In March 2010, Suzhou Goldengreen Technologies Ltd. (hereinafter called“SGT”) had successfully completed its offering. While the public was expecting the debut of this first Organic Photo-Conductor ( OPC ) Drum research and manufacturing company to go for a Growth Enterprise Market ( GEM ) IPO, it suddenly turned out to be the first company, which failed to go public as scheduled due to inspection since the GEM, was launched on October 30, 2009. One of the reasons was that SGT had made false representations about the legal status of its relevant patents and patent applications in its prospectus, which involved a false listing.

 

 

At one point, SGT had claimed to be “the current leading enterprise featuring the largest-scale, state-of-the-art technology and strongest innovation power in the domestic OPC manufacturing industry. And it is also the only enterprise possesses a whole set of core technologies and one of the few companies that have the professional equipment system integration strength around the world.” On February 26, 2010, SGT received notice of the Approval of Suzhou Goldengreen Technologies Ltd Goes GEM IPO from the China Securities Regulatory Commission ( CSRC ), which indicated that SGT has completed the most significant step of the IPO plan.

 

However, it was little known that several patents as core technologies held by SGT had been terminated just days before. On February 24, 2010, the official website of SIPO (State Intellectual Property Office) announced that the OPC（1）-（4）four design patents of SGT were terminated,;besides, another utility technical patent related to OPC was also invalidated, the reason for terminating these technology patent rights being “not paying the annual fee of patents.”

 

The revocation date of the five patents was much earlier than the publishing date of the SGT prospectus, in other words, SGT continued to claim its patents in the prospectus although it had known the patents were cancelled by the Patent Office. It can be seen in the prospectus that this company owns many science patents and posses strong innovation superiority, but the fact is none of its patented products were authorized by the state. SGT allegedly committed fraud and against the investors.

 

After the news of expired patents had been publicized by the media, the responsible person from SGT said, “our company is applying for another core technology patent, and it would be OK to supplement some application materials.”, However, some experts stated that from the date of submission of materials to obtaining approval would be no less than 18 months. In other words, it was impossible for SGT to complete the process within a short period. To this day, the talk over SGT’s fraud continues to soar high in the market.

 

 

The GEM was designed to foster growth-oriented enterprises with innovation capabilities. Most enterprises contribute with the fruits of technology  as an investment, and the intellectual property probably accounts for a higher percentage as intangible property. Therefore, the loss of patent rights creates great damage for companies mainly relying on technology to survive and develop such as SGT. Thus, clearly stating patent information in a prospectus shall be one of the essential requirements for companies to go for a GEM IPO. But as The Guidelines on Contents and Formats for Information Disclosure by Companies that Offer Securities to the Public No. 1 – Prospectuses states, the disclosure on patents and other intellectual property mainly emphasizes the quantity and ownership; besides, there are no specific requirements on the disclosure of the description and analysis of the potential intellectual property litigation risk in the future, which is more important for the investors to better understand the GEM. The halting of SGT’s IPO was not implemented by a supervisory department until its patent technology was suspected and proven by mass media. It is thus clear that the supervision on intellectual property information is still open to questions.

 

In terms of the intellectual property risks existing in the GEM, many experts had already anticipated trouble from the beginning of the GEM listing process and have been seeking thebest possible solutions. Professor Cai Jixiang, of China University of Political Science and Law (CUPL), says that currently the standard for enterprises going for GEM issued by the securities regulatory authority in China, no matter for “the company with certain growth” or “the company with uncertain growth,” just mentions “the intangible assets as at the end of the last reporting period (after deducting land use rights, aquaculture rights, mining rights, etc.) shall not account for more than 20% of the net assets” when talking about the intangible property issue，which is considered from the perspective of traditional accounting rather than the quality (industrialization and quality) and quantity of intangible property (with intellectual property as core) as essential standards, the later one is ignored.

 

Cai Jixiang also thinks that the GEM shall hold the principle of developing regulation and innovation simultaneously in terms of intangible property. The regulations refers to regulating the behaviors of GEM listed companies, apart from the behavioral requirements for companies listed on the main board and small and medium-sized enterprise board, meanwhile, it should also consider the intangible property behavior of GEM listed enterprises. The GEM shall learn some lessons of from the main board and small and medium-sized enterprise board in terms of intangible property supervision.

 

“The intangible asset with intellectual property as core” shall be taken as the necessary access standard for companies going for GEM and the standard of review for companies listed on the GEM board, in such way to find out and promote the growth-oriented companies, which have real proprietary intellectual property and good intangible assets in both quality and quantity. Phony companies without proprietary intellectual property or even no intellectual property shall be rejected.