The Art Of A Good Unicorn | Why Intellectual Property could be the best investment for Indian startups
For India’s emerging tech businesses, patent protection isn’t merely a formality; it’s an asset that can determine survival and success.
Do entrepreneurs truly know what they need to do to carve a unique market niche? There are a lot of aspects to covering every base of securing one's business, but one that may not get enough love is protecting a business’ Intellectual Property (IP). Sure, India is one of the world's biggest startup ecosystems, but many entrepreneurs might still be grappling with fundamental misconceptions about IP protection. This is because innovation doesn't exist in a vacuum; it can be promptly copied and emulated, undercutting the framework of one's business.
But, does an IP truly give a business a competitive edge? Does the patent strategy end up being more proactive in expanding the market or more defensive in protecting innovation?
According to Vivek Mishra, founder and CEO, Fibroheal Woundcare, "Once there's a patent, in general, the perceived value is that the company is here to stay for a long period, and for a biotech startup, there's a cutting-edge element there as well. But, when I started the company in 2017, the thought process was that if I procured a patent, someone would sidestep it. My perspective was that patent law was cumbersome, complicated, and a waste of time. Over the years, there's been a huge shift in my thought process in terms of getting IP protection done for one's business. To be honest, I still don't have a full-fledged strategy in place, but a lot of aspects have been streamlined now. The way patents have evolved, we'd be keen to have more patents to help us associate with the right partners, to scale up and take products to different parts of the world. Patents are also drivers of economic growth. An IP empowers one to say they have a unique product, which enhances the overall marketability. Furthermore, patents have helped us form very close associations with top institutes and major startups across the world, especially as a deep tech-driven company trying to create some value and make a difference."
So, perhaps, there's a disconnect between innovation and protection. To some extent, a patent may be seen as a way of preventing theft, as opposed to creating a defensible moat around one's business. There might be a misunderstanding around what might constitute patentable innovation and that it's only for scientific breakthroughs, but, even a business process or software algorithms just might be covered.
"As an entrepreneur, one has to worry about regulatory approvals, funding, team building, putting systems and processes in place, managing shareholders and more. At the same time, patents play a key role and should become part of R&D, instead of operating through someone who may not truly understand the innovation. So, the best thing is to attach it to R&D and let the department come up with various solutions because it would get the focus there with the most candid discussions coming from R&D", Mishra added.
Elaborating on the approach to patent law, Gitika Suri, director of patents, Cyril Amarchand Mangaldas, said, "Our topmost priority is to help entrepreneurs understand patent law and to be their companion in the journey from being a startup to a fully grown company that is tech-focused or research-focused. For those companies focused on research, a patent could be a source of strength, because it would cut out the competition and a tool of defence as others would be reluctant to enter that area of research. Regarding patents, entrepreneurs want to understand what could be patented, what the timelines are, what the benefits of the patent process are and what are the fees for patent registration. In India, there's a reduced fee for startups, compared to other multinationals and large groups. There's, also, an ability to file for an expedited examination and I've seen how patents have been granted for startups in less than nine months to two years, compared to 3-5 years for companies".
While filing fees may be reduced for startups, would the overall cost of building and maintaining a strong IP portfolio be exorbitant? That could be tough for startups to deal with, especially if they're bootstrapped. So, if there's expensive IP litigation, would the damages awarded cover the cost of litigation and even go beyond, or would the result of such a filing mean that the copycat ceases operations? The ROI for IP protection may be gradual, and for startups, IP litigation might even end up being a game of whack-a-mole.
Swati Sharma, partner and head, Intellectual Property, Cyril Amarchand Mangaldas, said, "For entrepreneurs, cost may be a big issue attached to IPs. It comes down to what budgets have been allocated for this subject matter, which may not be considered as closely as if it were for an M&A deal, a private equity deal, or an investment into the business. People start a company with the intent of an IPO in the next 10 years, but they put IP protection on the back burner. In my experience, when companies are looking at an IPO in the next 2-3 years, that’s when they’ll start building up their patent or trademark portfolio.”
"Reluctance comes from having to invest in IP protection in the initial years and not seeing an immediate return. But, people need to know that IP protection, especially in India, is not an expensive affair. Trademark protection creates a monopoly right in perpetuity and, therefore, spending some money on initial protection could give one a perpetual right to run their business or commerce under a certain name or brand excluding others. And that is such a great monopolistic right to possess," Sharma added.
And what would be the downside of not procuring a patent? What would an organisation that has secured multiple patents look like if it hadn't done that at all?
"Today, the space we're in has about two players. If we didn't go the patent route maybe dozens of companies would have been in this space. A copycat product, even without merit or quality, would have flooded the marketplace. But, when there's a patent by a company in a space, people fear a bit of enforcement, so those who have done actual on-the-ground innovation would excel. Without patents, I'd probably be fighting various battles and most of our energy would have been drained into firefighting, rather than focusing on innovation and bringing new technologies and ideas to the market. In retrospect, patenting products gives you peace of mind and enhances one's confidence drastically. I'd recommend this to every entrepreneur in the tech space and beyond," said Mishra.
For a product to be eligible for a patent, it has to be new and not made public before, because if a product starts being sold or publicly showcased, it may no longer be considered new. That could be detrimental, especially if startups in India are prioritising speed to market (STM). If patenting takes months or years, could there be scenarios where spending time and money on patenting would end up with the innovation becoming obsolete in that time?
"The negatives of not protecting one's IP is made apparent when people start copying aspects of one's business and, by then, it's too late to prevent that because no patent has been filed and no design has been registered. At times, one's product in the market can kill the novelty of one's patent, making that business ineligible for a patent or design registration," Suri said.
However, does every innovation need to be patented? Are there times when a company is better off keeping innovation as a trade secret? To this day, people do not know the secret Coca-Cola formula, one reason why it's a market leader in the soft drink space. On the other hand, a patent would require public disclosure of one's innovation, which could enable competitors to figure out alternatives. Competitors can find ways to design or innovate around a patent, while still trying to offer similar value. So, could a trade secret be a way to sustain an advantage, as well?
And, can anything and everything be given patent status?
"To get a patent, the basic aspect is that the invention needs to be novel, but there are certain inventions that can't be granted a patent, like inventions that are just combinations and which may not be showing much synergism, dealing with methods of agriculture, dealing with diagnosis, dealing with isolated forms of plants or animals and more. But, there are patents granted for, if not a diagnostic method, a diagnostic apparatus or kit or combinations or compositions that are synergistic, variants of proteins and more,” Suri noted.
And when it comes to fundraising, how attractive is a patent to VCs?
"The IP portfolio of a venture also helps in its revenue models, like licensing technology. While it is possible to get investment without a good IP portfolio, a solid patent portfolio gives investors some assurance that the company is working on a unique subject matter that's profit-worthy, making them feel that there's an advantage to investing in that venture," added Suri.
So, while IP protection could be a competitive advantage, it ought not to be seen as something that could guarantee success. A venture with a patent might still suffer from poor market fit, inadequate business execution, or other issues.
Since late 2022, there has been a surge in the AI sector. So, how should AI ventures in India be looking at IP?
“What I would tell entrepreneurs developing an AI model is: conduct your due diligence at the machine learning stage, be mindful of the data you use to conduct machine learning for the AI, be cognizant that you do not exclude copyright notices and have very well-drafted terms of use for your website and a privacy policy. One's terms of use define the exact manner in which their AI will function and how they will divide the ownership in the derivative or the generative AI work. Currently, it’s being debated whether content generated by AI can be owned by the person who made the AI system or machine or whether it could be owned by the user who prompted the AI machine to give a certain result,” Sharma said.
According to the International IP Index 2024, which evaluates intellectual property systems across the world's top 55 economies using 50 unique criteria, India ranks 42 out of 55 countries. What could the on-the-ground realities of this ranking be?
“Currently, India is currently the third-largest trademark filer in the world and fifth-largest in terms of patent applications. The number of trademark and patent applications being filed on an annual basis is on a steep rise. The Indian patent office has been understaffed for a long time. To hear trademark or patent cases, one needs to have certain technical knowledge, information and qualifications. So, to get people who are well-qualified and be part of the IP system is a huge challenge. However, this is being tackled by the Indian government filling 900 posts to make sure the backlog of trademark or patent applications comes down significantly. Furthermore, due to the Covid-19 pandemic, India’s way of litigating in the courts has changed, with judges accepting virtual hearings. Court proceedings are becoming increasingly efficient so that IP cases can be concluded within six-18 months. What used to take decades a few years ago has come down to a year and a half, which is brilliant for an IP dispute, where one could get relief or a remedy on Day 1. If one is seeking an ex parte injunction, it can be granted within day 1 of filing”, said Sharma.
In the last financial year (Mar 15, 2023, to Mar 14, 2024), India saw more than 100,000 grants for patents. Talking about the legal process regarding patent law, Suri said, “There have been a lot of IP divisions and courts established by High Courts in places, like Delhi, Kolkata, and Chennai. But, we should also focus strongly on the quality of patents being granted and inventions worthy of patenting and the disposing of oppositions and revocations being filed, so that applications don't get stuck and the expenses of ventures are not wasted in these procedural aspects. There have been improvements in the ease of filing patents in India and that should continue, so that it is a really clean and smooth process for startups to encourage them to file applications and innovate, thereby growing the economy of the country."
"One has to be aware of the kind of progress taking place in one's field and in the patent landscape of one's country to future-proof their IP strategies in the long-term,” he added.
Shrija Agrawal is a business journalist. The views expressed are personal
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