IP trading fever

China’s move to establish a national intellectual property trading market is well underway. The process to help small and medium-sized enterprises (SMEs) solve their pecuniary difficulties through the IP trading is developing rapidly.

Through offering IP protection, owners are granted certain exclusive rights of their tangible and intangible works through copyright, trademarks, patents and industrial design rights.

Aside from these, IP trading extends the way further and refers to the buying, selling and transferring of IP rights through a standard or customized agreement to allow IP acquirers to use IP under mutually agreed conditions.

Today, the concept of IP trading is still a bit abstract, and most people are still in the dark about it.

So, let’s examine media reports of a fake Apple Inc’s store in Kunming, China to get a clearer understanding of this concept.

Last July, media cited an American blogger’s account of the fake shop which came completely furnished with the white Apple logo, wooden tables and cheery staff who genuinely thought they worked for Apple Store. The blogger only discovered this shop to be a fake one because Apple Inc has no official shop in Kunming and the 13 authorized resellers in Kunming are not allowed to call themselves Apple Stores or claim to work for Apple.

This media report tells vividly in a reverse way how IP protection is indispensable in any advanced economy. For Apple Inc, not only should its business icon be protected from any form of IP infringement, but the company can instead proactively consider whether to trade its business icon to realize some economic benefit.

Potential IP exporter

People must understand that a worldwide IP trading market does exist and the US is the dominant leader in the global IP trading market. According to Ernst &Young data, the US corporate income from licensing patents will increase from $110 billion in 2000 to $500 billion by 2015.

Though China currently has strong domestic demand eyeing overseas IP technologies acquisition, the country is also rising up in the IP export country ladder as she has the capability to engage in IP exports in the future when more domestic firms in the country are eager to cultivate their own business brands.

The Hong Kong Trade Development Council (HKTDC) in its research report categorized China as a strong IP importer as well as a potential future IP exporter.

According to HKTDC, the combined retail market size of IP creation, trading and exploitation in China was $2.85 trillion in 2011. China is the world’s leading country in resident patent filings as Chinese residents registered more than 293,000 patent filings in 2010, representing a 28 percent increase year-on-year.

The number of non-resident patent filings in China by overseas companies, a more accurate measure of the mainland’s status as an IP export country, recorded an average annual growth rate of 2.1 percent from 2007 to 2010, with approximately 98,000 patent filings in 2010. China is the world’s second most important export market for patent owners outside the country after the US, indicating that the mainland may rise to become a more dominant IP exporter in the future.

Overseas interest

CPA Global, a worldwide IP management specialist company which covers expertise in patent portfolio valuation and optimization, patent research as well as analytics, said that the mainland IP trading market offers enormous market potential for IP trading, both in terms of quantity and quality.

This is amid the background that the central government wants to transform its industries by moving them up the value chain through building its own technology under the country’s 12th Five-Year Plan.

In terms of quantity, the central government is striving to enlarge the number of patent filings and patent examiners by 2015, as the patent filing should reach 2 million and patent examiners to 9,000, respectively, in the next three years. The government is utilizing a series of promotional policies such as cash bonus, tax breaks and subsidies to encourage more mainland companies to submit patent applications.

According to State Intellectual Property Office, there were around 7,000 certified patent examiners in 2010 while domestic patent applications reached 1.11 million in the year.

In terms of quality, the mainland companies are also aiming to enhance the values of IP patent assets through the elevation of their innovation technology standards. The improvement in technology quality will propel overseas demand for acquiring mainland proprietary technologies and brands.

However, the picture is not a completely rosy one as there are still other hurdles to the general market development.

“First of all, the mainland companies’ current patent technologies are still pretty much in the preliminary stages which still have no proven track record that they can be adopted on a widespread scale,” CPA Global Senior Vice President Joanne Hon told China Daily. “Moreover, the patent applications by mainland companies have registered a high failure rate in foreign countries that may deter overseas interests to acquire mainland patent technologies.”

Hon highlighted the concern that the central government should strengthen the domestic legal system to offer assurances to overseas investors that IP would be properly protected. The country also should introduce more economic policies to transform the national economy from the manufacturing model to the innovation model so that more Chinese corporations will be induced to engage in patent filings.

The IP trading industry leaders in the city echoed the worries put forward by Hon.

“Take the licensing industry as an example, the Chinese licensing industry is still not mature compared to the Hong Kong counterpart as IP protection in Hong Kong is still more advanced than the mainland’s,” said Ivan Chan, president of the Promotional Partners Worldwide Sports & Entertainment (Hong Kong), one of the global licensing firms based in Hong Kong.

“In this regard, Hong Kong can still have its competitive edge in offering more publicity and marketing value-added services in the market because the mainland’s licensing agents are still relatively deficient in these aspects,” Chan added.

HK Govt initiative

The Hong Kong government also wants to transform the city as a major IP trading hub in the Asia region based on the rising IP trading market potential in China.

Chief Executive Leung Chun-ying disclosed in his first policy address in mid-January that the administration will set up a working group to study the overall strategies for promoting Hong Kong as an IP trading hub. The working group will comprise government representatives, industry stakeholders and experts from different fields.

A Commerce and Economic Development Bureau spokesman told China Daily that the working group will examine the overall strategies to promote Hong Kong as an IP trading hub and render any possible government support needed.

The spokesman added that the bureau is planning to brief the IP industry development to the Legislative Council panel on Commerce and Industry in the first half of 2013.

“Hong Kong has a rule of law tradition, a legal arbitration regime, a talent pool of IP trading and research professionals and various fund-raising channels such as private equity and venture capital that enables the city to be the premier IP trading hub in the region,” HKTDC Assistant Executive Director Raymond Yip told China Daily.

Given that the Chinese domestic IP trading intermediaries are immature in their marketing and publicity skills, their counterparts in Hong Kong can attract the rising Chinese brand/technology licensors to utilize Hong Kong as the platform to trade IP rights to other licensees, the HKTDC reckoned.

In the segment of brand licensing (a form of IP trading), local creative company Yeung’s Group President Stanley Yeung agreed that Hong Kong played a vital intermediary role in licensing industry.