IP Exchanges in China
2020-05-16 Author：Jili Chung Editor：Vapor
As an important platform for structuring IP monetization deals, an IP Exchange may facilitate IP’s circulation and value finding. A survey by SpringIP on 30 State-owned exchanges and 10 private exchanges in China reveals their challenges and opportunities in the coming new era.
IP exchanges are important platforms for IP monetization. The Chinese government has been promoting State-sponsored IP exchanges for decades. Up to 2020, around 24 exchanges have been approved by authorities at a provincial level or above. In July 2019, SpringIP Group, an innovative company dedicated to foster enterprises’ innovation through AI and Big Data tools, conducted a survey on IP Exchanges in China and obtained the following insights.
Still a Limited Role by State-owned Exchanges
In short, these exchanges have not so far achieved their full capacity as expected. Still, new IP exchanges are being established year after year regardless of their unprofitability.
The Sources of the Constraints
The following may provide an explanation to this phenomenon:
First, these exchanges are established in lines with China’s national development plans to promote IP utilization and monetization. Like highways or railroads, they are built in anticipation for future traffic flow. Profitability in a short term may not be the key goal.
Second, these IP exchanges are vested with a public mission to monetize patents accumulated in previous years by research institutions or enterprises which were subsidized by the governments. For historical reasons, although the number of these patents is huge, their quality may not be well recognized by the market.
Third, in more developed countries sizable professional brokers are facilitating IP transactions. At this stage, in China, interdisciplinary experts who can handle both technology and business issues are still rare. The shortage of talents hampers the operations and the matching up process of the exchanges. IP exchanges are like hardware; it still needs software, i.e., the services of fine brokers, to keep the system run.
AI may be a solution to support IP exchanges and professional brokers. (See our previous article “Will AI Help Solve IP Valuation Challenges?”) But the market still needs time to fully apply AI in this field.
Private Exchanges as An Alternative?
To fill in the vacancy, private-owned IP exchanges have been entering this business since a few years ago. In May 2016, a leading private-owned IP exchange platform reported an annual transaction volume of RMB 400 million. In 2019, the number of active private-owned IP exchanges has increased to more than 14.
How might such private platforms facilitate IP monetization in the future? The following two developments are important to monitor.
First, the profit model of these private-owned IP exchanges has not been proven. Whether the business model is sustainable largely depends on public awareness and recognition of the value of their services.
Second, privately-owned IP exchanges will need a larger pool of quality IP in stock to achieve economies of scale. They need to wait for more IP to be created domestically or otherwise to import tradable IPs from other countries. Therefore, another development strategy is to equip themselves with the language and professional skills to access the global market to facilitate cross-border IP monetization transactions.
This again calls for more talents with interdisciplinary trainings and, at the same time, opens a wide area of new opportunities for the players in this market segment.
(Dr. Jili Chung is currently working in Greater China. Jili is the founder of SpringIP Group, dedicated to foster enterprises’ innovation through AI and Big Data tools. Carlo Geremia at Nctm has contributed to this article.)
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