Patent Auctions: An Innovative Practice of Technical Trading Patterns

2011/05/20,By Kevin Nie, China IP,[Patent]

On December 16, 2010, after four months of intense preparation, the first patent auction by the Institute of Computing Technology of Chinese Academy of Sciences was held on the trading floor of CTEX. Seventy bid items (90 patents in total), comprising 8 patent portfolios (covering 28 patents), 38 reserve patents and 24 non-reserve patents were at auction. Representatives from more than 70 bidding enterprises participated. The auction generated a great deal of curiosity, and more than 100 observers from domestic and foreign institutions attended just to observe. After 2 hours’ intense bidding, the first large-scale patent auction was brought to a successful end. Over 28 items were sold at a cumulative price of over 2.5 million Yuan. About 40% of the items up for auction resulted in successful bids. This is nearly 15 percentage points higher than the average turnover rate of patent auctions held in developed countries with mature patent auction models.
The auction was sponsored by ICT, and co-sponsored by CTEX, Beijing Haidian Technology Transfer Center of ICT, Guoxin Xingye and Unitalen. It received extensive support and guidance from the Ministry of Science, State Intellectual Property Office, Beijing Municipal Government, Beijing Municipal Intellectual Property Office and other government departments.
According to the sponsor, the technologies covered by the patents being auctioned included intelligence information, wireless communications, integrated circuits, Internet related patents and other popular areas. As for the patents themselves, 93% were invention patents and 26% were related to standards and related systems. Time also appeared to play a significant role in the bidding. About 66% of the invention patents were granted in the past three years, 47% of the patent applications were filed in 2009, 19% in 2008 and the remaining had application dates prior to 2008.
Changes in Trading Patterns
Yu Zehui, a partner with Unitalen, told China IP“IP rights, especially patent rights, play a vital role in an enterprise’s innovation. Enterprises invest a lot of manpower and resources in innovations, and only after quite a long time can their R&D teams create an invention and produce a good technology.” Beijing Intellectual Property Office Director Liu Zhengang pointed out that patents say a great deal about a city. The number of patents reflected a city’s innovation capacities, patent quality embody a city’s competitiveness, and the realization of patent value mirrors a city’s urban operation ability.
According to Mr. Liu, the past 5 years saw Beijing’s patent applications double and the degree of excellence seen in the patent structures placed the city at top of the whole country. A great deal of diversity can be seen in how the city enables patent holders to realize the value of their patents and transactions turnovers have doubled. This fully showed that patent, as a legal privilege, has become a strategy and means for corporations, cities and nations to sharpen their competitive edge.
However, during years of IP transfer practices in China, there emerged various problems, such as asymmetry in IP information and transfer, low realization rate of patent achievements, and insufficient competency in IP utilization. These problems, to some extent, impeded the marketization of research institutes’ technical achievements. As a result, there were instances of duplications in corporate research funding, which resulted in a serious waste of resources.
“ICT files about 200 patent applications every year and has accumulated several thousand patents. All these patents have been kept in ICT for a long time, and they mean nothing before being transferred for practical use.” said Li Guojie, ICT director. He expressed his concerns, “it is a serious waste of scientific and technical resources if R&D achievements cannot be industrialized.”
According to CTEX president Guo Shugui, many Chinese research institutes, universities and colleges are currently entrusted with national research and innovation projects, from which many excellent technical achievements have been made. However, the majority of these results are sitting idly by, with the exception of some which are being used in major national projects. In contrast, private enterprises are hungry for technical upgrades and improvement of core competitive capacity so that they can emerge from the fierce market competition. It remains a pressing problem to hook up the actual needs of enterprises with the technological achievements being made in research institutions. The next stop is to translate science and technology into practical productive forces. When these two come together, research can then serve the needs of enterprises seeking to build independent innovative capacity and accelerate the transformation of economic growth.
The existing modes of technology transaction are mainly agreement transactions and negotiated transactions, which are characterized by high costs, low efficiency and long waiting periods. “One year after the establishment, ICT has a backlog of over 10,000 patents in the repository waiting for industrialization, and the traditional disposal methods certainly cost a lot,” said Guo Shugui. He further told China IP, “ICT expects to take advantage of the market-oriented auction, which provides full and publicly accessible information. The goal is to bring together supply and demand: those who can supply research with those who demand patented scientific and technological achievements. This way the two sides can meet each other’s reciprocal needs.”
Difficulties in Patent Auction
Patent auctions feature wide coverage, transparency and competitive bidding, but there are many difficulties in specific operations.
As CTEX board chairman Xiong Yan put it, patent auctions started late in China, and there were only several sporadic small-scale attempts. In other countries, technology transfers by auction started late, but have been generally accepted by the market, with increasingly more institutions adopting this approach. For example, in USA, the Ocean Tomo holds regular patent auctions, and the US NASA also transferred its patents to enterprises by auction. Also in this year, India held its first-ever patent auction. However, patent auctions are more complex than auctioning general goods or equity, and the success rate is very low. Sources from a US organization said that its success rate in auctions in November was under 10%. But patent auctions, as a market-oriented transfer of technologies, have undeniable peculiar advantages. As some media have reported, there are four issues which make patent auctions problematic: asymmetry of information, the need for follow-up support, difficulty in value assessment, and the lack of a mature agency market.
Mr. Liu Zhengang observed that patent auctions have not been effectively applied as a market-oriented model of technology transfer in China. This is because patent auctions, as a relatively new trading pattern, are not yet understood and accepted by the market. This has been exacerbated by the fact that successful auctions require participants with the requisite professionalism to deal with the complexity of the patents themselves.
Mr. Li Guojie, an academician with Chinese Academy of Engineering, emphasized specifically that patent auction is different from auction of artistic works, at which a purchase decision can be made through appreciation. Before a patent auction, every aspect of a patent should be addressed clearly at the patent presentations so that bidders may have a clear understanding of the patent.
Mr. Liang Yan, a lawyer with Unitalen, was keenly aware of this. “It is very difficult to change people’s traditional thinking and inertial thinking to accept new things. In the solicitation process, one of the thorny problems we faced was how to make as many enterprises as possible accept and participate in the new patent transfer method by auction. In addition, preparing patent documentation requires high level IP legal services. Therefore, the second difficulty is in clearly expressing the complex contents of each patent in a simple and concise professional language. It must be written so that enterprise decision-makers, who don’t understand patents, can read the contents of each patent and make informed decisions in a relatively short period of time.”
“To this end, we need to strengthen publicity efforts to enhance people’s awareness towards patent auctions in the future, continue experiments in a cautious manner to accumulate experience, and mobilize more patent rights holders to interact with potential assignees to increase transactions. Meanwhile, as a government department, we need to improve the IP rights trading environment at the policy level, and create a standardized, good faith trading atmosphere.” said Liu Zhengang.
Big Names Join Hands
A patent auction is complex and requires organizers with high professional capacity and great integration skills. According to an investigation by China IP, the sponsor and co-sponsors of the patent auction were all the best in their own fields.
Established in 1956, ICT was the first academic institution to specialize in comprehensive researches into computer science and technology in China. ICT successfully produced China’s first general-purpose digital computer, and has formed an R&D base for high-performance computer technology in China. It was also the birthplace of China’s first general-purpose CPU chip. Along with the development of disciplines and technology, a number of research units came out of ICT one after another, including the Institute of Microelectronics, the Computing Center, the Institute of Software, and Computer Network Information Center, as well as high-tech companies such as Lenovo and Dawning. By the end of 2009, ICT, as the first unit, had made 634 scientific and technological achievements and won 192 awards for science and technology at the State, academy, municipal and ministerial levels. In the patent auction, ICT demonstrated pioneering courage and magnanimity, which has been fully acknowledged by the industry.
Beijing Haidian Technology Transfer Center, a wholly-owned non-profit service organization of ICT founded in August 2004, specializes in technology transfer and transformation of technical achievements. The center takes full advantage of ICT’s superior scientific and technological resources and talents, integrates advantageous resources, establishes cross-border strategic relationships, promotes the transformation of scientific and technological achievements, helps enterprises enhance their core competitiveness, and strives to explore ways to promote cooperation between industries, universities and research institutes. The center provides ICT with services in technical certification, market validation, further development and patent protection for its technological results, and helps it seek cooperation partners in technological innovation to implement technology licensing or start a business.
Upon approval by the State Council, CTEX was jointly founded as a technology trade service organization by the Beijing Municipal People’s Government, the Ministry of Science and Technology and the State Intellectual Property Office. It is a limited liabilities company with a registered capital of 224 million yuan. The establishment of CTEX was an important step for the State to encourage technology innovation, implement IP strategies and strengthen market allocation of resources, and was an active attempt to facilitate market-oriented integration of “industries, universities and research institutes”, and innovate transformation modes of scientific and technological achievements. In the patent auction, CTEX was responsible for the overall coordination of all parties’ work, organization of tripartite cooperation, the relevant solicitation, announcement, preview, auction, publicity and other activities, and monitoring of the overall work progress.
Unitalen, one of the largest IP agencies in China, was the sole IP legal service provider for the patent auction. It is headquartered in Beijing and has offices in major Chinese cities and some foreign countries. It provided legal scrutiny of each patent to be auctioned, reviewed patent documents, wrote for business leaders patent descriptions on the basis of value analysis in line with industrial characteristics and technical backgrounds of the patents, offered legal consultations in the solicitation and auction proceedings, helped enterprises go through transfer formalities after the auction, and committed itself to provide some follow-up consulting services.
Guoxin Xingye was jointly set up by Guoxin Tendering Group Co., Ltd. and Beijing Guoxin Tendering Agent Co., Ltd., and obtained registration from the Beijing Administration for Industry and Commerce. It is a fullservice auction company and has become an A-grade member of the China Association of Auctioneers and is also a member of the China Beijing Equity Exchange, Tianjin Property Rights Exchange and many domestic equity exchange organizations. In this patent auction, Guoxin Xingye was responsible for drafting implementation plans, drafting overall publicity plans, preparing solicitation materials, object presentations and other necessary documents, publishing auction announcements and organizing the patent auction.
Li Zhonghua, assistant to CTEX president, said that the patent auction was the first public exhibition of a large number of patents by professional scientific research institutions, and was also one of the first experiments with market-oriented public bidding. It has built a market-oriented bridge between enterprises and research institutes, enabling scientific research achievements to serve the independent innovations of enterprises in a quick and effective way, and enabling science and technology to satisfy the needs of productive forces. In the process, it has erected a standardized platform for the transfer of patents, technologies and other intangible assets from research institutes, universities and other national research institutions. It put in place a joint working mechanism between technology transfer agencies, IP service providers and professional auction houses, making full use of the service and supporting roles of modern service organizations in the field of scientific researches and technologies. It took the lead in experiments with the transfer of intangible assets by research institutes and market-oriented explorations in respect thereof.
Sui Xueqing, ICT deputy director, believed that the success of the patent auction proved that auctions of patented technologies can become a useful trading supplement to the traditional technology trading methods. Its open and transparent operation mode, high market-oriented pricing mechanism and standardized trading procedures would be of great importance to the improvement of the technology trading services with Chinese characteristics.
(Translated by Wang Hongjun)

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