Formal Contract before starting new business

Starting a new venture is exciting and once an entrepreneur makes some headway, he is so overjoyed at the prospect of doing business for the first time that he often makes one cardinal error - failure to get into a binding contract with his clients. Sure, initial clients usually come from past networking relationships or as referrals. But that's' no reason to skirt formalities.

The absence of a contract can delay payments and lead to even bigger problems, where a bigger client may not pay up at all! There have been instances where small business owners have had to shut shop because they could neither recover payments from clients nor afford an expensive legal battle.

"Failure of clients to pay up on time or not at all is one of the main reasons for the failure of start-ups in India." The threat of legal action often does the trick with errant clients but this needs the backing of a formal contract."

Here are the whys and wherefores of a formal contract.

1. FIRST, DETERMINE THE TERMS

A business contract must clearly spell out details such as the nature of services provided; the benchmark against which work will be evaluated; and, most importantly, the mode, manner and time of payment. There is no place for vague terms such as 'reasonable time frame' or 'subject to satisfaction'. Other critical details are terms of dispute resolution and termination of the contract. Start-ups tend to ignore the latter two terms as they want to turn a blind eye to the possibility of unpleasant developments or are naïve enough to believe that things will not go awry.

2. SEEK LEGAL COUNSEL

While all this sounds simple enough, one needs a thorough grounding in the Indian judicial system to actually draw up a contract. And, no, the Internet is no substitute for hiring legal counsel. Unfortunately, the Indian legal system does not have separate legislation for start-ups and treats all businesses alike. This is why a bigger company with more experience can stamp out a smaller, first-time entrepreneur if there are loopholes in the contract or, worse still, if there is no formal contract at all!

3. SAFEGUARD INTELLECTUAL PROPERTY

An entrepreneur is unlikely to know about the Indian Contract Act, which must be adhered to while drawing up any contract. Laws pertaining to Intellectual Property (IP) must always be kept in mind, especially if your start-up is in the creative field or any other IP-sensitive business.

4. HIRE AFFORDABLE LEGAL COUNSEL

A formal contract is the very basis of a business agreement. "These documents should be considered the core of the relationship between a start-up and its client, an advisor, employee or investor,". Therefore, it is mandatory to seek legal advice, which should be budgeted for at the planning stage.

So, regardless of how small your business is, make sure you enter into a formal contract before you shake on a deal. At the very least, your professional approach from day one will win you brownie points with angel investors and venture capitalists at a later stage!

Source: Gargi Banerjee, Moneycontrol

China Ranks 6th in International Trademark Registry Applications

China became the world's sixth largest applicant for International Trademark Registry this year, up one place from 2010, a deputy director general of the World Intellectual Property Organization (WIPO) said on Sept 6.

The country is the among the world's most active applicants in terms of the number of applications, said Wang Binying, the deputy director general.

The WIPO received a total of 39,687 applications worldwide in 2010. Among them, 1,928 came from China, up 42.2 percent year-on-year, the second fastest increase worldwide after the Republic of Korea, Wang said at the 4th China Trademark Festival being held in Chengdu, capital of southwest China's Sichuan province.

Meanwhile, China's domestic trademark registry applications are also rapidly increasing, with the number of applications exceeding 1.4 million so far this year, according to Wang.

Wang said this reflects the steadily rising comprehensive national strength of China and its strong economic growth. It also shows that the government has made substantial progress in intellectual property rights protection.

Despite the massive number of Chinese trademark applications, the country lacks well-recognized trademarks. "Actually, we cannot yet name a truly internationally-recognized Chinese brand," said Zhang Yumin, an intellectual property rights researcher with the Southwest University of Political Science and Law.

Meanwhile, trademark protection is not adequate in the country, said Yuan Qi, an official with the Trademark Department of the State Administration for Industry and Commerce.

Yuan said this has led to rampant trademark rights violations.

Zhang urged enterprises to form specialized departments for managing intellectual property rights and to actively register their trademarks.

The government should also crack down on trademark violations and punish the parties involved, Zhang said.

Patent reform bill gets Senate approval

The Leahy-Smith America Invents Act, also known as the latest version of the patent reform bill, was approved by the U.S. Senate today. The legislation now heads to President Barack Obama for his signature.

The bill, which Bloomberg reports as having passed 89-9 today, is the fourth such attempt to reform patent legislation in the U.S., following similar proposals in 2005, 2007, and 2009. It was approved by the House in late June.

Among the major changes in the legislation is turning the U.S. patent system into a first-to-file patent system as opposed to a first-to-invent system. The U.S. Patent and Trademark Office's current use of the first-to-invent system awards a patent based on the conception of the invention, not necessarily when it's filed. The first-to-file system, as the name suggests, awards a patent to the first person who files for it.

Proponents, including technology companies like Microsoft, Google, and Apple have rallied for the first-to-file system, saying it makes our intellectual-property system more competitive with those in foreign countries. While smaller businesses have said the change in filing standards puts them at a disadvantage.

Among the other changes in the bill is the capability for the USPTO to set and collect its own fees for new patent filings. The bill also introduces a review process for challenging granted patents, and a change to the grace period wherein the inventor has time to file for a patent after disclosing it.

"The supplemental examination procedure allows patent owners proactively to make voluntary disclosures of information to the PTO after patent issuance to correct or remedy missing information in the original patent prosecution," explains intellectual property expert Bruce Wexler. "Overall, this allows for stronger patents and protects patent owners from charges later in litigation that they committed fraud in the original patent prosecution. Until enactment of this law, patent owners had no way to cure defects in patents like this."

Patents and intellectual-property protection have become an increasingly important topic in technology, with companies building up massive patent collections to fend off, as well as go on the offensive against, other companies. Most recently that's been the high-profile feud between Apple and Samsung, with the two companies suing one another in courts around the world for patent infringement. There has also been the spat between Google and Oracle, and Apple and HTC.

Companies are now buying up troves of patents from others, including last year's acquisition of Novell for $2.2 billion (which was later altered by the Justice Department); the $4.5 billion purchase of Nortel's patents by a consortium of companies led by Apple, Microsoft, and Research In Motion; and the expected upcoming sales of patent collections from InterDigital and Eastman Kodak.