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TiE Institute Series TiE Institute Series IInd of VI May 27, 2006 FORMING YOUR ENTERPRISE with...
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Transcript of TiE Institute Series TiE Institute Series IInd of VI May 27, 2006 FORMING YOUR ENTERPRISE with...
![Page 1: TiE Institute Series TiE Institute Series IInd of VI May 27, 2006 FORMING YOUR ENTERPRISE with contributions from KPMG & Nishith Desai Associates.](https://reader036.fdocuments.us/reader036/viewer/2022070306/5518cada550346a61f8b5a02/html5/thumbnails/1.jpg)
TiE Institute SeriesTiE Institute SeriesIInd of VI
May 27, 2006
FORMING YOUR FORMING YOUR ENTERPRISEENTERPRISE
with contributions from with contributions from KPMG & Nishith Desai AssociatesKPMG & Nishith Desai Associates
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TiE Institute Knowledge Series2006
Developing informed entrepreneursthrough. . .
Experience
Training
Interaction
Exercise
Characteristic s of an
Entrepreneur
Forming your
enterprise
Sustaining growth
and Enterprise Maturity
Managing Human
Resources
Financing your
Enterprise
Marketing and
Scaling-up!
1
2
5
6
3
4
Walk-throughthe entrepreneurial
lifecycle !!
Concept
Organisation
Maturity
29th April
24th June
29th July
26th Aug
30th Sept
27th May
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LAUNCHING YOUR ENTERPRISELAUNCHING YOUR ENTERPRISE- Business Plan Development-- Business Plan Development-
Agenda Enterprise Roadmap Vision and Mission Business Plan
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MissionWhy we exist?
MissionWhy we exist?
Core ValuesWhat we believe in?
Core ValuesWhat we believe in?
VisionWhat we want to be?
VisionWhat we want to be?
StrategyThe game plan
StrategyThe game plan
Business PlanValue proposition, financials and the operational model
Business PlanValue proposition, financials and the operational model
Implementation PlanDetailed plan for market entry with timelines
Implementation PlanDetailed plan for market entry with timelines
Satisfied Shareholders
Delighted Customers
Effective Processes
Motivated Human Resources
Enterprise RoadmapEnterprise Roadmap
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NASA - 1960sA man on the moon
Nelson MandelaEnd of apartheid
Leander PaesAn Olympic medal for India
MicrosoftA PC on every desk
A vision….. Stimulates progress Provides direction Unifies efforts Motivates Corrects
VisionVision
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MissionMission Lasting relevance Never achieved; But always
strived for Not a goal or business
strategy
3 M Merck Cargill
Sony Economist Walt Disney
To solve unsolved problems
innovatively
To preserve and improve human life
To improve the standard of living around the world
To experience the joy of advancing and applying
technology for the benefit of the public
To take part in a severe contest between intelligence which presses
forward, and an unworthy timid ignorance obstructing our progress
To make people happy
Not defined as products or markets
Reaches directly into the psyche/ society
Function, not form
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2004 – Total Investment by VCs was $ 1.3 bn across 68 investments, $ 250 mn was in IT, ITeS and BPOs, $ 27 mn was in software
2005 – Total investment by VCs was $ 2.3 bn across 147 investments, $ 375 mn was in IT, ITeS and BPOs, $ 87 mn was in software
01000200030004000
96 97 98 99 '00 '01 '02 '03 '04 '05 10-May-
06
US
D M
n
050100150200
Investment Number of Deals
Source: IVCA/AVCJ, TSJ Media, News Articles
LANDSCAPE OF VENTURE CAPITAL AND PRIVATE EQUITY INVESTMENTS IN INDIA
India – The VC PerspectiveIndia – The VC Perspective
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Expansion18%
Late Stage23%
Early Stage44%
Seed15%
Funding by Investment Stages, 2003-04
Funding by Sector, 2003-04
Information Technology
18%
Healthcare7%
Manufacturing17%
Telecom31%
Internet19%
Others8%
Source: Presentation By Saurabh Srivastava, Chairman, Infinity Venture Fund
Seed Stage: Financing is to foster a concept before formal product launch
Early Stage: In the initial time period of operation
Expansion: For companies scaling up operations
Late Stage: Funds are used for plant expansion, marketing, working capital, new product development etc
India – The VC PerspectiveIndia – The VC Perspective
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“My advice to Indian entrepreneurs would be to consider these parameters when seeking VC funding:
The size of the market. Does the company have a strong management team? Can this new idea create a standalone company? Is this a unique, breakthrough project with world-class
technology? Is this technology defendable and is there a unique value
proposition to the customer? (ROI - does this solve a customer pain point)?
Is the business capital efficient?”
- Pramod Haque, Managing Partner, Northwest Venture Partners & World’s No. 1 ranked Venture Capitalist
Funding – The VC PerspectiveFunding – The VC Perspective
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The business plan document is essential to a start-up
company
It provides the strategic roadmap
It is used by VCs to determine the project feasibility and
thereby decide on the funding
Venture Capitalists see the business plan as a reflection
of your company and the commitment and drive of
management
Need for sound Business PlanNeed for sound Business Plan
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Executive Summary Purpose of the business plan Main Highlights Financial Requirements
Background Legal form, ownership and management Business vision and mission
Products and Services Product Description Product Attributes Product Life Cycle Costing and Pricing Production Process Quality Assurance and Control Sourcing Intellectual Property
Business Plan – Table of ContentsBusiness Plan – Table of Contents
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Markets, Clients and Competitors Market Characteristics Clients Competitors Positioning Market Strategy Projected Sales
Business Operations and Organization Location Promotion and advertising Selling methodology Manufacturing Distribution, Order processing and inventory control Company structure Project management Management Information Systems
Business Plan – Table of ContentsBusiness Plan – Table of Contents
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Human Resources Management Team
Legal, Environmental and Social Considerations Financial Planning
Key Assumptions Income Statement Projections Balance Sheet Projections Cash Flow Projections NPV/IRR projections Key Financial Ratios Feasibility Assessment Sensitivity Analysis
Business Plan – Table of ContentsBusiness Plan – Table of Contents
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Risk Mitigation Plan Environmental Risk Strategic Risk Technology Risk Operational Risk Financial Risk
Implementation Plan Exit Strategy
Business Plan – Table of ContentsBusiness Plan – Table of Contents
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Business Plan
Executive Summary
Industry Analysis
Value Proposition
Market Size
Business Model
Financial Evaluation
Risk Analysis and Mitigation Plan
Implementation Plan
Exit Strategy
Business Plan – Key ComponentsBusiness Plan – Key Components
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Executive summary outlines the key areas of the business plan. It should include a brief description of the following: The business and the business concept. The opportunity and strategy. The target market and conditions in that market. The competitive advantages for the company. The economics, profitability, and exit potential. The management team. The offering.
Executive SummaryExecutive Summary
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Demand Analysis Past Trends Key Drivers Future Outlook
Regulations affecting the industry Existing regulations Expected in the future based on national/international
trends Competition Assessment
Key players and their positioning
Industry AnalysisIndustry Analysis
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Threat of New Entrants
HIGH– Entry of new players with low cost value
proposition (similar to India)
– Backward and forward integration across value chain
– Low entry barriers
Rivalry among Competitors
HIGH– Overcapacity leading to intense
competition
– Competition for supply of roughs and markets
– Fragmented industry
– Intensive price cutting and cost based competition
Threat of Substitution
LOW– No absolute substitute
– Synthetic diamonds
– All luxury goods claiming consumer surpluses can substitute the end product I.e. diamond jewellery
Bargaining Power of Suppliers
VERY HIGH– Dominate market
as power centers
– Reducing stranglehold with shifting of power centers
– Shortage of roughs
– Processors cannot switch to other rough suppliers easily
Bargaining Power of Customers
HIGH– High competition
between processors
– China alternative is being increasingly opted for
1
4
5
2 3
Diamond Processing
Industry Analysis – Industry Analysis – Porter’s 5 forcesPorter’s 5 forces
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Malls Luxury Hotels Independent Retail
Outlets Category
Shopping experience
-- -- -- -- -- -- -- Leisure activities
Gabbana Zegna Hugo Boss
Louis Vuitton
Taj Blues L’vista Pallazio
Brand assortment
Space
Price competitiveness Privilege customer relationship
Interactive knowledge dissemination
Product portfolio
Neo Cross - roads Basis of
comparison
Substitutes Same Product
Category
Shopping experience
-- -- -- -- -- -- -- Leisure activities
C4 C3 C2
C1
S1 C7 C6 C5
Brand assortment
Space
Price competitiveness Privilege customer relationship
Interactive knowledge dissemination
Product portfolio
Start-Up
- d
Basis of comparison S2
Competition Assessment - Competition Assessment - ExampleExample
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• Define possible value propositions– Define attributes important to the customer– Classify value propositions based on combination od
these attributes– Identify your value proposition
Value PropositionValue Proposition
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Price QualityAvail-ability
SelectionFunction-
alityService
Partner-ship
Brand
Product/ Service Attributes Relationship Image
Customer Satisfaction
• Customer Profitability
• Market Share• Account Share
• Customer Acquisition
• Customer Retention
Customer Perspective
Creating a Wining Value Creating a Wining Value PropositionProposition
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Offer products and services that are consistent, timely and low cost
Lowest Cost Supplier
Consistently High Quality
Speedy Purchase
Appropriate Selection
Offer products and services that expand existing performance boundaries
High performance products: speed, size,
weight, accuracyFirst to market
Penetrate new market
segments
Provide the best total solution to the customers
Quality of solutions provided
Customer retention
Customer lifetime
profitability
Number of product/services per
customer
High switching costs to end users Add value to complementors
Offer broad selection,
access
Provide widely used standards
Provide innovation on a stable
platform
Provide large
customer base
Offer easy to use standard
platform
BEST TOTAL COST
PRODUCT LEADER
COMPLETE CUSTOMER SOLUTIONS
SYSTEM LOCK IN
Creating a Wining Value Creating a Wining Value PropositionProposition
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Break down customer based on demographics/psychographics like income, location, age bracket, profession, education etc
Select relevant customer segment after analyzing fit with product / service being offered
Network with current players and industry associations to ascertain customer profile
Additionally could break down customer into retail / corporate
Market SizeMarket Size
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Use Secondary Data of product / service available either published sources or from existing players to estimate customer size for each segment Professional Databases eg. ORG MARG, Indiastat.com,
Tata Statistical Outline, The Marketing Whitebook Government Data from census, Regulatory Reports Secondary research from news paper articles, magazines Competitor information Sales data from products / services aimed at similar target
customer since a customer consumes more than one product / service
Market SizeMarket Size
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Manufacturing and Sourcing Pricing Location Distribution and Inventory Management Marketing Strategy Technology Framework Organization Structure
Business ModelBusiness Model
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Make or buy Manufacturing process, if any Vendor management Major Equipment Layout Resources and Services Quality factors
Manufacturing & SourcingManufacturing & Sourcing
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• Breakeven Pricing
• Competitive Advantage Pricing
• Discount Pricing
• Full Cost Pricing
• Penetration Pricing
• Loss Leader Pricing
• Price is based on fixed and variable costs as well as profit goals
• Price is above or below that of competition
• Price is below retail price, target higher volumes
• Price is based on total costs, plus a flat percentage as margin
• Introductory price is lower than competition
• Items sold at a lower price to attract people to buy other products
Pricing StrategiesPricing Strategies
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Develop Assessment Framework for selection of cities Sources – NCAER, BW Whitebook, R K Swamy-BBDO
report, Internet research Potential Parameters could include:
Market Potential Value Income classification of population Per capita income Credit card spending Extent of urbanisation Percentage of working women Qualitative assessment
Identify key cities
LocationLocation
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All India
Selected y cities
Shortlisted x cities
Credit card spending
Qualitative assessment
MPV
Income classification of population
Ownership of high-end consumer durables
Extent of urbanisation
LocationLocation
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Distribution & Inventory Distribution & Inventory ManagementManagement
Distribution Management Distribution Channels Intermediaries Costs Packaging
Inventory control and management Inventory carrying costs Replenishment levels and lead times Vendor managed inventory systems Technology systems to track and monitor inventories
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Branding Brand attributes Brand positioning
Promotion Strategy Media Planning Public Relations Programme Promotional Content
Marketing Plan Marketing Channels Order processing Incentives Payment Terms Complaint Handling systems
Marketing StrategyMarketing Strategy
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CR
M
Privilege Points/ Info
Front End Applications
Core Retail ApplicationsBack End Applications
External Environment
Executive Information System
Finance & Accounts
HR, Admin & Payroll
Knowledge Base
POS
Interactive Audio Visual
AidsCustomer Walks In
Customer transacts online
Online transaction
Supplier(s)
Customer assisted
Internal Business
Architecture
Auth
oris
atio
n
Retail Application
Purchase Mgmt
Inventory Mgmt
Store & Warehouse
Mgmt
Vendor Mgmt
Decision Support
MIS & Report Writer
Store Security Systems
Internal Wired & Wire-free Network and External Connectivity
Hardware Components
Payment Gateway/ Bank
Smart Cards Online Portal
PDAs
Easy to use knowledge sharing and navigation aids
Direct Marketing/ Cust. Programs
POS Polling
Sales & Marketing
CR
M
Privilege Points/ Info
Front End Applications
Core Retail ApplicationsBack End Applications
External Environment
Executive Information System
Finance & Accounts
HR, Admin & Payroll
Knowledge Base
POS
Interactive Audio Visual
AidsCustomer Walks In
Customer transacts online
Online transaction
Supplier(s)
Customer assisted
Internal Business
Architecture
Auth
oris
atio
n
Retail Application
Purchase Mgmt
Inventory Mgmt
Store & Warehouse
Mgmt
Vendor Mgmt
Decision Support
MIS & Report Writer
Store Security Systems
Internal Wired & Wire-free Network and External Connectivity
Hardware Components
Payment Gateway/ Bank
Smart Cards Online Portal
PDAs
Easy to use knowledge sharing and navigation aids
PDAs
Easy to use knowledge sharing and navigation aids
PDAs
Easy to use knowledge sharing and navigation aids
Direct Marketing/ Cust. Programs
POS Polling
Sales & Marketing
Technology Architecture - Technology Architecture - ExampleExample
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Organisazation Structure - Organisazation Structure - ExampleExample
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Key Assumptions Key Financials
Profit and Loss projections for next 5 years Cash flow projections Projected balance sheet NPV and IRR calculations Key Ratios
Sensitivity Analysis
Final EvaluationFinal Evaluation
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Market Share and Growth Rates Capital Structure Assumptions for major cost heads
Real Estate Depreciation Working Capital Operating Expenses Taxes
Key AssumptionsKey Assumptions
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Profit and Loss accountS. No. Particulars Y1 Y2 Y3 Y4
A Source of revenueSales Cost of goods soldGross margin on salesIncome from space sellingOther incomeTotal income
B Operating expensesLease rental Employee expensesCompensation to sourcing partnerAdvertisement and PromotionElecticity and maintainanceForeign travel,insurance and other miscellaneous expenses
Total operating expensesC Earnings before depreciation, interest and tax (EBDIT): A-BD Depreciation and Amortisation
Depreciation on Fixed assetsAmortisation of pre-incorporation expenses
Total depreciation and amortisationE Earnings before interest and tax (EBIT): C-DF Interest
Term loanWorking capital loan
Total interestG Earnings before tax (EBT): E-FH Income TaxI Net Profit after Tax (PAT): G-HJ DividendsK Transferred to reserves: I-J
Profit & Loss StatementProfit & Loss Statement
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BALANCE SHEETY1 Y2 Y3 Y4
INR (mn.) INR (mn.) INR (mn.) INR (mn.)SOURCE OF FUNDS
A Shareholders fundsShare Capital Retained Earnings
Opening balanceProfil/Loss for the year
Total retained earningsTotal shareholder's funds
B Loan FundsTerm loanWorking capitalTotal loan fundsTotal source of funds: A+BAPPLICATION OF FUNDS
A Fixed AssetsGross blockLess- DepreciationNet Block
B Working Capital Current assets, Loans and advances:
InventoryPre paid expensesLease depositLC margin moneyCash and cash equivalents
Total current assetsLess:Current Liabilities and Provisions
Trade creditorsOutstanding/Accrued expensesSales tax payableTemporary overdraft
Total current liabilitiesNet Current Assets
C Pre-incorporation expense (to the extent not written off)Total application of funds: A+B+C
S. No. Particulars
Balance SheetBalance Sheet
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CASH FLOW STATEMENTS. Y1 Y2 Y3 Y4
No.I Operating activities
A Operating Profit before Taxes (EBIT)B (-)Taxes paidC + Non-cash items:Depreciation and amortisationD +(-) Decrease/(Increase) in working capitalE Net cash provided by operations before tax (A+B+C+D)II Investing activitiesA Fixed AssetsB Pre-incorporation expensesC Net cash provided by investing (A+B)III Financing activitiesA Issue of sharesB DEBT
New debtTerm loan Working capital
Principal repayment of debtTerm loan Working capital
Interest on debtTerm loan Working capital
C Dividend on equity sharesD Corporate dividend tax E Net cash provided by financing (A+B+C+D)
Increase (decrease) in cash and cash equivalents (IE+ IIC+IIIE)Opening balance of cash and cash equivalentsClosing balance of cash and cash equivalents*
Particulars
Cash Flow StatementCash Flow Statement
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0 1 2 3 4 5 6 7 8 9 10 11Initial capital expenditureInitial investment in working capitalPre-incorporation expenses
Cash flow from operationsSalesLess COGSGROSS MARGINIncome from space sellingAdd Other incomeTotal incomeLess Operating expenses
EBDITLess Depreciation and amortisationEBITLess Current tax
EBIATAdd: Depreciation and amortisationAdd/(Less) Change in net working capital
Less capital investment
Add Recovery of working capital
Add Recovery of capital assets
Net cash flowPresent value factorPV of cash flowCumulative PVNET PRESENT VALUE- INR (mn.) - INTERNAL RATE OF RETURN- (%)
Particulars Year
NPV and IPP CalculationNPV and IPP Calculation
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Profitability Ratios Gross margin Return on Capital Employed Return on Equity
Leverage Ratios Debt/equity ratio Interest Coverage ratio Debt Service Coverage Ratio
Liquidity Ratios Current Ratio
Key RatiosKey Ratios
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The feasibility assessment evaluates the project on the basis of pre-decided key evaluation criteria, e.g. NPV, IRR, ROCE, ROE.
The sensitivity analysis analyses the impact of a change in each significant assumption individually on the key evaluation criteria.
Feasibility Assessment & Feasibility Assessment & Sensitivity AnalysisSensitivity Analysis
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Sensitivity of debt variancesS.
No.Scenario/Variable assumptions
IRR(%)
NPV INR (mn.)
ROCE(%)
ROE(%)
A Cost of debt (average)
2% higher 16.64% 177.76 14.30% 16.65%
1% higher 16.33% 181.27 14.15% 16.77%
1% lower 15.73% 188.50 13.88% 17.03%
7% lower (ECB) 13.93% 212.34 13.11% 17.70%
B Debt equity ratio (initial)
0.75 16.25% 193.84 16.07% 25.42%
0.60 16.05% 186.91 14.38% 18.09%
0.50 15.91% 182.27 13.45% 15.45%
0.40 15.77% 177.67 12.63% 13.62%
0.25 15.56% 170.94 11.57% 11.74%
Project Evaluation CriteriaScenario/Variable assumptionsS.
No.
Examples of Sensitivity Examples of Sensitivity AnalysisAnalysis
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Every startup faces risks Environmental – regulatory, competitive Strategic – location, promotion, timing of entry, pricing etc Technology – obsolescence of product/process technology Operational – logistics, inventory management,
organization building Financial – financing structure and cost of finance
Has the management team identified the critical risks? Are the critical risks addressed in the proper order with
the least amount of capital?
Risk Mitigation PlanRisk Mitigation Plan
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Current status Likelihood of occurance
Criticality Risk mitigation (if any)
Regulatory risks• High cross-border tariffs, leading
to lower margins and difficulty in maintaining international price parity
• Non-availability of cheaper funds, on account of restrictions on foreign equity participation
Competition • Threat from larger players entering
the same segment with a similar business model
High
High
Medium
High
• Thrust on sourcing of goods locally, to reduce import burden
• Introduction of VAT to rationalise indirect tax structure
• Measures to hedge financial risk (refer to financial risk column below)
• Early launch to have lead time for establishing the brand
• Strong privilege loyalty programmes • Innovative strategies to maintain differentiated
position in the market
Customer purchase habits• Risk pertaining to the current trend
of customers purchasing similar products abroad
High High • Exceptional customer service standards• A compelling promotion strategy, highlighting
the convenience pertaining to shopping at Neo vis-à-vis shopping abroad
• Greater variety of brands and products
Risk Mitigation PlanRisk Mitigation Plan
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S.No. Workstreams/ Key Activities
1 Financial Closure
2 Sourcing Arrangements
3 Real Estate Finalisation
4 Retail Outlet Development
5 Technology Implementation
6 Regulatory Matters
7 Organisation Building
8 Branding & Promotion
9 Strategic Partner Selection
10 Organisational Policies & Processes
11 Finalisation and Ordering of in-store merchandise
12 Logistics Arrangements
13 Finalisation of Outsourcing Arrangements
Month 12Month 8 Month 9 Month 10 Month 11Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7
Implementation PlanImplementation Plan
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Define exit strategy options IPO Strategic sell-off to third party Other options
Propose time horizon for exit and make financial projections accordingly
Exit StrategyExit Strategy
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Irrational Financial projections
Not identifying an Exit strategy for the investor
Lack of credentials of management team
Lack of information on competition
Overly aggressive market estimate
Poor and Inaccurate research
Errors to avoid while developing a Errors to avoid while developing a business planbusiness plan
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Q&AQ&A
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LAUNCHING YOUR ENTERPRISELAUNCHING YOUR ENTERPRISE- Company Formation -- Company Formation -
Some Q to ask yourself: Structuring the startup? Entity? How do I register my company? Time frame & Costs? Company Name? Pvt. Ltd. or Ltd. Company? Capitalisation requirements? Taxes? EOU, SEZ, STP? Regulatory framework in case of foreign investment?
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Directors & Subscribers? Paid-up share capital & Authorised share capital? Equity & Preference shares? Investors - VC, Pvt. Equity, FII, FVCI Stock options? Non-disclosure agreement Employment agreements Policy Handbook Leveraging IP Exit Strategy?
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Q&AQ&A
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Networking Lunch
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How to approach your IP• IPR – “Intellectual property
rights” is a broad, generic term to describe different kinds of monopoly rights granted by the State to an inventor / author for the protection of certain intangible creations (ideas, works of art, etc.)
• Common characteristic – essentially negative rights to prevent others from doing something
• Provides territorial protection
Trademark IPRsIPRs
Copyright Trade Secret
Designs
Patent Knowhow
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• The Patent Act, 1970 (Amendments 1999, 2002 and 2005)• Trade Marks Act, 1999 (Replaced The Trade and Merchandise
Marks Act, 1958)• The Geographical Indications of Goods (Registration and
protection) Act, 1999;• The Designs Act of 2000 (Replaced The Designs Act, 1911)• Information Technology Act,2000• The Semiconductor Integrated Circuits Layout-Design Act, 2000; • The Protection of Plants & Varieties and Farmers Rights Act,
2001;• The Biological Diversity Act, 2002• The Copyright Act, 1957 (1994 - computer programs as “literary
work”)
IP Laws : 1999-2000IP Laws : 1999-2000
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IP - IPR Territorial Rights Prior use – harmful ? Nature of protection ? – limited, perpetual Protection under more than one head
Some BasicsSome Basics
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An exampleAn example
Copyright
GVCTrademark
Patent
Design
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Controller General of Trade Mark, Patents and Designs Registrar of Copyright Main Offices
Trademark – Mumbai (branch Delhi, Kolkata, Chennai, Ahmedabad)
Copyright – Delhi Patents – Kolkata (branch Delhi, Mumbai, Chennai) Designs – Kolkata
Harmonization proposed Appellate Board Infringement matters - Courts
AuthoritiesAuthorities
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Convention Date
Berne Convention April 1, 1928 (Party to convention)
Universal Copyright Convention January 7,1988 (Ratification)
Paris Convention December 7,1998 (Entry into force)
Convention on Biological Diversity June 5,1992 (Signature and ratification)
Patent Cooperation Treaty December 7,1998 (Entry into force)
Budapest Treaty on the International Recognition of Microorganisms for the Purposes of Patent Procedure 1977
December 17, 2001(Party to treaty)
TreatiesTreaties
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Intangible property – can be used simultaneously Right is limited by a term (if not renewed – lapses) It is a territorial right (PCT, EPO, Paris Con.) Patentability tests vary in each jurisdiction Obtained only by registration (not mere application) It can be assigned, licensed, mortgaged, surrendered Patents are granted for working not for hoarding. Non-
working could be fatal Right relates to commercial exploitation, does not preclude
experimental work Joint ownership (Section 50)
Salient FeaturesSalient Features
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Total licensing revenues estimated at $100b (Economist) Texas Instruments licensing net revenues – $800m / year IBM licensing net revenues – $ 1 billion / year Digital Equipment got $1.5b from Intel for dropping its patent
infringement suit Bankruptcy to $400m 5 people – two computers – one patent – 400 licences - $50m
income Gillette’s Mach3 blade technology is protected by 35 patents
Value – Some examplesValue – Some examples
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Kodak’s loss for infringing Polaroid patent
$925m as damages
$100m litigation fees
Shutting $1.5b manufacturing plant
Loss of R&D and other efforts
Minolta paid $127m to Honeywell for infringement of its
‘autofocus’ patent
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GE paid $128.7m to Fonar (a small medical firm with
annual revenues less than $12m) for infringing its MRI
patent.
IP wasting – shareholder’s suit for failing to exercise its
duty of care to protect its IP assets
Xerox – failing to patent its GUI technology – estimated
loss $500m
Swiss Watchmakers Association dismissing new
electronic quartz watch as mere curiosity
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Features Protection Limitations
Trade Secret
Kept secretCan be acquired only by improper means
Contractual obligationTerm : forever
Once comes into public domain – difficult to protect
Copyright Exclusive right to do certain acts (permissible acts)
Registration not compulsoryThrough Berne convn/ UCC Term – + 60 Y
Only expression protected , not underlying ideas, concepts
Patent Exclusive Right(permissible acts)
Registration in each countryTerm – 20 years
Only if technical contributionGrant slower than © Regn.No criminal penalties
Protection – A ComparisonProtection – A Comparison
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Protect IP where your market is.
Use different kinds of IPRs for protecting your IP.
IP StrategyIP Strategy
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PatentPatent
What is a patent? Is my invention patentable? What is patentable and what is not? Is a software or a business method patentable
in India and in US? How do I file a patent? How much information do I provide in my
patent application? What is a patent strategy and what must be
my patent strategy?
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Innovations Inventions
2(1) (j)
S. 3 exclusionsNot Invention
S. 4 exclusionsNo Patent
S. 5 exclusionsNo Patent
Patentable InventionsPatentable Inventions
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S. 2(1)(j)
Invention
Art. 27 (1) of TRIPS
a new product or process involving an inventive step and capable of industrial application
(Novelty, non-obviousness, Utility)
S. 2(1) (ja)
inventive step
means a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art
S. 2(1)(ac) capable of industrial application
in relation to an invention means that the invention is capable of being made or used in an industry.
Definitions - 2002Definitions - 2002
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an invention which is frivolous or which claims anything obvious contrary to well established natural laws
an invention the primary or intended use or commercial exploitation of which could be contrary to public order or morality or which causes serious prejudice to human, animal or plant life or health or to the environment
the mere discovery of a scientific principle or the formulation of an abstract theory or discovery of any living thing or non-living substance occurring in nature
What is not patentable? S.3What is not patentable? S.3
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The mere discovery of a new form of a known substance
which does not result in the enhancement of the known
efficacy of that substance or
the mere discovery of any new property or new use for a
known substance or
the mere discovery of the mere use of a known process,
machine or apparatus unless such known process
results in a new product or employs at least one new
reactant.
What is not patentable? S.3What is not patentable? S.3
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Explanation- for the purposes of this clause, salts, esters, ethers,
polymorphs, metabolites, pure form, particle size, isomers,
mixtures of isomers, complexes, combinations and other
derivatives of known substance shall be considered to be the
same substance, unless they differ significantly in properties with
regard to efficacy
SWISS CLAIMS allowed in certain countries.
“use of product X for the manufacture of a medicament for the
treatment of disease Y”
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a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance
the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way
plants and animals in whole or any part thereof other than micro-organisms but including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals
a method of agriculture or horticulture any process for the medicinal, surgical, curative, prophylactic,
diagonistic, therapeutic or other treatment of human beings or any process for a similar treatment of animals or or to render them free of disease or to increase their economic value or that of their products
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a mathematical or business method or a computer program per se or algorithms
a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever including cinematographic works and television productions;
a mere scheme or rule or method of performing mental act or method of playing game;
a presentation of information; a topography of integrated circuits; an invention which, in effect, is traditional knowledge or which is an
aggregation or duplication of known properties of traditionally known component or components.
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India E.U. U.S.A.
First to file file invent
Prior publication
harmful harmfulArt. 54 EPC
1 year grace period (35 US Code s. 102)
Specification Fully & particularly describe I, operation, use, method Best method of performingS.10
At least one way of practicing inventionArt. 83 EPC
best way to practice invention (35 US Code s. 112)
Publication After 18 months After 18 monthsSpecification & novelty search
After 18 months
Opposition Prior to grant During first 9 months after grant – at EPO
Re-examination
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USPTO 5,356,330: Apparatus for simulating
a ‘high-five’
… shared between fans to express the joy and
excitement …
Unfortunately requires mutual hand slapping of
two participants ……
a solitary fan is unable to…express excitement…
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US Patent 5,197,216
Combined camouflage and decoy device
In order to fool the birds, the inventor suggests the hunter move his head from side to side and flap his cape a little to simulate a happy goose.
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Section 39
prohibits any person resident in India from filing patent application for any
invention outside India unless :
• Written permission of Controller
(Permission is granted if there is no direction passed under Section 35 for
prohibiting/restricting publication/ communication of information relating
to invention. The Controller must obtain consent of the Central
Government before granting such permission for invention relevant for
defense purpose / atomic energy. The application is to be disposed of
within 3 months.) OR
• Patent application for the same invention has been first filed in India at
least six weeks before the application outside India.
Security ProvisionsSecurity Provisions
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Considering definition of “person” under the General Clauses
Act, 1897 person resident in India would include company or
association or body of individuals, whether incorporated or
not. Expression “resident in India” is not defined.
Exception u/ Section 39(3)
This section shall not apply in relation to an invention for
which an application for protection has first been filed in a
country outside India by a person resident outside India
Security ProvisionsSecurity Provisions
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CopyrightCopyright
What is a copyright? What can be copyrighted? What is the term of the copyright? What do you mean by registration of a copyright? What is an infringement of a copyright?
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Registration not compulsory, only acts as prima facie proof of ownership, with registration no special benefits
Computer databases and software protected as literary works (Amendment in 1994)
No “Work for Hire” concept in the Act, but under Section 17 an employer is a copyright owner of an employee’s work unless a contrary agreement is in place
Copyright Act, 1957Copyright Act, 1957
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Work Literary, musical, dramatic, artistic, sound recording, C film
Copyright
1st Owner
Exclusive right to……
Creator
Term 60 years
Infringement Violation of exclusive right
Defenses Fair dealing, S, 52(1) (j)
Registration not compulsory
Expression & not idea protected
Bundle of Rights – assign, license separately
Allied Rights – Performers, Broadcasters
Copyright Act, 1957Copyright Act, 1957
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Registration not compulsory but acts as a prima facie proof of ownership
Registration in Berne Convention and UCC countries would be acceptable
Unlike US, no special privileges upon registration No specific provision for the deposit of the source code on any
specified media To prevent piracy – first 25 and last 25 pages of the source code
submitted for registration To prove ownership other methods – maintenance of log books,
deposit in locker, posting to oneself / attorney, insertion of error in the code
Copyright Notice not compulsory
RegistrationRegistration
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Trade MarkTrade Mark
What is a trade mark? What can be trade marked? What is the term of a trade mark? What do you mean by trade mark registration? What is an infringement of a trade mark?
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Registration of three dimensional marks, combination of
colours Service marks, collective marks
Prior use not a must for application or registration
Term : 10 years Recognition of “well-known” marks
Trade Marks Act, 1999Trade Marks Act, 1999
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Trade Secrets & Confidential Trade Secrets & Confidential InformationInformation
What are trade secrets? What is confidential information? What should be my internal practice to protect confidential
information? What must I do when I find out that my employee has
compromised confidential information of my company? What do I do if my company receives confidential
information of a 3rd party, without the 3rd party knowing about it?
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No statute Common law, contract Strong Non- disclosure agreements,
processes and policies
Trade Secrets & Confidential Trade Secrets & Confidential InformationInformation
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No specific legislation governing technology transfer Governed by contractual obligations IP laws governing IP transfer
Written instrument – specify rights, term, territory Instrument is to be stamped as per state law In case of registered IP, transfer to be recorded with the
authorities in India Tax on royalties payable Withholding of taxes
Technology TransferTechnology Transfer
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Copyright law Except in the case of employer – employee relationship – no
work for hire concept Assignment in writing must, stating
The work Rights Tenure (else 5 years presumption) Territory (else Indian territory presumption)
Assignment of future work permissible
Patent law No work for hire concept Assignment in writing must
Work for HireWork for Hire
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Non-compete, non-solicitation – Section 27 Contract Act
Privacy and Data protection Control over employees / sub-contractors Governing law Jurisdiction Enforcement of foreign judgments and
awards Exchange Control
Issues arising in TransactionsIssues arising in Transactions
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Intellectual Property – Allocation of Intellectual Property – Allocation of RightsRights
Preferred Approach Examine Nature of IP
Nature of technology or information (software code, business methods, manufacturing processes, etc.)
Nature of intellectual property rights (patents, copyrights, trade secrets, etc.)
Examine Each Party’s Situation Business model Core competencies Competitive threats
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Allocation Principles Joint ownership is usually a bad idea A license is sufficient in order to have freedom of use Ownership is important to control use by others (e.g.,
competitors) Exclusive licenses – pros and cons Embedded or essential third-party IP creates
complications
Intellectual Property – Allocation of Intellectual Property – Allocation of RightsRights
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Rights Transfer Principles Present assignment or license grant Specify rights granted Further assurances clause Chain of title from employees and contractors to supplier
to customer Recordation
Rights Transfer Requirements in India Written instrument – specify rights, term, territory Instrument is to be stamped as per state law In case of registered IP, transfer to be recorded with the
authorities in India Tax on royalties payable Withholding of taxes
Intellectual Property – Rights TransferIntellectual Property – Rights Transfer
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Industrial Age Information Age
Patents are protected; licensing opportunities are considered
Goal IP Portfolio is strategically linked with Business strategy
Reactive Mindset Proactive
Patent “scorecard” is maintained
Focus Revenue and Competition
Periodic attempts to know what the company owns
Approach IP inventory updated and leveraged
IP generates costs without measurable returns
Results IP drives revenue against measurable business goals
IP Strategy
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Investment Strategy
Deployment Strategy
Legal Strategy
IP Strategy
IP Strategy
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IP Legal StrategyIP Legal Strategy
Offensive StrategyOffensive Strategy Defensive StrategyDefensive Strategy
IPR STRATEGYIPR STRATEGY
Identify your core Tech. &
Protect it
Identify Compt's
core Tech. & Block it
IP Search and IP Audit
Protect Core &
Ancillary tech
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Q&AQ&A
Next: Session - 4
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A Case Studyby
Ajit Nagral
Founder, NuGenesis Technologies(acquired by Waters Corp. NYSE:WAT)
PATENTING & PROTECTING YOUR INNOVATION
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Please Note
This case study provides an Entrepreneurial Perspective on NuGenesis’ innovation and protection of its innovation, via a series of events.
Confidential Information reating to the patent or patent protection activities shall not be disclosed
NuGenesis was a U.S. based company with presence across the globe
My Current StatusPresident, Megaware, Inc, Westborough, MADirector, Megaware Technologies, Mumbai, Indiawww.megawareinc.comIndia Cell: +91 98203 27200Email: [email protected]
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The Patent
United States Patent 6,260,044Nagral, et al. July 10, 2001
“Information storage and retrieval system for storing and retrieving the visual form of information from an application in a database”
www.uspto.gov
At NuGenesis we called it“Print to Database Technology”
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Events as they unfolded
Company Formed in 1996 with a focus on the Life Science Industry
Why “Print to Database”? – solving an industry wide problem
Is the Innovation Patentable?
Filed Provisional Patent Application – costs considerations, flexibility, under the radar, time limits
Reducing the innovation to practice – NuGenesis SDMS
First offer of sale – why is it important?
Should we patent? – cost vs. benefits, disclose vs. keeping it close to the vest, time commitments
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Prior Art analysis
Filed Patent Application – finding the right firm
Picking the countries to file in – first (U.S.A), next (Germany, France, Switzerland, U.K., Netherlands), later (Japan, Korea and others)
Wolf in a Sheep’s clothing – competitors, not partners
Patent as an offensive strategy
Patent granted in the United States first and later in E.U. countries
Filed patent infringement lawsuit against competitor the day after patent was issued
Events as they unfolded
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Lawsuit considerations – preliminary injunction, PR, damages, message to prospective competitors, expert witness’ cost
Defense arguments – suit is without merit, product does not infringe, patent is invalid (prior art, first offer of sale bar, etc.)
Deposition – not fun
Settlement (confidential)
What it did – patent remains valid and has more value today, competitive deterrence, helped our M&A prospects, helped sales
Follow on patents
Events as they unfolded
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Q&AQ&A
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Networking Tea / Coffee
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PROTECTING YOUR BUSINESS PROTECTING YOUR BUSINESS THROUGH INVESTIGATIONTHROUGH INVESTIGATION
Enforcement issues arise when: Piracy, counterfeiting
Outright infringement of IP Genuine disputes
between competitors Contractual disputes
licensor – licensee employer - employee
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Some BasicsSome Basics
Various types of IP TM, ©, patent, CI / Trade Secret, GI, IC, plant variety
Rights – by creation or registration Territorial right International treaties
Copyright – recognition of © created in member countries TM, Patent, Designs - Priority
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International Framework for International Framework for enforcementenforcement
No international law or enforcement mechanism Treaties lay down minimum requirements which member
countries have to incorporate in their laws International IP court not contemplated under any treaty Domestic law, procedures & remedies Order of one country – enforceable in the other only
under limited circumstances WTO dispute settlement mechanism Agencies
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TRIPS and its Main FeaturesTRIPS and its Main Features
Establishes minimum standards for all types of IPRs (but utility models and breeders’ rights)
It is based on and supplements, with additional obligations, the Paris, Berne, Rome and Washington Conventions
It extends to IPRs the principles governing international trade: MFN, NT
It contains provisions relating to enforcement of IPRs, amendment and reservation
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TRIPS – Article 41TRIPS – Article 41
Effective action against infringement Expeditious remedies to prevent infringements Remedies constituting a deterrent to further
infringements Procedures:
Fair and equitable, Not unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.
Written decisions on evidence led after opportunity to be heard
No obligation to create distinct system for enforcement of IPR
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Essential aspects of enforcementEssential aspects of enforcement
Speed – at least interim reliefs Effective, efficient Cost – Effective
Problems faced Slow pace of enforcement proceedings, Low level of costs and damages awarded by courts, difficulties in obtaining rapid ex parte injunctions.
Benefits of strong system Boost to domestic industry (depending upon level of
development) Technology transfer Foreign Investments
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IndiaIndia
Trademark, Copyright – Civil + criminal Patents, Designs – Civil (in case of cheating - criminal) Civil remedies
Interim reliefs – injunction, court receiver, Mareva Injunctions, Anton Piller orders, John Doe (Ashok Kumar) orders
Delivery up Quia Timet Action Damages – recent trend – punitive and exemplary damages
Timeline Foreign judgements – persuasive value Customs
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Penalties and DamagesPenalties and Damages
Copyright & TM infringement - punishment 6 months – 3 years 50,000 – 2,00,000
Traditionally nominal damages Recent trend (Delhi High Court cases)
Exemplary and compensatory damages
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Protect your own rights!Protect your own rights!
Secure your rights: Though transborder reputation recognised and well-known marks have statutory protection – Register your mark
Alert and well-informed brand protection cell Invest in investigations:
Reliable and timely information Identify production and storage sites
Stringent and watertight agreements: with the local distributors, manufacturers, joint venture partners and the IP holders
Timely actions: even against small time manufacturers
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Some instancesSome instances
Criminal action followed by civil Theft by employee – evidence collection /
preservation Assistance of police even in civil matters Goods lying with customs for export Infringing products only exported from India, not
sold in India Parallel imports
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Q&AQ&A
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THANK THANK YOUYOU
KPMG
Nishith Desai Associates