of Tata Sons and the domain name oktatabyebye.com was transferred in favour of Tata Sons.

Thus, IP infringement not only affects brand value but may result in companies closing shop or having to rebrand themselves. Therefore, depending on the nature of service/product, it is extremely important to seek IP protection.

Danger of theft

Many startups have an in-house research and development team of employees who create works that carry IP rights. Early stage startups outsource branding and marketing work to third party consultants. Thus a lot of sensitive, proprietary, confidential client data, dealer data, etc., are handled by employees and consultants and may be stolen by them.

Another aspect that founders of startups tend to overlook is that when they start their own business, they may unintentionally use the trade secrets of their previous employer and this may invite action from the employer on grounds of violation of confidentiality obligations imposed under their contract with their previous employer. It is therefore important that founders make sure that using any information from prior employers does not amount to illegal use of the prior employer’s IP.

Safeguarding one’s rights

In light of the above, the first step to secure IP is through registration. Depending on the nature of service/product, startups can register their services and products as: (a) trademarks, to protect word signature, name, device, label, or combination of colors; (b) copyrights, to protect original literary, musical and artistic works and cinematographic films and sound recordings (e.g. website design, graphics); (c) patents, to protect any invention which is novel, non-obvious and has utility (e.g. software development); and (d) designs, to protect original designs created for particular articles to be manufactured by industrial process or means.

Another step in seeking IP protection against theft is executing comprehensive employment agreements and non-disclosure and IP assignment agreements with clauses on non-compete, confidentiality, non-solicitation, IP protection, assignment of inventions/IP, work for hire, etc. Also, when licensing any IP to a third party, a detailed licensing/sub-licensing agreement must be executed.

Issues pertaining to IP protection may sometimes get brushed aside during the early stages of a business as it seems an expensive a proposition for a startup to act on. However, it is important to do a cost/benefit analysis to determine which IP protection is best suited for the business and put in place an IP strategy to obtain and sustain benefits for the business in long run as for most startups IP is the only business asset.

Also, a lot of startups prefer to vest and register their IP rights in their offshore company incorporated in a developed country and license the rights to its wholly owned Indian subsidiary as the IP laws in developed countries are more robust and stringent. Slightly older companies may also consider conducting an IP audit for a systematic review of the IP rights owned or acquired by the company to accurately gauge and assess its IP portfolio.

Rajesh Begur is the managing partner of ARA LAW, a first-generation law firm with offices in Mumbai and Bengaluru. Pooja Chitalia is a senior associate at the firm.

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