In the past year the Indian startup industry has made tremendous strides with some large acquisitions, layoffs, new entries from abroad, move towards app only solutions and sky high valuations. One thing however has been clear; the focus continues to be on technology based enablement of services and solutions, or consumer internet, and such a focus will continue for the next several years.
Intellectual property, particularly patents, can become an essential part of a startups’ foundation, identify, USP and valuation. Here are some key factors why patents can play an integral role in startups:
- Patents provide the “freedom to operate” and defend against competitors. By possessing a patent or a family of patents, in a key technology or process, which your business is premised on, provides you the ability to defend against copycats and also rivals looking to drive you out of the market.
- Patents are a weapon to stop theft of your innovation. You have the ability to pursue through legal and non-legal proceedings, the knowing or unknowing infringement, of your patented innovation. Patents give you the necessary time and advantage to capture market share and also keep rivals out. Alternatively, you also have the option of generating revenue though licensing of your patented technology to competitors.
- Patents open the door to partnerships and joint ventures. A recent study by the National Science Foundation in the US showed that up to 50% of manufacturing and services firms acquire innovation of external partners to develop their key products and solutions. About 14% of these partners were start-ups. You as a startup might not have the necessary resources or capabilities to manufacture, generate customers or manage operations; partnering with an established or larger player who can take care of these aspects in return for you sharing your patented innovation is the solution.
- Patents make possible venture funding or increase chances of acquisition. It is a standard practice today for VCs or prospective acquirers to seek an IP valuation of the prospective target startup. The attractiveness of a startup increases when backed by patents. In markets such as the US, up to 40% of start-ups hold patents, but this increases drastically to 80% when considering startups that have received venture funding. The perception is that a startup with patents is a safer bet than one without.
IP’s significance to startups is being recognized and acknowledged by the current Indian Government as evidenced by the recently announced Start-up policy. A Scheme for Facilitating Startups Intellectual Property Protection (SIPP) envisions providing discounted IP advisory and filing services for qualified startups. Patents are a strategic tool for increasing your competitiveness. Being aware of its potential and taking the necessary steps to protect it will be crucial as the startup eco system in India grows.
Contributing Author: Sanjeeth Hegde, Partner – BananaIP. He actively advises clients on IP Licensing and Commercialization. He can be reached at [email protected].