Chinese companies secured over $4 billion (25.4 billion yuan) of credit against patent rights in 2013, according to a report published on the website of the country’s State Intellectual Property Office. The story, which is sourced to China IP News, states that this represents year on year growth of 80% and means that credit totalling 63.8 billion yuan ($10.38 billion) has been secured against patents by Chinese entities since SIPO launched a “pilot IPR pledge financing program” in 2008.
On the face of it these are extraordinary figures and could indicate that China has reached a degree of sophistication in its understanding of patents that has enabled it to establish a system of world-leading patent-backed lending. Unfortunately, there is no detail in the report about how the scheme functions, so it is impossible to tell. However, a number of alarm bells are ringing in my ears.
I know it is a parochial thing to say, but in countries with long-established patent systems, people have been wrestling with patent-backed lending for a number of years, and they have struggled to come up with solutions that would allow patent assets to be used as collateral in any meaningful sense. Recently, the UK IP Office produced an excellent, in-depth report on the issues and challenges of such financing, as well as how these might be overcome. What is absolutely clear is that it is complicated and time consuming for non-experts to get a feel for patents and their value, and how they might be used effectively were it necessary to call them in should a debtor no longer be able to make its repayments. And to my knowledge, what applies in the UK applies in most other western countries as well.
It is true that we have seen recent initiatives around making IP-backed debt more readily available, but these have been spearheaded by people with long experience of working in IP markets and involve relatively small sums. China’s patent system is not yet 30 years old, and as the Chinese themselves have made clear , the country currently does not have a deep IP talent pool. Given that, it is hard to see how Chinese financial institutions can be in a position to make the detailed assessments of patents and other IP assets that from a western perspective would be necessary before money might be released.
On the other hand, what we do know is that the Chinese government is very focused on raising IP awareness and getting domestic companies to understand the potential that IP can release. One very obvious way of doing this is to introduce financing schemes; and given the leverage and even direct control that government has over banks and other financial institutions in China that might be relatively simple to do. Throw in targets, create incentives, set region against region, and you might begin to build something. After all, this is pretty much what has driven the explosion in patenting in the country over recent years.
If the above is more or less what has happened, there are undoubtedly going to be a lot of debts written off in the future, or a lot of patents ending up in the hands of people who will have very little idea about how to secure value from them. In western countries that would be a complete disaster for those making the loans; which takes us back to why it is currently so hard to get them in the first place. In China, though, maybe this will not matter so much. Indeed, if over the longer term the availability of patent-backed loans does increase strategic IP awareness among Chinese businesses, the fundamental goal may well be considered achieved; especially if, at the same time, a great deal of practice ends up making perfect for the country’s financial institutions so that, from their bitter early experiences, they develop methods that allow a world class system of IP financing to emerge.
Patents, IP business, IP finance, IP valuation
The spectrum of patent quality is highly skewed to the left. 2% or less of any group of patents constitute the primary value, with another 13% containing secondary, yet real, value. 85% of any patent portfolio is worth precious little. Financing schemes that incorporate these basic, yet universal metrics, can work, regardless of the confusion that seems to exist in the West.
Western "experts" often confound what can be simply expressed to secure or maintain their position as "experts."Arthur M Nutter, TAEUS International Corp on 06 Mar 2014 @ 23:41