‘Start-up’ is probably one of the most talked about topic inour country right now. Everyone wants to be his/her own boss and earn millions.But, the important question is ‘what exactly is a start-up?’ Can you call a shipping company which came into existencejust 2 years ago but, happens to be earning several million dollars a year, astart-up? What about that small bookstore which has been running its businessin your locality for past several decades? A lot of people are claiming to be ‘owners’at their ‘startup’ even if their understanding of the word itself isquestionable.According to Stanford professor, Steve Blank, a start-up isa ‘temporary organization used to search for a repeatable and scalable businessmodel1’.The word ‘temporary’ implies that the long term goal of a business venture,claiming to be a ‘start-up’ is to move on to a larger scale and ‘stop being astart-up’. Either that, or to fail and find another idea for another venture.Still doesn’t clear anything, right?Under the aegis of the current Prime Minister of India, the ‘startupIndia’ campaign was launched in the very beginning of 2016.
The main objectiveof the campaign is to promote start-up ventures to boost entrepreneurship whichwould lead to creation of job, which would, thus, lead us to the long term goalof any economic planning i.e. eradication of poverty.This article shall explain the current and latest definitionof the phrase ‘start-up’ as per the Department of Industrial Policy andPromotion (under the Ministry of Commerce and Industry, Government of India).It shall further discuss the benefits available to ‘start-ups’ as toregistration of patents in the country. SMALL ENTITIESBefore the inception of the Patent (amendment) rules of2014, only 2 categories of applicants were recognized – ‘natural persons’ and ‘otherthan natural persons’.
A third kind i.e. ‘small entities’ was introduced afterthe 2013 draft of the amendment was met with criticism due to the proposal ofsubstantial free hike in the whole application process.After the notification of the 2014 rules, there could bemainly 3 categories of applicants:· Natural persons· Other than natural persons, this was furtherdivided into:o Small entitieso Other than small entities2 START-UPSOn April 17, 2015, the Ministry of Commerce and Industryreleased a notification to define ‘startups’. Subsequently, ‘start-up’ wasadded as a 4th category of applicants and gave its formaldefinition, according to which: Anentity will be considered a startup as long as the below listed conditions(non-subjective conditions are listed in this article) are met by the entity. · Entity has to be a Private Limited company (as defined in the Companies Act, 2013), ora registered partnership firm (registeredunder section 59 of the Partnership Act, 1932) or a Limited liability partnership (under the Limited LiabilityPartnership Act, 2002).
· 5 (Five) yearsshould have not lapsed since the date of registration or incorporation of theentity.· Turnover in any of the financial year should notbe more than INR 25 crores.· Entity should not have been formed by splittingup or reconstruction of a business already in existence.
· Entity is working towards innovation, development, deployment orcommercialization of new products, processes or services driven bytechnology or intellectual property. (This activity has been clarified to becreation or addition of value for customers or workflow). Now, according to Section 2 (68) of the Companies Act, 2013,”private company” means a company having a minimum paid up share capital of INR1 lakh or such higher paid up share capital as may be prescribed, and which byits articles,—· Restricts the right to transfer its shares;· Except in case of One Person Company, limits thenumber of its members to two hundred:· Provided that where two or more persons hold oneor more shares in a company jointly, they shall, for the purposes of this clause,be treated as a single member:· Provided further that—1. Persons who are in the employment of thecompany; and2. Persons who, having been formerly in theemployment of the company, were members of the company while in that employmentand have continued to be members after the employment ceased, shall not beincluded in the number of members; and· Prohibits any invitation to the public tosubscribe for any securities of the company.3 DEFINITION AS PERPATENT (AMENDMENT RULES), 2017:· According to the Indian Gazette’s notificationof 1st December, 2017, “Startup”means o An entity in India recognized as a startup bythe competent authority under Startup India initiative.
o In case of a foreign entity, an entityfulfilling the criteria for turnover and period of incorporation! registrationas per Startup India Initiative and submitting declaration to that effect4 CONDITIONS TO FULFILLIN ORDER TO BE CATEGORISED AS A START-UPIt can be inferred from the definition given by theDepartment of Industrial Policy and Promotion (DIPP) that the latest definitionof ‘startup’ is as follows:· Startup means an entity, incorporated orregistered in India 😮 Not prior to 7 (seven) years, howeverfor Biotechnology Startups not prior to 10(ten) years,o With annual turnover not exceeding INR 25 crorein any preceding financial year, o Incorporated as either a Private Limited Companyor a Registered Partnership Firm or a Limited Liability Partnership,o Working towards innovation, development orimprovement of products or processes or services, or if it is a scalablebusiness model with a high potential of employment generation or wealthcreationo Provided that such entity is not formed by splitting up, or reconstruction, of abusiness already in existence.Provided also that an entity shall cease to be a Startup if its turnover forthe previous financial years has exceeded INR25 crore or it has completed 7 years and for biotechnology startups 10years from the date of incorporation/ registration. Provided further that aStartup shall be eligible for tax benefits only after it has obtainedcertification from the Inter-Ministerial Board, setup for such purpose.
5 Themajor point of difference between the current definition and the previous definitionis the duration of eligibility. According to the amended rules of 2016 by theGovernment of India, a “startup” is defined as a new company/LLP/a registeredPartnership firm, that has been founded not more than 5 (five) years ago. There was no provision as such forbiotechnology startups as such.
Itgoes without saying that an entity needs to provide evidence/s in support ofthe above listed conditions in order to avail the tax benefits available tostart-ups. Furthermore, a start-up needs to obtain a certificate of an eligible business from the Inter-Ministerial Board ofCertification as constituted by Department of Industrial Policy andPromotion from time to time. Priorto the notification dated 23rd May, 2017 startups were required toget a letter of recommendation from an incubator or an Industry Association foreither recognition or for claiming tax benefits under the ‘Startup India’campaign. Post the notification, there is no such requirement to be fulfilledand, thus, the process of application of patent has become a lot easier. This stepis quite likely to improve the ease of doing business in India. RECOGNITION OF A START-UPAccordingto the notification dated 23rd, May 2017, the process of recognition as a ‘Startup’ shall be through an onlineapplication made over the mobile app/ portal set up by the Department ofIndustrial Policy and Promotion. Entities will be required to submit the onlineapplication along with the Certificate of Incorporation/ Registration and otherrelevant details as may be sought. Startups also have to submit a write-upabout the nature of business highlighting how is it working towards innovation,development or improvement of products or processes or services, or itsscalability in terms of employment generation or wealth creation.
6 FEES FOR REGISTRATION OF A PATENT · Startups have been introduced as a new entitytype apart from individual, small entity and large entity, i.e., they areentitled to get fee reduction equivalent to “individual persons” instead ofsmall entity/large entity in amended rules. Hence, startup would pay 60% lessin government fee compared to the fee that was applicable prior to theamendment.
· As the startups are now being considered as anew entity, this is going to bring down the patent fees and make them eligiblefor 80% rebate on official fees, as per the startup action plan. The application fees for startups will now beINR 1600 and for companies INR 8000.7 · The DIPP will bear thefacilitation cost on behalf of startups and provide rebates in the statutoryfee for the filing of applications. 8 · For the expeditedpatent registration, the startups have to pay double the fees against thrice the amount for other companies.Under the faster clearance route, the application fee for individuals andstartups is INR 8000, while for established and older companies it is about INR60000.
To avail of intellectual property rights-related benefits, a startup isrequired to obtain a Certificate of Recognition from DIPP. Ø Tatkal Patents · A new ‘tatkal’ option has been introduced that seeks toexpedite the registration process for all new applicants.· It aims to reduce the application periodfrom the prevailing 5-7 years to 18 months by March 2018. This service can beenjoyed only by o Applicants who have listed India in their internationalapplication (in accordance with the Patent Cooperation Treaty) as the competentInternational Searching Authority or elected as an international PreliminaryExamining Authority or o Applicants that are startups.
The expedited examinationservice is available only through the electronic route.9 CONCLUSION It is easier to get a patent registered by a start-upthan ever. In order to promote the ‘Digital India’ movement, provision forfiling of a patent application online has been introduced. Furthermore, thedifference in cost (10%) between online and offline filing is more likely toencourage start-ups from taking the non-conventional route of getting theirapplication ‘e-filed’. 1https://steveblank.com/2010/01/25/whats-a-startup-first-principles/2http://www.ipindia.nic.in/writereaddata/Portal/IPORule/1_8_1_patent-amendment-rules-2014.pdf3Section 2(68), Companies Act, 2013.4http://www.ipindia.nic.in/writereaddata/Portal/IPORule/1_76_1_2018-01-02__2_.pdf5https://www.startupindia.gov.in/startup-registration.php6https://startupindia.gov.in/notification.php7http://www.ipindia.nic.in/writereaddata/Portal/IPOFormUpload/1_11_1/Fees.pdf8https://economictimes.indiatimes.com/small-biz/policy-trends/startups-get-80-rebate-on-patent-fee/articleshow/60368626.cms9https://spicyip.com/2016/05/patent-rules-amended-by-india-and-the-us.html
