How the Trade War is Fostering IP Monetization in China

Now the world has seen it clearly: this US-China conflict will last for decades and will re-shape a significant portion of the global social and economic order.  No one can afford to wait and see.  After dramatic soaring up and free-fall roller coaster style developments, US and China reached a first stage settlement in January 2020.  In the foreseeable future, numerous rounds of negotiations will continue along with the growth of China’s economic power.

Undoubtedly, the US-China trade conflict is now a driving force that could explain and help to predict the development of innovation regime and regulatory framework concerning IP monetization in China.

Our observation is focused on how this driving force is shaping an environment beneficial to IP monetization.

First, the awareness level of IP protection among Chinese entrepreneurs has now reached record high.  The news about the trade war and changes of business environment concerning tariff and embargo has made headlines frequently. The business community recognizes US’s demand in IP protection is a key component of this war, and thus it is ready to give more and deep thoughts on the value of IP.   

Secondly, businesses now must move upstream in the value chain. The trade war has broken the current global collaborative models in many aspects and forced numerous OEM/ODM companies in China to upgrade their operations with independent innovation — or otherwise, they will perish.  When they had choice, opportunism dragged the change.  When other options are no longer available, innovation becomes a must do.  In facing this new reality, Chinese businesses are now projecting their new position in the value chain.  This behavior change is expected to increase the volume of quality IPs, which are the fuel for IP monetization deals. 

Third, the regulatory regime is responding to the ongoing US-China negotiation pressure with more concrete rules to punish willful IP violations.  For example, according to a new regulation jointly promulgated by 38 Chinese authorities in 2018, individuals who repeatedly infringe others’ IPs or refuse to comply with IP protection judgments will be deprived of certain privileges, making them feel very inconvenient.

Under this regulation, at a business level a violator will be disqualified for certain social welfare subsidies or participation in governmental procurement. At a personal level, violators will be excluded from public transportation, such as trains or planes. The violators cannot no longer hide behind their corporate shields if they infringe other’s IPs. As a result, business decision makers are becoming more serious in respecting the value of their own or others’ IPs. 

Finally and more generally, intellectuals are forming a consensus that, at least in the IP areas, the trade war may be considered as a leverage to improve and strengthen China’s innovation regime.  Any settlement agreements with US does not necessarily contradict with China’s long-term interests.  It may just speed up the transformation along a track that China has already paved.  At top level policy makers, the merits of IP protection to economic growth is well recognized. The demands from the US, while being an unpleasant pressure, also appear to push for a change in the same direction.

All these developments are creating an environment more friendly to IP monetization. Any financial deal trying to exploit the value of IPs would prefer the underlying rights to be more stable, enforceable with more transparency, and with better quality and a larger pooling. The requirements and the dispute resolution mechanism set forth under the US-China settlement agreement signed in January 2020, and potential further developments in the coming years, are ironing many wrinkles otherwise hard to remove before and giving more greenlights to IP monetization deals.