Startups and IP Protection in India: Patentability of Software & Algorithms

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Startups and IP Protection in India: Patentability of Software & Algorithms

Written by Akarsh Sharma

Table of Contents

Introduction

In India’s vibrant and rapidly evolving startup ecosystem, innovation is the key differentiator. With the proliferation of tech-based startups—particularly in sectors such as fintech, healthtech, AI, edtech, and e-commerce—software and algorithm-driven solutions form the foundation of many entrepreneurial ventures. As a result, protecting intellectual property (IP), especially in the realm of software and algorithms, becomes critical for sustaining a competitive advantage, attracting investment, and ensuring business continuity.

However, the legal framework for patenting software and algorithms in India remains complex and, at times, ambiguous. Unlike many western jurisdictions, Indian patent law imposes specific limitations on software patentability, leading to uncertainty among startups and innovators.

This article delves into the intersection of startups, IP protection, and the patentability of software and algorithms in India, while examining relevant legal provisions, judicial interpretations, challenges, and best practices.

Importance of IP Protection for Startups

  1. Competitive Advantage
    Intellectual property enables startups to secure a unique market position, protect innovations, and prevent imitation.
  2. Investor Confidence
    A strong IP portfolio is often a precondition for funding, especially from venture capitalists and angel investors.
  3. Monetization Opportunities
    Startups can license, assign, or commercialize patented technologies to generate revenue streams.
  4. Exit Strategy and Valuation
    Acquirers and public investors view proprietary technology as a significant contributor to a startup’s valuation.

Understanding Patent Law in India

The governing statute for patents in India is the Patents Act, 1970, as amended. To qualify for a patent, an invention must satisfy three key criteria:

  • Novelty – The invention must be new and not disclosed in any prior art.
  • Inventive Step (Non-obviousness) – It must involve a technical advancement not obvious to a person skilled in the art.
  • Industrial Applicability – It must be capable of being made or used in some kind of industry.

The controversy over software patentability in India stems from Section 3(k) of the Patents Act, 1970, which explicitly excludes:

“a mathematical or business method or a computer programme per se or algorithms” from patentable subject matter.

Interpretation of “per se”

The term “per se” is critical. It indicates that a mere computer program, without a technical contribution, is not patentable. However, if the software is embedded in a hardware system or results in a technical effect, it may still be eligible for patent protection.

Judicial and Administrative Guidance

1. Patent Office Guidelines (2016, Revised 2017, and 2019)

India’s Patent Office released Computer Related Inventions (CRI) Guidelines, which provide the following insights:

  • Embedded software (software used in conjunction with hardware) may be patentable.
  • The focus is on whether the invention demonstrates a technical advancement or technical effect.
  • Examples of technical effects include:
    • Enhanced data security
    • Improved user interface
    • Efficient database management
    • Networking improvements
  • Mere automation of a manual process using conventional computing is not patentable.

2. Ferid Allani v. Union of India (Delhi High Court, 2019)

A landmark decision where the Court held:

“In today’s digital world, artificial intelligence, blockchain technologies and other digital products are based on computer programs, however, the same would not become non-patentable inventions – simply for that reason. The exclusion under Section 3(k) is not for all inventions based on computer programs.”

This ruling opened the door for startups developing AI, machine learning, or blockchain-based technologies to pursue patent protection—if they can show a technical effect.

Startups must understand the distinction:

  • Copyright protects the expression of a program (source code), not the underlying idea or functionality.
  • Patent protects the functional aspect—the method, process, or system implemented by the software—if it qualifies under patent law.

Thus, copyright safeguards against code copying, but only a patent offers protection against independent development of similar functionality.

Challenges for Startups in Software Patentability

  1. Ambiguity in Law
    Lack of clear legislative guidelines leads to subjectivity in patent examination.
  2. Cost and Time
    The patent process is expensive and may take 3–5 years—difficult for early-stage startups.
  3. Global Expansion
    Software may be patentable in the US or EU but not in India. Startups with international ambitions face divergent IP regimes.
  4. Burden of Proof
    Demonstrating “technical effect” or “technical contribution” requires detailed documentation and expert input.

Best Practices for Startups

1. Conduct an IP Audit

Identify all potentially patentable processes, systems, and functionalities early in the product development cycle.

2. Document Technical Advancement

Maintain records that show how the software improves upon existing technologies, solves a technical problem, or results in enhanced performance.

3. File a Provisional Patent Application

To secure an early priority date while refining the invention.

4. Combine with Hardware Where Possible

Demonstrate that the software works in conjunction with hardware to achieve a technical result.

5. Explore Other Forms of IP Protection

Use copyright for source code, trademarks for branding, and trade secrets for proprietary algorithms.

6. Consider International Filings

Use the Patent Cooperation Treaty (PCT) to file in multiple countries if the invention has global relevance.

Government Support and Initiatives

Recognizing the importance of IP for startups, the Government of India has launched various initiatives under the Startup India and IPR Promotion (CIPAM) programs:

  • 50% rebate on patent filing fees for startups.
  • Fast-track examination of patent applications.
  • IPR facilitation centers and empanelled agents to assist startups.
  • National IPR Policy (2016) emphasizes building a culture of innovation and protection of IP.
  • United States: Software is patentable if it demonstrates novelty and utility and does not merely involve abstract ideas (see Alice Corp v. CLS Bank).
  • European Union: The European Patent Office (EPO) allows software patents that show a technical contribution beyond a computer program as such.
  • China: Recognizes software patentability if it involves a technical solution.

India is gradually aligning with the “technical effect” standard used in these jurisdictions, especially in the wake of judicial pronouncements and revised guidelines.

Conclusion

In India’s startup-driven innovation economy, IP protection is essential, and the patentability of software and algorithms sits at the heart of this discourse. While statutory restrictions under Section 3(k) pose challenges, evolving jurisprudence and policy shifts indicate a more nuanced and inclusive approach.

Startups must proactively engage with IP strategy—documenting technical advancements, seeking expert guidance, and exploring hybrid protection models. A well-informed IP roadmap can not only protect innovations but also unlock investment, strategic partnerships, and long-term growth.

As India aspires to become a global innovation hub, streamlining and clarifying the legal position on software patents will be vital to fuel the ambitions of its dynamic startup ecosystem.

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