IP Monetization in China
US China Trade War
Now the world has seen it clearly: the US-China conflict will last for decades and will re-shape a significant portion of the global social and economic order. No one can afford to wait and see.
After dramatic soaring and free-falling roller coaster style developments, the US and China reached a first stage settlement in January 2020. In the foreseeable future, numerous rounds of negotiations will continue along with the growth of China’s economic power.
Undoubtedly, the US-China trade conflict is now a driving force that could explain and help to predict the development of the innovation regime and regulatory framework concerning IP monetization in China.
Our observation is focused on how this driving force is shaping an environment that advantages IP monetization.
First, the level of awareness surrounding IP protection among Chinese entrepreneurs has now reached a record high. The news about the trade war and changes in the business environment concerning tariffs and embargoes have frequently made headlines. The entrepreneurs recognize that the US’s demand for IP protection is a key component in this war, and thus they are ready to think more deeply about the value of IP.
Second, businesses must now move upstream in the value chain. The trade war has broken the current models of global collaboration in many aspects and forced numerous OEM/ODM companies in China to upgrade their operations with independent innovation —otherwise, they will perish. When they had the freedom of choice, their mentality of opportunism dragged the change. When other options are no longer available, innovation becomes a must. In facing this new reality, Chinese businesses are now projecting their new position in the value chain. This behavioral change is expected to increase the volume of quality IPs, which are the fuel for IP monetization deals.
Third, the regulatory regime is responding to the ongoing US-China negotiation pressure with more concrete rules to punish willful IP violations. For example, according to a new regulation jointly promulgated by 38 Chinese authorities in 2018, individuals who repeatedly infringe others’ IPs or refuse to comply with IP protection judgments will be deprived of certain privileges, deeply inconveniencing them.
Under this regulation, at a business level, a violator will be disqualified for certain social welfare subsidies or participation in governmental procurement. At a personal level, violators will be excluded from public transportation, such as trains or planes. The violators can no longer hide behind their corporate shields if they infringe others’ IPs. As a result, business decision-makers are becoming more serious in respecting the value of their own and others’ IPs.
Finally and more generally, intellectuals are forming a consensus that, at least in the IP arena, the trade war could be used as potential leverage to improve and strengthen China’s innovation regime. Any settlement agreements with the US do not necessarily contradict China’s long-term interests; it may just speed up the transformation along a track that China has already paved. For top-level policy-makers, the merits of IP protection to economic growth are well-recognized. While being an unpleasant pressure, the demands from the US push for a change in the same direction.
All of these developments are creating a friendlier environment for IP monetization. Any financial deal trying to exploit the value of IPs would prefer the underlying rights to be more stable, of better quality, enforceable with more transparency, and to form a larger pooling.
The dispute resolution mechanism, and its requirements, set forth under the US-China settlement agreement signed in January 2020, and potential further developments in the coming years, are ironing-out many previously, difficult-to-remove wrinkles and giving more greenlights to IP monetization deals.
1. 《国家发改委等38部门：对知识产权领域严重失信主体开展联合惩戒》. Last visited 2020.5.4. https://baijiahao.baidu.com/s?id=1618926524468153728&wfr=spider&for=pc.
2. See for example, 《从中美贸易战角度看知识产权》. Last visit 2020.5.4 https://www.sohu.com/a/255964458_490666.