This article titled ‘Power Tool of SMEs: IP Rights.’ is written by Kandeep Shravan and discusses the value of Intellectual Property for small and medium-sized enterprises.  Power Tool of SMEs: IP Rights Intellectual Property (IP) is considered a valuable business asset. It is observed as a potential tool for successful economic growth and not just as an ambiguous legal concept. … Read More »

This article titled ‘Power Tool of SMEs: IP Rights.’ is written by Kandeep Shravan and discusses the value of Intellectual Property for small and medium-sized enterprises.

Power Tool of SMEs: IP Rights

Intellectual Property (IP) is considered a valuable business asset. It is observed as a potential tool for successful economic growth and not just as an ambiguous legal concept. Every day we see a manifold increase in new products, brands and new creative designs appearing in the market which is a result of ceaseless human innovation and creativity. Numerous startups and small and medium-sized enterprises (SMEs) fail to contemplate their intellectual property in their originating stages and realize that it is one of their most valuable assets.

IP encourages commercialization, technology transfer and encourages international trade. IP occupies a crucial role in fetching innovative technology to market and at the same time amplifying the competitiveness of technology-based enterprises. It is a proven fact in countries like the U.S, Finland and Germany that use of Intellectual Property Rights (IPR) by companies lead to high performance, increased sale, high credibility and also increased outside investments[1].

Alongside such benefits, IPR also poses the risk of accusation of infringement which leads to posterior heavy litigation cost. Therefore, startups and SMEs must ensure that their products/services are not in violation of the IPR of other companies. An SME must be able to thoroughly choose and select the most suitable IP regime for its products/services for which it aspires to seek legal protection.[2]

I. India’s startup ecosystem and intellectual property rights regime

The evolution of the start-up ecosystem in India in the past few years has been phenomenal. Polices such as The Science, Technology & Innovation Policy (STIP), 2013; The National Intellectual Property Rights Policy, 2016; The Patent (Amendment) Rules, 2017 have wholeheartedly contributed towards the growth of start-ups and SMEs in India. Government departments namely the Department of Industrial Policy & Promotion (DIPP) and NITI Aayog have taken into consideration the importance of the present IP Ecosystem and its correlation with SMEs thereby implementing various policy decisions.

Government schemes such as ‘Make in India’, ‘Startup India’, ‘Digital India’, ‘Skill India’ and ‘Atma-nirbhar Bharat’ have gained momentum despite the economic deceleration due to the global pandemic. Patent applications filed by start-ups are eligible for an 80 per cent fee reduction, while trademark applications filed by start-ups are eligible for a 50 per cent fee reduction when compared to large entity applications[3].

To endure the process of acquiring IP Rights for SMEs, the Scheme for Facilitating Startups Intellectual Property Protection (SIPP) was introduced a few years ago and has also been extended to March 2023. It seeks to provide coordinators/ facilitators to assist start-ups in filing and processing their applications for patents, designs and trademarks. It is observed that there has been a drastic increase in the number of patents, trademarks, and other types of IP-related applications. The data provided by the Intellectual Property India office displays an improvement in the last few years even though India has lower numbers compared to other leading countries in the world. These improvements include the following:

1. Increase in Patent Applications

Various amendments were implemented by the Indian Patent Office to simplify the Patent filing process in India. Rigorous steps have been taken to eradicate procedural inconsistencies and streamline the application and filing process. The recent amendments in patent rules 2016, 2017 and the latest one in September 2019 has made the process user friendly, time-bound and compact. According to an Annual report issued in 2020 by the Office of the Controller General of Patents, Designs, Trademarks and Geographical Indications it was observed that there has been an increase of 5.3% in patent application filing and domestic filing have increased to 32.5% compared to the year 2016-2017 which was at 29.2%.

According to WIPO data, 19 thousand of the 53 thousand patent applications filed in India are by residents, while 34 thousand are by non-residents. This information is backed up by data from IPI’s annual reports. Around 17 thousand patent applications were filed by Indians in 2018-19, with the rest filed by non-residents of various categories.[4]

2. Increase in Trademark application filing resulting in speedy disposal

It was ascertained from the latest report released by the Indian Trademark Registry that between the period 2018-2019 around 3,23,798 trademark applications were filed.[5] 74 application forms were consolidated into 8 forms providing a unified form for all types of trademarks. Trademark registrations displayed an increase of 5.3%.[6]

II. Trade Secrets: a crucial and frequently used IP right by SME’s

Protection of secrets carries a huge advantage as they are not constricted to particular information and are predominantly applied to any kind of information that is confidential and has commercial value. This is an exception as other forms of Intellectual Property are confined to a specific set of creative works.

Protection of a SMEs competitive advantage by secrecy usage necessitates potential awareness of the information which needs to be protected to withhold the advantage.[7] There is no restriction or limit to the type of information which is considered to be trade secret as long as it does not come under the information as mentioned under Article 39 of the Trade-Related Aspects of Intellectual Property Rights (TRIPs Agreement).

After identifying information as a valuable trade secret, the organisation must conduct realistic risk assessments in order to select adequate security policies. To structure the process of managing trade secrets, several classifications of information with matching security protocols can be framed.

The remaining parts of the process continue by labelling the information in conformity with its categorization, restricting access to specific ones who need to know and there is a necessity for confidentiality (or non-disclosure) arrangements in circumstances where information must be given to a supplier or other business partner.

SMEs rely on secrecy more than registered rights for IP protection as they are prone to becoming targets of industrial espionage. It is vital for them to apply high levels of cyber security and also maintain an updated version of the information on a periodical basis to stay ahead on development and prosper.

1. Current Position of Trade Secrets in India and difficulties faced in protecting them

Protecting business strategies and trade secrets has become an arduous task due to the expansion of business and increasing off-shore companies. Technology in terms of business is viewed as a secret more than patentable information as it holds enormous financial and informative value. Competition in markets has reached a level where competitors innovate as soon as information is made available. Even though healthy competition persists, it is a threat to flourishing companies as this information is available to all major players in the market. Trade Secrets are not protected under any specific legislation in India.

Despite the absence of solid legislation for secrecy protection, Indian courts are firm in their belief in protecting trade secrets through common law for the enhancement of business in the country. Trade secrets in India derive protection from Indian Contract Law. The major requisite under Section 27[8] of the Contract Act for information to be classified as a trade secret is that it must be highly confidential. But a visible threat to the intellectual property of a business is the people employed in it.

Though protective mechanisms can be put into place for the protection and remedy of intellectual property, the biggest challenge faced by businesses is employee loyalty. Trade secrets can be misappropriated if there is a breach of confidence or if a third party has illicit access to confidential information. This misappropriation can occur either by misappropriating confidential information or by trickery or theft. The Indian Courts have streamlined 3 sets of circumstances out of which proceedings may arise:

  1. When an employee comes into possession of a secret or any confidential information in the normal course of his work and either carelessly or deliberately transfers that information to any unauthorized person;
  2. When an unauthorized person (may be a new employer) incites such an employee to provide him with such information as has been mentioned above; and
  3. When, under a license for the use of know-how, a licensee is in breach of a condition, either expressed in any agreement or implied from conduct to maintain secrecy in respect of such know-how and fails to do so.
    [9]

However, all this being said, it is difficult to frame legislation with respect to trade secrets in correspondence with Intellectual Property Rights in India. The information provided by other registered IP rights are protectable because they are disclosable but the same is not possible with trade secrets as disclosure will impair the business of the owner and kill the essence of the trade secret. Exposing trade secrets to the public makes it impossible for them to be evoked[10]. Hence the usage of trade secrets by SMEs in India is like a double-edged sword.

III. Conclusion

In order to understand the IP wants of entrepreneurs and SMEs, limit boundaries and maximise the usage of the IP system by entrepreneurs and SMEs, there is a need to strengthen communication between IP offices, SME support institutions, business relations, national, regional, and local governments, and other appropriate institutions. At present India lacks an organised IP appellate tribunal system. Hearing of appeals are done by civil courts and high courts, mostly under the commercial division. There is a strong need for a single and centralized IP appellate board with a stable judicial system with branches in multiple cities all over the country hiring persons with sufficient knowledge about technology and Intellectual Property.


References

[1] Garima Sondhi, Akriti Jain and Rinki Singh, Linkages between IP Protection and Start-ups in India published by CUTS Institute for Regulation and Competition Available Here.

[2] Brenda Matanga, IP and SMEs: Taking Ideas to Market, May 24, 2021, Available Here.

[3] Summary of Achievements by Office of CGPDTM (2014-15 to 2019-2020), Available Here.

[4] Bharath Kancharla, Data: Number of Patent and other IP applications increase in India in recent years though lagging behind other major countries, March 25, 2021, Available Here.

[5] SS Rana & Advocates, Trademark application crosses 5 million mark, 30 June 2021, Available Here.

[6] Id. at 4

[7] Secrecy: The IP right most often used by SMEs, March 2021, Available Here.

[8] Vatsala Singh, Contract of service and restrictive covenants, 26 February 2014, Last visited: 4-7-2021, Available Here.

[9] Niharika Sanadhya, Protecting Trade Secrets in India in the Absence of a Regime, 9th June 2020, Available Here.

[10] Religious Technology Center v. Netcom On-Line Communication Services, Inc., 923 F.Supp. 1231, 1254 (N.D.Cal.1995).


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Updated On 2021-10-06T07:01:40+05:30
Kandeep Shravan

Kandeep Shravan

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