Reading Into China's Growing Patent Conversion Rate
Wang Yufeng|Tong Haidan
/SOURCE : Yicai
Reading Into China's Growing Patent Conversion Rate

(Yicai Global) April 11 – The low patent conversion rate in China, which has been widely criticized before, shows signs of bucking the trend.  An increasing number of companies are investing in patent purchases and development.

"We spent 4.5 million yuan on patent purchases past two years and we used them to develop our app," said Zhou Chengliang, head of Guangzhou-based Xiaomai Technology Co., in an interview with Yicai Global.

The company is in the middle of developing an innovative social media application, and urgently needs popular technologies such as augmented reality and facial recognition.

"It's not because that we can't develop the technology ourselves, but we need to focus on the right direction, and this is very important. We can't afford too many detours," Zhou said. He believes, acquiring patents is a shortcut and keeps us up-to-date in research and development activities and technology applications.

A Surge in Intellectual Property Trading

Invention patents filed in China exceeded one million for the first time last year. However, many of them are shelved in labs or turned out to be mere marketing hype, failing to yield any profit. But the situation now is changing.

Patent is an important aspect of the intellectual property business. Patent transactions are usually conducted through patent sales or technology transfers.

Yang Xiong, chief executive of Gaohangip.com – an intellectual property trading site in Guangdong province, told Yicai Global that their clients were mostly small- and medium-sized enterprises, and the number of patents traded on the site almost doubled and hit 6,000 last year.

Similarly, last year, wtoip.com, another online IP trading platform in Guangdong, achieved a five-fold increase in the value of patent transactions to CNY3.5 billion (USD507 million), accounting for nearly 70 percent of its total revenue, shows data provided by the company.

A considerable number of online IP trading sites emerged after 2008, especially around 2013, when Chinese exports suffered a setback caused by the global economic downturn in the wake of the financial crisis, public data indicates. Low-end exporters had a rough time back then, and desperately needed advanced technology to restructure and upgrade their products.

The Issue of Effective Use of Patents Purchased

The rapid growth of intellectual property trading is an encouraging sign, but are the patents actually used in production activities?

There might be instances where patents were bought for other purposes – application for high-tech enterprise qualification, for example, pointed out Chen Shengjie, secretary-general at Guangdong Intellectual Property Protection Association.

Indeed, the motivation behind patent purchases by many Chinese companies is questionable. Patents can help qualify them as high-tech enterprises, and may even entitle them to government subsidies.

Admitting that this is true in some cases, Zheng Ziqun, founder of wtoip.com, said, "The value of patent transactions carried out on our site is at least tens of thousands of yuan, and many patents are worth several millions. More than half of the total trading volume is generated from patents priced between CNY200,000 and several millions of yuan."

"The cheapest patents are only worth less than CNY10,000, but they don't have much value. The expensive ones are different. The highest priced patent in the world is worth billions of dollars, and the most expensive patent in China was sold for tens of millions of yuan," he explained.

"Patents priced above CNY100,000 possess good technical value, and can be commercialized. The cheaper ones would suffice to apply for high-tech enterprise qualification or government subsidies," he pointed out.

Large Corporates Are Tapping Into Idle Patent Resources

"Large companies never sell their core technology, and what can be bought from them are just supplementary techniques or technology developed in the past. But they still can be very valuable for small- and medium-sized enterprises," an employee at a Shenzhen-based major telecommunication company told Yicai Global.

"At first, R&D may cover multiple businesses. As the company grows up, it may not need some of the patented technologies previously developed. These technologies then become irrelevant to the company, but they're still very advanced in their respective fields," he stressed.

Furthermore, it makes sense for large corporates to sell idle patents, because, otherwise, they will have to spend a substantial amount of money on patent maintenance every year.

The costs of patent and certificate application are defined as initial expenses, and patent maintenance costs refer to all expenses incurred after the issuance of the patent certificate until the end of the patent protection period. The maintenance costs of a patent range between CNY2,000 to CNY6,000. Large companies usually have thousands of patents, and the maintenance expenses alone can cost them a fortune every year.

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Keywords: Patent , Intellectual Property