Must-Read Topics on IP Finance in China for 2022

Topic # 1: The Opportunities and Risks of Transferring IP Overseas

​"IP Going Global" (or "IP Going Overseas," an expression most used in China) refers to using intellectual property rights that originated in China to conduct business operations or investment and financing in the global market. Taking and using IP abroad can help to grow the wealth accumulation of the intellectual property rights.

What kinds of intellectual property are used abroad?
The number of outbound licensing of patented technology has increased every year, and this year is no exception.  However, the hot spots in 2021 mainly lie in the so-called "soft IPs," categories such as internet games, online courses, film and television, and education.

Many factors are driving a greater diversity in the types of IP that are used abroad.

Currently, the quality of IP from China is improving. No matter whether we are talking about technology patents or cultural and creative works, both kinds of IP could naturally find international buyers through the market.
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However, policy changes from the US-China trade war and the changing consumer's needs during the covid-19 pandemic have generated push and pull forces.

​The Potential of IP is Great Enough in the Global Market
The great potential for IP in the global market is what drives substantial business opportunities. IP with the international market as its hinterland could enjoy greater protection, higher prices, and a larger user base.

According to the survey on Sis the Seventh, a one-hour online course on handicraft-making in China is priced at RMB 30 yuan (US$4.75) on average. most of these courses sell less than one hundred units because they suffer from IP infringement.  On the other hand, similar online courses on foreign platforms are priced as high as US$30 or more, not to mention that these courses are sometimes purchased by thousands of users. This difference exists because European and American Markets believe tin the value of IP.

In addition, when Chinese IP goes abroad, it can use a franchise model to find global "city partners" (exclusive franchisees in a particular city). In terms of IP commercialization, franchising is known as the most influential business model.  For example, McDonald's and Starbucks are, through such mode, maximizing the value of their IPs by franchising their business and making it duplicable.

According to Sis the Seventh's survey, in a vertical market of handicraft classes, among the top 500 franchisers in the global market within a 5-year term of operating, could have earned US$ 4.7 million on average. In some cases, franchised businesses could earn over US$ 6 million from the initial one-time franchise fees alone, which does not include the running royalty from the franchise systems.

In addition to the great potential of IP's commercial value, exporting IP overseas also enhances China's cultural influence and voice in the global market.

However, this business model does not come without risks. Seeing that IP is granted by a sovereign body, an IP obtained in one country is not necessarily recognized in other countries. Therefore, to operate IP in the international markets, one must reconcile potentially conflicting substantive and procedural laws.  If there is any negligence about these laws, potential risks will arise.

Risks in Taking IP Overseas
It should be stressed that the legal risk is not necessarily the differences in the law but the different interpretations of the law.

During interviews with lawyers who assist with the process of taking IP into the global market, we discovered that a portion of business owners believe that IP transfer is just a matter of signing a contract and acquiring the legal documents.  However, even if you have obtained all the documents you may still be unable to adequately utilize the IP.

In addition, Sis the Seventh also found in the survey that the primary source of profit for domestic handicraft online courses is through the sale of material packages. Many online courses are free and students are unwilling to pay for the IP value of these courses.  In contrast, in the US and the UK the IP of online classes is usually the direct source of the course-creator's income.  IP creators who have grown up in China have an insufficient understanding of the overseas IP environment.  They are prone to inadvertently infringing others IP and may also underestimate the value of their own IP, missing opportunities for profit in the global market.

This difference in understanding and mental framework towards IP may be the most significant risk in entering the international market.
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In ICTiger2020, we believe that when discussing the legal issues and legal risks of IP going abroad, we must also investigate the commercial and cultural spheres to fully control risks and effectively seize business opportunities.

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