Start-Up Advisory (Part 3 of 3): What other laws govern a Start-Up?
This is Part III of the compilation series on Start-up Advisory. Part-I was confined to the introductory idea of Start-up as a concept and essence of legality. Part-II was restricted to the technicalities of Company law. Part-III will attempt to cover the technicalities and essence of all the contemporary laws which help a start-up reach its success ladder.
INTELLECTUAL PROPERTY LAW -
Intellectual Property Rights are exclusive rights given to the owner of the IP for a fixed period of time. Every startup enjoys IP rights and it needs to exploit these rights in order to succeed. For example, every startup has a brand name, a logo, inventions, advertisements, etc. All of these are protected by IP law inclusive of trademarks, copyrights, patents, designs, etc. Exploiting these IP rights can create a revenue stream, legally protect their IP, give the startup a competitive advantage, establish better goodwill, improve the business’s valuation, etc. Similarly, a startup must be vigilant about its IP in order to ensure that they are not infringing upon any other IP as well.
Before registering a Trademark, each startup must perform proper due diligence by determining which type of mark their IP would fall into, which class it would fall into as per the NICE Classification of Goods and Services, 1957, and whether or not they choose to register it. Registration of a trademark is not a prerequisite to seek protection, however, it is recommended, as it helps the startup secure its exclusivity, and creates prima facie evidence of the proprietorship of the trademark.
If a startup employs any technology, then it must ensure that it is not violating rights of a patentee. If it is, then the startup must obtain a license to use such technology from the patentee. However, if a startup is inventing anything that would fall under the ambit of the term ‘Patent’ as per the Indian Patent Act, 1970, then it must apply for a grant of the patent. This will guarantee that the invention is accredited solely to the startup, and through licensing, the startup can generate revenue as well. Upon a successful grant of the patent, the startup would become a patentee, and if anybody infringes upon the patentee’s rights by using the invention without authorization, the startup can file a patent infringement suit.
Similarly, a copyright would protect any “work” by an artist, author, or originator and is essential to a startup if their work comes under the ambit of the Copyright Act, 1957. Although, registration of a copyright is not mandatory as it does not confer any new right upon the copyright owner, it is still advisable for a startup to register its copyright because it would act as a “proof of ownership”. A copyright can also be licensed to others for use, and this can generate a revenue stream. If a startup’s copyright is infringed upon, then the court of law could provide both civil and criminal relief.
Although, Industrial Designs and Trade Secrets, are lesser known IPs, they are equally important for a startup. With respect to the former, the Designs Act, 2000, governs any design made by the startup and it is advisable to register such a design in order to gain the exclusive 15 year protection. With respect to the latter, there is no specific statute governing trade secrets and the same is protected by common law rights. Any confidential business information that the startup has, would therefore by protected under common law within the ambit of a trade secret and this could help the startup achieve strides not just in terms of revenue, but also reputation.
COMPETITION LAW -
The common belief is that competition law is linked to huge corporations and is meant for governing them. However, competition law in India, through the Competition Act, 2002, aims at governing the market and that is inclusive of both huge corporations as well as startups. For example, if a startup creates a new market and therefore, holds a dominant position in that market and abuses it, then competition law would step in.
The United Kingdom’s Competition and Market Authority (CMA), similar to the Competition Commission of India, released a guide for startups that indicated low awareness, misconceptions about competition law, misguided conduct, etc. India, being a common law country like the UK, can take inspiration from and follow this startup guide.
Startups are therefore, required to not just be aware about the Competition law in India, but are also required to ensure compliance with it. This is because a) the Competition Commission of India imposes heavy penalties on companies that do not conform to the law, and b) any legal scrutiny by the CCI could cause reputational damage that a startup should ideally avoid. Thus, complying to competition law can benefit startups in may ways. For example, a startup could beware of cartelisation by rival parties, it could be treated as a new entrant in the market that may gain a dominant position, it may be approached to become part of a cartel, be induced into agreeing to an anti-competitive practice due to vulnerability as well as lack of knowledge, etc.
LABOUR LAW -
In 2017, the Ministry of Labour and Employment, issued an Advisory to States, Union Territories and Central Law Enforcement Agencies, requiring them to comply with exemptions laid down for startups, and to conform to an inspection mechanism. This new system allowed for self-certification through the Startup India e-portal.
This self-certification would be limited to 9 labour and environment laws for 5 years, wherein no inspections would take place for the first 3 years. The startups would be required to submit an online self -declaration stating that they have complied to the 6 labour laws.
Additionally, start-ups shall be allowed to submit self-certified returns for the first year via the Unified Shram Suvidha Portal. However, from the second year onwards, for the subsequent years the start-up has to furnish only compliance returns and if a credible and verifiable complaint of violation is filed in writing coupled with an approval from the Apprentice Advisor, then the inspection can take place.
BIRD'S EYE ON COMPLIANCE CHECKLIST -
The 9 labour laws that start-ups are allowed to self-certify from, are-
1. The Industrial Disputes Act, 1947;
2. The Trade Unions Act, 1926;
3. The Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act, 1996;
4. The Industrial Employment (Standing Orders) Act, 1946;
5. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
6. The Payment of Gratuity Act, 1972;
7. The Contract Labour (Regulation and Abolition) Act, 1970;
8. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
9. The Employees’ State Insurance Act, 1948.
These exemptions are given for start-ups in order to encourage and nurture the start-ups drive in India. Quite often, long inspections can harass entrepreneurs and derail them from their end goal. This Advisory was passed so that start-ups are given their own space to grow without any interference and so that they feel trusted. This 5 year period serves as a gestation period where these budding start-ups can get familiar with not just the market, but also the laws governing them.
It is important that a conducive environment is created to nurture the entrepreneurial potential of the country. India has recognized the economic benefits of promoting start-ups and has actively tried to create this environment, economically, socially and legally. While a start-up is governed by many laws and has compliances to meet; a start-up is broadly governed by Company Law, Intellectual Property Law, Competition Law, and Labour Law. The idea of India as a nation of ease of doing business and the very goal of self-reliance can be achieved only when reforms mechanism gives a level playing field to the chronological ladder of entrepreneur success otherwise the mission and vision of self-reliance will remain as social distancing objective only.
(Authored by Mr. Shubham Budhiraja, Ms. Akshita Goyal and Ms. Shivangi Chawla, all interns at S&D Legal Associates)