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Criteria for Foreign Applicants to Qualify as Startups or Small Entities Under Patent Act

Patenting is an essential concept for inventors who want to claim ownership rights for their inventions. The process to apply for a patent can be initiated by individuals or organizations claiming to be the true and original inventor of the invention, either alone or together. An assignee or legal representative of a deceased inventor who had the right to apply before they passed away can also apply for a patent. 

All individuals and organizations, regardless of their size, have the right to file a patent application, including natural persons, start-ups, small entities, and large entities. 

Current status: Startups and small entities

Startups and small entities are considered essential to a country’s economy and are known to be significant contributors to its innovation and technology index. The Government of India has launched patent schemes that cater to the needs of startups and small entities, aimed at boosting innovation and technology in the country. In recent years, the Indian Government has implemented various measures to improve the IP ecosystem. These include the National Intellectual Property Rights policy, expedited examination facility, and amendments to the Patent Policy & Act. These changes have boosted the startup ecosystem and resulted in an increase in patent application filings. The amendments aim to simplify the filing procedure, reduce official fees, and encourage more startups and small entities to seek patent protection. 

It is worth mentioning that per Article 3 of TRIPS, “each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property, subject to the exceptions…” (1). Accordingly,  the Patent Act of 1970 (as amended) provides foreign applicants with the same rights as Indian applicants to apply as startups or small entities; and therefore,  if you are a foreign applicant, you have the opportunity to take advantage of these benefits to establish your business and safeguard your intellectual property.

Indian applicants must obtain certification or registration from the Indian government to apply as startups and small entities before filing a patent application. However, foreign applicants have slightly different requirements, which will be discussed in the following paragraphs.

Startups

Startups are entitled to certain benefits when they apply for patents in India. The Department for Promotion of Industry and Internal Trade (DPIIT), which is a part of the Government of India, manages the Startups Intellectual Property Protection (SIPP) scheme. This scheme provides startups with an 80% discount on patent filing fees. Moreover, startups can expedite the review process of their patent applications, which helps to reduce the time taken to grant the patents. As per the 2023 Intellectual Property of India office (IPO) annual report, there has been an upward trend (approx. 131% increase) in the number of Patent filings by foreign applicants as startups (2)

As per rule 2 (fb) (i) (b), “Startup” in the case of a foreign entity means an entity fulfilling the criteria for turnover and period of incorporation/ registration as per Startup India Initiative and submitting a declaration to that effect.

Criteria for foreign applicants to qualify as a “Startup” under the Patent Act 1970 (as amended):

  1. Up to 10 years from the date of its incorporation;
  2. Turnover should be less than INR 100 Crores (approx. 12 million USD) in any of the previous financial years;
  3. Incorporated as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership; and
  4. Should work towards the development or improvement of a product, process, or service and/or have a scalable business model with high potential for the creation of wealth & employment.

A foreign applicant seeking the status of “startup” for filing a patent in India has to submit duly filled Form 28 (3) along with the following requisite documents of proof:

  1. A certificate of incorporation with English translation showing that the company has been incorporated or registered for not more than 10 years;
  2. Financial documents (e.g., balance sheets, copy of the annual report, or financial statement from a Chartered Accountant) on a self-disclosure basis with English translation showing that the annual turnover did not exceed INR 100 Crores (approx. 12 million USD) in any preceding financial year; and
  3. A signed and stamped (by the authorized authority) self-declaration on a company letterhead: encompassing a brief write-up about the company, explaining your startup company is working towards innovation, development, or improvement of products or processes or services, and a statement about the attachment of financial document, and the incorporation certificate.
    Note: A sample draft of the declaration will be provided from our end.

   Note:

  • An entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.
  • In calculating the turnover, reference rates of foreign currency of the Reserve Bank of India (RBI) shall prevail (4).
    [Per December 29, 2023, the reference rates for USD = 83.1164; GBP = 106.1053; EURO = 92.0049, and YEN = 58.8200]
  • Turnover: gross revenue/total sales/gross turnover = Sum of all sales (Total units sold x Sales price per unit).

Small Entity/Entities 

Small entities are also entitled to certain benefits when they apply for patents in India. As per rule 2 (fa) of the Patent Act 1970 (as amended), a small entity patent applicant in India is an entity whose investment in plant and machinery or equipment does not exceed INR 50 crores (approx. USD 6.8 million, in 2021 rates) and turnover does not exceed INR 250 crores (approx. USD 34 million, at 2021 rates)as per the Medium Enterprise under the Micro, Small, and Medium Enterprises Development Act, 2006 (27 of 2006) (MSME Act). Small entities are provided an 80% rebate on patent filing fees and permitted to file for expedited examination, like start-ups. As per the 2023 Intellectual Property of India office (IPO) annual report, there has been an upward trend (approx. 112% increase) in the number of Patent filings by foreign applicants as a small entity (5).

Criteria for foreign applicants to qualify as a “Small entity” under the Patent Act 1970 (as amended):

  1. Net investment (net of allowable depreciation as per local rules) in plant and machinery or equipment does not exceed INR 50 crores (approx. 6 million USD); and
  2. Annual turnover does not exceed INR 250 crores (approx. 30 million USD).

Note:

  • A composite criteria shall apply for classifying an enterprise under the MSME Act as per MSMEs vide Notification No. S.O. 2119(E), dated 26.06.2020 (6). Thus, a culmination of both, investment and annual turnover is required
  • Plant and machinery or equipment shall include all tangible assets except land and building, furniture, and fittings (7).
  • For calculating investment, the cost of certain items such as pollution control, research and development, industrial safety devices, and such other things (provided in Explanation I to sub-section (1) of section 7 of the Micro, Small, and Medium Enterprises Development Act, 2006 (27 of 2006)) shall be excluded (8).
  • For calculating annual turnover, exports of goods or services or both, shall not be included while calculating the turnover of any enterprise (9).
    Annual turnover = gross turnover (including taxes) – export
  • For enterprises that do not have PAN, the investment and turnover-related figures will be considered on a self-declaration basis.

A foreign applicant seeking the status of “small entity” for filing a patent in India has to submit duly filled Form 28 (10) along with the following requisite documents of proof:

  1. Financial documents (e.g., balance sheets, copy of the annual report, or financial statement from a Chartered Accountant) on a self-declaration basis with English translation showing that the investment in plant and machinery and the annual turnover of the entity on the date of filing the patent application does not exceed the requisite limitations; and
  2. A signed and stamped (by the authorized authority) self-declaration on company letterhead:

encompassing a brief write-up about the company, and a statement about the attachment of the financial document.

Note: A sample draft of the declaration will be provided from our end.

For foreign applicants to qualify as a Startup or Small Entity:

Startup Table
Startup
Small Entity
Criteria for Incorporation 1) Up to 10 years from the date of its incorporation; --
Criteria of turnover Turnover (gross revenue/total sales) should be less than INR 100 Crores (approx. 12 million USD) in any of the previous financial years Annual turnover does not exceed INR 250 crores (approx. 30 million USD)
Criteria of investment -- does not exceed INR 50 crores (approx.6 million USD)
Advantages 1) 80% reduction in official fees; and
2) Expedited examination can be availed.
1) 80% reduction in official fees; and
2) Expedited examination can be availed.
Proof/documents required by a foreign client 1) Certificate of incorporation;
2) Financial documents; and
3) A declaration
1) Financial documents; and
2) A declaration

It is to be noted that certain connotations specific to the Indian accounting and legal system have been mentioned; however, the local accounting and documentation shall apply to a foreign entity.

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