Legislative evolution of 2021 Measures
Main changes in 2021 Measures
As a subcategory of intangible assets, the value of IP rights, particularly that of patent rights, has been increasingly acknowledged by the international IP community. Monetising IP rights helps corporations, small and medium-sized enterprises and start-ups to fund research and development and fuel innovation. Patent pledges, for example, enable patentees to secure loans or financial backings from banks or other financial institutions by using their legitimately acquired patent rights as collateral. In the context of pledges, the patentee is referred to as a "pledger" and the lender as a "pledgee".
In response to the growing financing demands regarding the use of IP rights as pledges, China's State Council has proposed to improve the regime for the registration, assignment and licensing of IP rights in the 14th Five-Year Plan for the Protection and Utilisation of Intellectual Property Rights, which was promulgated on 28 October 2021.
On 15 November 2021, in light of the State Council initiative, the China National Intellectual Property Administration (CNIPA) released the amended Measures for Registration of Pledge on Patent Rights (the 2021 Measures), which took effect as of the date of its promulgation, to streamline the patent pledge procedure and provide greater clarity in practice.
Legislative evolution of 2021 Measures
China's Guarantee Law (effective from 1 October 1995 and annulled on 1 January 2021) explicitly provided that "the property right of patent right, copyright and the exclusive right to use a trademark, which could be legitimately assigned may be used as a pledge".
The Interim Measures for the Administration of Patent Pledge Contract Registration, which were promulgated on 19 September 1996 and put into effect on 1 October 1996 (the 1996 Interim Measures) fleshed out, for the first time, the details of the implementation of the aforementioned provision with regard to patents. As a prototype of the 2021 Measures, the 1996 Interim Measures provided that where a patent right is to be pledged, the pledger and the pledgee shall jointly register the pledge before the China Patent Office. The provision is applicable to Chinese entities and individuals, foreigners, foreign enterprises, as well as other foreign organisations with or without a habitual residence or business premises in China.
On 26 August 2010, the State Intellectual Property Office (the predecessor of the CNIPA) released the Measures for the Registration of Patent Pledge (the 2010 Measures), which became effective on 1 October 2010. The 2010 Measures, which superseded the 1996 Interim Measures, dropped the wording "registration of patent pledge contract" and switched to "registration of pledge on patent rights" to align with the pertinent provisions in the Property Law 2007 (annulled on 1 January 2021).
Compared with the 2010 Measures, the 2021 Measures have made substantive amendments to the provisions of articles 6, 7, 10, 11, 13, 14, 16, 19 and 22:
- In order to streamline the registration procedure, the CNIPA has lowered the documentation threshold, offering an alternative online registration route through which the parties may first submit electronic copies of the documents, provided that an undertaking is made to ensure consistency between the electronic copies and the originals, and that the originals are submitted afterwards (articles 6 and 7).
- A letter of undertaking shall be submitted when the parties go through a modification or cancellation procedure for the registration of a pledge on patent rights (articles 13 and 14). The CNIPA will conduct a random check on the authenticity of the content dictated in the undertaking, order a rectification if any inconsistencies are found and impose disciplinary measures if the parties fail to comply (article 20).
- Article 11 enumerates a few situations in which the CNIPA will honour the principle of autonomy and allow the pledge registration request of the party concerned – namely, where:
- the parties concerned are informed of the fact that a patent invalidation proceeding has been initiated against the pledged patent, yet are still willing to take the risk and continue the pledge registration process; and
- an invention patent application has been filed by the same applicant for subject matter that is identical to that of a utility model which has the same filing date as the patent for which the pledge registration is requested, the party concerned being aware of the situation and still consenting to continue the pledge registration process.
- In line with the Civil Code (effective as of 1 January 2021), the 2021 Measures also allows the registration of a patent pledge where the pledger agrees, in the pledge contract, that the pledged patent rights will be assigned to the pledgee should the pledger default on the loans upon the expiration of the agreed period, a scenario explicitly listed in the 2010 Measures that would prompt the official dismissal of the patent pledge registration request.
- The CNIPA vows to shorten the review period for pledge registration, modification and cancellation from seven working days to five working days. Further, the review period for online registration, modification and cancellation is reduced to two working days (articles 10, 13 and 14).
- The CNIPA will grant the pledger and the pledgee access to review or duplicate the pledge registration documents where such an application is reasonably justified (article 16). During the patent pledge period, the CNIPA is obliged to promptly notify the pledgee if:
- the pledged patent is declared invalid or terminated;
- the pledger fails to pay the annuity of the pledged patent within the prescribed time; or
- due to disputes arising over the ownership of the pledged patent, a request has been made to the CNIPA to stay the relevant procedures, or preservation measures have been ordered by the people's court (article 19).
The 14th Five-Year Plan for Protection and Utilisation of Intellectual Property Rights set the target of IP rights pledge financing at 218.9 billion yuan (around $34 billion) in 2020 and 320 billion yuan (around $50 billion) in 2025. The 2021 Measures are expected to lay the groundwork for patent pledging. Still, due to the difficulties in IP valuation and risk control, IP rights pledge financing will remain a viable yet arduous route to secure financial backings, at least for now.
For further information on this topic please contact Xiaoling Duan at Wanhuida Intellectual Property's Beijing office by telephone (+86 10 6892 1000) or email ([email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.