India has leveraged the startup ecosystem by offering a conducive environment to make them powerhouses of innovation. According to the Economic Survey 2021-22, the number of new recognised start-ups increased to over 14,000 in 2021-22 up from 733 in 2016-17. The survey further emphasized that intellectual property (IP), notably patents, was the key to a robust knowledge-based economy.
Similar to any other business undertaking, startups interact with various stakeholders, including employees, who regularly exchange ideas and develop key IP. Hence, business operations that significantly rely on IP exchange need an optimized and watertight structure of intellectual property rights protection, especially when they aspire to cater to international markets. In line with the growing importance of startups and IP, the government of India has launched the “Start-up India, Stand-up India Scheme” to support early-stage startups.
Recognition as a ‘Startup’
Entities to qualify as a ‘startup’ need to be recognized by the competent authority under the START-UP INDIA initiative and fulfil all the criteria for the same. For the sake of more clarity, the Department of Promotion of Industry and Internal Trade issued a notification in 2019 according to which an entity incorporated as a private limited company, a partnership firm, or a limited liability partnership in India can be considered a startup for up to ten years if its turnover since its incorporation has not exceeded one hundred crore rupees.
Further, such an entity should be actively working towards “innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential for employment generation or wealth creation.” Notably, an entity formed due to restructuring or splitting up an existing business cannot be deemed a startup.
A foreign entity can also be considered a start-up if it fulfils the criteria of turnover and specified period of incorporation/registration and submits a valid declaration to substantiate the requisites as per the provisions of the START-UP INDIA initiative.
Minding the IP of Business
An important criterion for getting startup registration is that the entity should be working to innovate, develop or improve products, processes or services. To protect technical innovation, patent registration is crucial, especially for startups, where the start-up’s success is tied to the novelty of their product and process. The DPIIT has recognised a total of 69,492 startups to date. In addition, startups have filed a total of 6000+ patent applications.7
A product or process with patent protection helps create a solid business model, enabling them to earn a good market reputation, a return on investment (ROI), and access new opportunities for expansion and generate funds.
To this effect, businesses can undertake the following best practices to optimise their inventions and ideas:
- Build an IP culture that drives innovation in the organization. For instance, implementing rewarding ownership strategies, implementing IP incentive schemes, encouraging teams to research and identify areas where valuable IP protection can be secured, etc.
- Foster IP awareness within the organization.
- Build an IP protection system that is driven by strong policy and practice. Organisations should focus on structuring agile protection strategies that prevent knowledge leaks. Undertaking regular IP audits and compressive risk analysis should be the focus.
- Once the IP is protected, its commercialization should be the focus. Additionally, organisations should be aware of their IP infringement and take proactive measures to enforce their rights effectively.
Gaining Traction with DPIIT Recognition
Benefits from Intellectual Property Rights (IPR)
A startup recognised by the DPIIT is eligible for tax breaks on:
- Prior Turnover
- Prior Experience
- Earnest Money Deposit
DPIIT recognised startups can now get listed as sellers on the government e-Marketplace.
Self-certification Under Labour & Environment Laws
- Startups are allowed to self-certify their compliance with nine labour and three environmental laws for 3 to 5 years from the date of incorporation.
- In respect of three environmental laws, units operating under 36 white category industries (as published on the website of the Central Pollution Control Board) do not require clearance under three Environment-related Acts for three years. Hence, startups can focus on their core business and keep compliance costs low.
Fund of Funds for Startups (FFS)
- The government has set up a corpus fund of INR 10,000 Cr. INR 5409.45 cr has been committed to 71 VC firms. In total, INR 5811.29 Cr was invested in 443 startups.
Faster Exit for Startups
- As per the Govt Notification, startups are now notified as “fast track firms”, enabling them to wind up the operations of their startups in 90 days.
Seed Fund Scheme
- Grant up to INR 20 lakh to validate proof of concept, prototype development, or product trials.
- Grant up to INR 50 lakh for market entry, commercialisation, or scaling up.
- Recognised startups are exempted from Income Tax for 3 consecutive years out of the 10 years since incorporation.
- Startups incorporated on or after April 1 2016, but before April 1 2022, can apply for an income tax exemption under Section 80-IAC of the Income Tax Act.
Patent Incentives for Start-ups in India
The government has identified over 226 local patent facilitators to extend their expertise to DPIIT-recognised startups. The government would reimburse these facilitators for their services.
Patent facilitators are responsible for:
- Providing general advisory services on a pro bono basis
- Providing pro bono assistance with IPR filings
- Assisting with the filing and disposal of IP applications at the National IP offices under CGPDTM
- Drafting specifications (provisional and final)
- Preparing and filing responses to examination reports and other queries, notices or letters by the IP offices
- Appearing at hearings as may be scheduled
- Contesting opposition, if any, by other parties
- Final disposal of the IP application.
The government has provided 80% rebate on the patent filing fee to make the process more attractive.
Expedited patent registration process:
Expedited Examination can be made by filing Form 18A accompanied by Form 9 (Publication). A request filed under a Regular Examination request via Form 18 (rule 24B) can be converted to an Expedited Examination by submitting Form 18A and Form 9.
The IPO has significantly reduced the duration of the patent timeline.
- Publication: Within 1 month from the date of filing of Form 9.
- Issuance of the First Examination Report (FER) to the Applicant: Within one month, but no more than two months, from the date the patent application is assigned to the Examiner; and within 45 days from the date, the Examiner submits the FER to the Patent Controller.
- Response to the First Examination Report by Applicant: Within 6 months of receiving the FER from the IPO.
- Disposal of the First Examination Report (FER) by the Controller: Within 3 months from the receipt of the last reply from the Applicant.
The objective of innovation and promoting patent filing by startups is simple, i.e., a patent is directly related to innovation and contributes to significant economic growth for a startup. The upsurge of startups has also led to massive employment generation, with over 5,60,000 jobs in 2016-2020. Hence, it is imperative to have an enabling ecosystem where entrepreneurs are encouraged to file more IPs seamlessly. While launching incentivized schemes and actively working towards reducing the compliance burden for new businesses when filing IP applications is a step in the right direction, there is still a pressing need to address the issues of procedural delays and complex patent processes to tap into the intellectual prowess of the country.
The objective of innovation and promoting patent filing by startups is simple, i.e., a patent is directly related to innovation and contributes to significant economic growth for a startup. The upsurge of startups has also led to massive employment generation, with over 5,60,000 jobs in 2016-2020. Hence, it is imperative to have an enabling ecosystem where entrepreneurs are encouraged to file more IPs seamlessly.