On the road to better IP protection

Micro, small and medium enterprises can be the backbone of future economic growth in India, so the government is trying to boost their use of IP rights, as Baani Talwar of Rahul Chaudhry & Partners reports.

One of the major challenges for small businesses is inadequate capital, so the protection of IP is not their priority. This is despite the fact that IP helps smaller businesses in their day-to-day business developments through marketing, product development and raising financial capital with IP assignments, licensing and franchising.

Due to their lack of IP knowledge and desire for resources, micro, small and medium enterprises (MSMEs) are always at risk of exploitation by dishonest traders who can dilute the MSMEs’ rights by misrepresenting any form of IP as their own in the Indian market.  

By lowering the trademark filings fees for individuals, start-ups and MSMEs under the Trademarks Rules, 2017 by 50%, the government has tried to encourage them to file applications for creation and protection of their brand on one hand, at the same time ensuring that the competitiveness level is maintained by curbing frivolous filings from larger businesses by increasing the fees for them. This increase also helps to maintain the government’s funds, as bigger companies are the main source of revenue for the government while it provides concessional fees to small businesses.

Importance of IP rights

MSMEs play a major role in creation of new innovations which are the result of their intellect. Optimal use of IP assets and portfolios along with brand value helps MSMEs to increase the market value of their business assets.

IP protection helps in acquiring venture capital, enhancing access to finance and preventing competitors copying or using deceptively similar brands/designs of a company’s products or services. -

The question of small businesses protecting their IP rights, including any unique products or services that they own, becomes more prominent, as they are at a particular disadvantage due to their lack of knowledge, expertise or resources necessary to prevent the theft of their ideas and products, and can become easy victims of piracy, counterfeiting, and patent infringement.

The consequences of not seeking statutory protection for IP can be fatal as other market players can take advantage and launch similar brands/products with a view to creating confusion among the buyers. It is necessary to stop the infringement so that the MSMEs who are the original investors or creators can reap the benefits of their IP by enhancing the value of their business assets. Therefore, sufficient protection of a company’s IP is a crucial step in deterring potential infringement and in turning ideas into business assets with a real market value.

Furthermore, IP rights may prove to be fruitful in increasing the brand value of the MSMEs in the eyes of potential investors/banks/licensees, etc, as IP is considered to be an invaluable and intangible asset and a powerful tool which, if used in the correct manner, can substantially add value and growth to an MSME’s brand name.

"Optimal use of IP assets and portfolios along with brand value helps MSMEs to increase the market value of their business assets."

Traditionally, physical assets have been responsible for the bulk of the value of a business entity and largely responsible for determining the competitiveness of an enterprise in the market. However, these scenarios have changed as a result of the revolution of information technologies and, as a result, intangible assets ranging from human capital such as knowhow to ideas, brands, designs and other intangible assets from the creative and innovative capacity are often today more valuable than the physical assets.

IP has the potential to become more valuable than the entire physical assets of a business; IP, like all other property, can also be mortgaged in times of need. For example, Flipkart was launched in October 2007 as a startup and achieved the milestone of 100 million registered customers by 2016. This year, it was bought by Walmart for $16 billion in return for a 77% stake in Flipkart, which is the biggest acquisition by a company in India in 2018.

Similarly Paytm, India’s largest payment gateway, offering comprehensive payment services for customers and merchants, has investors which include Softbank, SAIF Partners, Alibaba Group and Ant Financial. Swiggy, the foodtech startup, was present in just a few neighbourhoods of Bengaluru (Bangalore), with the locality of Koramangala accounting for a major chunk of the business. Today, Swiggy has raised three rounds of funding and is present in eight cities across the country, with close to over a million app downloads. It is growing at 25% month-on-month.

MSME landscape

MSMEs play a pivotal role in the development of a country’s economy and in providing solutions to various socioeconomic problems such as unemployment, poverty, leveraging exports, inequalities and regional imbalance.

The introduction of the MSME Act in 2006 included the service sector in the definition of MSME. MSMEs have played a prominent role in the creation of more than 50 million jobs, and they account for 8% of GDP. The contribution of manufacturing MSMEs in the country’s total manufacturing gross value of output at current prices has also remained consistent, at about one third during the last five years.

MSMEs can be the backbone for existing and future high growth businesses, with both domestic and foreign companies investing in the ‘Make in India’ initiative, while ‘Digital India’ provides an opportunity to promote MSME participation in the ICT sector, in line with the government’s vision.

With liberalisation of the economy and tougher environmental norms, MSMEs are facing tougher competition from technologically-advanced industries based in India or foreign companies coming to India through free trade agreements. Some of the major challenges for MSMEs are finance, ineffective marketing, underutilisation of capacity, technological obsolescence, and poor quality of raw materials. 

The government has taken steps for promoting development of MSMEs such as availability of credit, quality improvement and marketing support; Standup India, a government initiative, has also taken steps to create brand awareness among MSMEs and promote the protection of IP by running awareness programmes on the subject.

Modernised trademark filings

The new Trademark Rules, 2017 provide a more streamlined, efficient and user-friendly framework with respect to trademark application filings. They have not only reduced the number of forms used for filing but also encouraged e-filing by slashing the official fees for it.

With e-filing, the number of errors made by the Registrar’s office in the data entry of applications/ oppositions/rectifications has been reduced to zero. E-filing has also ensured proper docketing and has helped in expediting/streamlining the prosecution of applications/oppositions/rectifications at a faster pace.

Baani Talwar is a senior associate at Rahul Chaudhry & Partners. She joined the firm in August 2014 and is part of the trademark prosecution team at the firm, regularly advising clients on corporate and IP matters, primarily trademark prosecution. She can be contacted at: baani.talwar@rahulchaudhry.com