If you are like billions of movie goers, you spent a year looking forward to Avengers 4. Personally, as a practitioner in China’s university technology transfer, I spent the last two years looking forward to Decree 100 from the Ministry of Finance. We were hoping to see the state get behind universities that have led experiments with more efficient new ways to license patents for commercializing—but the Ministry’s tepid response in late March has instead scared schools into giving up their experiments.

If you want to invest in new technology, Chinese universities are a gold mine—even the ones you haven’t heard of. Consider Bi Yusui at Shandong University of Technology, who invented an breakthrough ozone-friendly foaming agent that was sold for RMB 500 million (about $74 million) back in 2017. That RMB 500 million payday landed Bi’s university at the very top of university technology transfer amounts in China in 2017, beating out prestigious universities such as Tsinghua, Zhejiang University and Shanghai Jiaotong.

Universities and the talent within produce a very large proportion of all inventions in China. One indicator is invention patents: universities own about 30% of all invention patents granted by China’s patent office; the equivalent US figure is 2%.

But commercializing university research remains especially difficult in China. On top of the normal issues, university-generated intellectual property is considered a state-owned asset—exposing anyone accused of undervaluing it to criminal penalties under rules on “preventing the loss of state-owned assets.”

When most state-owned assets are privatized, the law requires a formal valuation. But valuations are not appropriate for untested technology: there’s no good way to know what they’re worth, so third party companies tend to guess—or take the word of the parties for whose deal they’re supposed to be providing authoritative values.

Worse, in hindsight, prices may look wrong, sometimes by orders of magnitude. In the China context, when a piece of state-owned technology is sold at, say, RMB 1 million, but in a few years, the company that bought the technology makes billions, then some will opine it was undervalued—and, ominously, ask whether the officials who approved the deal did everything they can to “prevent the loss of state-owned assets.” People have been jailed for less.

This danger makes many universities resistant to selling or licensing patents. Especially at schools with less experience managing research, administrators drag their feet or refuse outright. At the other end of the spectrum, the best run research universities can approve commercialization in about six months, with only a couple of weeks taken up by the formal valuation—fine by global standards but not exactly “China speed.”

Reform experiments

Back in time—before 2015—university technology transfers were just like any other state asset: a piece of land, a steel mill, a brand of shoes. A university needed “Two Applications and Two Approvals”—in this case, the Ministry of Finance, which oversees state-owned assets, and the Ministry of Education, which oversees universities. It was cumbersome, but it gave officials safety.

A 2015 amendment to the law governing university technology transfers eliminated this system, empowering universities and research institutes to experiment. Many Chinese universities established technology transfer offices. The law also helped launch a new generation of technology exchange markets around the country, some of which are focused on university technologies (disclosure: the author is employed at a technology exchange market).

But the law was silent on formal valuation, dividing universities. Some used the law’s silence to simplify the process, experimenting with streamlined processes such as auctions, direction negotiations or public IP exchanges. More conservative administrators—often at smaller schools—stuck to valuations and tried to avoid them. Professor Bi in Shandong was lucky to have a vice president who was committed to licensing and made sure the process worked.

Which approach was right depends on the ultimate authority on state-owned assets: the Ministry of Finance. Since 2015 practitioners have waited to see if it would bless streamlined licensing procedures.

Disappointing sequel

At the end of March, the long anticipated decree, Number 100 (in Chinese) finally arrived, amending Interim Administrative Measures for State-owned Assets of Public Institutions. Reading the text, it seems that the Ministry hedged: it says that if IP is transferred to state-owned enterprises, valuation is no longer required; however, if transferred to “non-totally state-owned enterprises” then the transferor—the university or state-owned research institute—may decide for themselves whether valuation shall take place.

Literally, this describes the status quo. But it doesn’t give administrators who took risks any cover—and it reminds university presidents that the buck for potentially criminal valuation errors stops at their own desk. Many practitioners read the Ministry’s failure to endorse experiments as a soft warning to back off.

When some universities decided to skip valuations, they overruled internal opposition from people who were more comfortable with the wait-and-see approach. What’s happening at the ground level now is that cautious universities who stuck with valuation or chose to wait and see after the 2015 Amendment are saying “I told you so,” and those universities who skipped the valuation step are likely to bring it back, or have already done so.

The fact that valuation is not required for transfers to state-owned enterprises will lead to universities favoring them over what they see as less safe non-totally state owned enterprises—but private firms make up the vast majority of potential buyers. IP that could be most efficiently used in the private sector could wind up at SOEs instead.

The saga of university technology transfer in China continues. In the short few weeks since the decree was promulgated, practitioners have not been happy, but there are things to be busy with. For one thing, the demand for university technologies from local governments across the nation is increasing unabated because the push to upgrade local economies and manufacturing bases.

For another, the Ministry of Finance is only one of many apparatuses that matter. Policies from provincial and municipal governments also matter, because they too control purse strings. Recent buzz favors a new set of favorable policies issued in January by Guangdong Province (in Chinese) on scientific and technological innovation, which encourage the setup of non state-owned research institutes, provide favorable tax treatment for such institutes, and allow easier treatment of losses from university tech transfer. This came right before the ambitious plan announced by the central government in February for further integration of the “Greater Bay Area,” which promises to develop the area as “an international innovation and technology hub.”

Innovation, technology and money-making are not waiting. With the strong lure of China’s increasingly innovative economy, more university discoveries are certain to find their way through the valuations process to the commercial world. But fear will keep others on paper—and we may never know if a failed licensing deal could have been the next Google.

The author’s views do not represent those of the Zhejiang Intellectual Property Exchange Center.

Yu Uny Cao has been in technology management, startup and invention for over two decades. He is currently a vice president at Zhejiang Intellectual Property Exchange Center.

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