IP Pledge financing helps to generate liquidity to counter the slowed development faced by many small enterprises in China. When covid-19 hit China’s economy, the country reacted by stimulating development through IP financing, the path for which was paved in 2019’s first intellectual property securitization deal, and later that year, the first patent securitization deal.
As a break-through in its IP financing endeavor, China approved the first patent securitization deal on July 31, 2019. The deal size was CN¥300 million, securitizing the royalties from a pool of 107 invention patents and 37 utility patents held by 11 high-tech companies in the Guangzhou Development District (the “Guangzhou Deal”).
The Guangzhou Deal is the 3rd IP securitization deal in a row and the first of its kind. The previous two deals were backed up by royalties from copyrights and various kinds of IPs, including copyrights, trademarks, and patents. The Guangzhou Deal is unique in that it is solely backed up by patent royalties.
This is a break-through deal because it is more difficult to evaluate a patent than other kinds of IP. The Guangzhou Deal also demonstrates that the development of the financial industry, the quality of patents, and the market appetite for IP securitization have all reached new levels in China.
The Guangzhou Deal, with other ground-breaking securitization deals in 2019, undoubtedly reveals a new era of IP monetization in China.
While the Guangzhou Deal is indeed a milestone, the Chinese market saw its first IP securitization deal in early 2019. The structure of the first deal creatively resolved long-standing issues in IP valuation and paved the way for the Guangzhou Deal along with many other IP securitization deals later in the year and into 2020.
According to statistics from China National Intellectual Property Law Association (CNIPA), the total confirmed amount of patent and trademark pledge financing in 2020 reached 218 billion, showing an annual rate of growth of 43.9%. The number of pledges amounted to 12,093, showing an annual rate of growth of 43.8%. “Both figures indicate that, last year, patent and trademark pledge financing gained the largest increase during the 13th Five-Year Plan period.”
Earlier this year, on April 30, 2021, the first intellectual property securitization deal through patent licensing in Beijing was approved by the Shenzhen Stock Exchange (SSE), valued at 1 billion yuan. In 2020, the “IP Financing Guarantee” program provided 31 new guarantees worth 55.9 million yuan, an average of 1.8 million yuan per firm.
A report by Questel, an intellectual property solutions provider, shows that out of the 100,000 filed patents in Deep Learning since 2011, ¾ of these originated from China, whereas only 10% of these from the United States. South Korea and Japan followed behind at 5.5% and 1.7% of global patenting activities, respectively. Interestingly enough, many of these patent-filing entities are only interested in filing in the domestic market – more than 99% of these Chinese inventions are protected only in China. On the other hand, more than 50% of American inventions are also protected in at least one other country outside the US.
Perhaps this is because of the unique financing ecosystem in China which supports IP development or simply another example of how China’s focus is increasingly focused inwards. Nevertheless, this method of generating liquidity through IP financing will continue to be used in China to stimulate growth and development of both the economy and innovation ecosystem.