CHINESE EXPERIENCE IN TECHNOLOGY TRANSFER TO SMALL

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CHINESE EXPERIENCE IN TECHNOLOGY TRANSFER TO
SMALL MEDIUM ENERPRISES

• Professor Andy Y. SunExecutive Director, Asia
  PacificLegal Institute
• Presents to the International Conferenceon
  Technology Transfer for Small and Medium Sized
  Enterprises
• April 5, 2001 Washington, D.C.

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Presentation Outlines

• Overall Status of Technology Transfer in the
  Peoples Republic of China
• Legal Framework and Practices on Peoples
  Republic of Chinas Technology Transfer
• The Shanghai experiences
• Overall Status of Technology Transfer in Chinese
  Taipei
• Legal Framework and Practices on Chinese Taipeis
  Technology Transfer
• Conclusion

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Overall Status on Technology Transfer in the
Peoples Republic of China

• Government is still the largest RD sponsor
• Governments turning around in the 1990s
• Hybrid of market and planned economy A
  reflection of patriarchic rule
• Robotic development yet still with rather heavy
  bureaucratic entanglement
• Enormous potential for SMEs yet requires patience
  and cultivation

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PRCs Tech Transfer Framework

• 1993 Science and Technology Progress Law tune
  setting and general policy layout
• 1996 Science and technological achievements
  Conversion Enhancement Law the real basic law
• Is technological achievements conversion a
  euphemism for patent and know-how
  commercialization? It appears YES (Patent
  right is alienable. See Article 10, Patent Law).
• Enterprises may independently or collaborate
  with other foreign enterprises or entities in
  jointly transferring technologies. ( 11)
• It is the national policy to encourage
  collaboration between research or higher
  education institutions and enterprises ( 12)

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PRCs Tech Transfer Framework

• 1996 Science and technological achievements
  Conversion Enhancement Law (contd)
• The inventors/collaborators may themselves step
  into the process and enjoy certain rights based
  on the licensing agreement should their
  institutions/entities fail to do so ( 14)
• The government sanctions the formation of
  technology transfer exchanges which will provide
  information and consultation services to
  facilitate technology transfer ( 17) Although
  these exchanges must be licensed, there may
  already be a sign of favoritism to
  government-sponsored such agencies.

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PRCs Tech Transfer Framework

• 1996 Science and technological achievements
  Conversion Enhancement Law (contd)
• Set-aside funds from the states science and
  technology budget, fix capital investment and
  technology improvement be devoted to technology
  transfer, primarily on start-up/angel funds,
  subsidy to cover loan interests, and venture
  capitals ( 21).
• Tax preferences ( 22).
• Loan preferences ( 23).
• Creation of databases for technology transfer (
  24).

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PRCs Tech Transfer Framework

• 1996 Science and technological achievements
  Conversion Enhancement Law (contd)
• Right of ownership ( 26) In the event no
  contract or agreement provision is provided,
• Anything other than new inventions goes to the
  entity which make the technological achievement
• Rights related to a new invention are jointly
  owned by collaborating entities.
• With agreement from all other parties, each may
  individually engage in technology transfer.
• Duty of confidentiality for all parties
  concerned, including the technology transfer
  exchange ( 27).

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PRCs Tech Transfer Framework

• 1996 Science and technological achievements
  Conversion Enhancement Law (contd)
• Revenue sharing
• No less than 20 of the net revenue derived from
  a given technology transfer shall be awarded to
  those individuals who critically contribute to
  such transfer ( 29).
• If and when successfully commercialized, no less
  than 5 of the added revenue for the next 3 to 5
  years shall be awarded to those individuals for
  corporation of limited liability, this can be
  arranged in the form of equity ( 30).

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PRCs Tech Transfer Framework

• The Contract Law of the PRC implemented
  October 1, 1999.
• The Economic Contract Law, the Economic Contract
  Law Involving Foreign Interests and the
  Technology Contract Law are repelled.
• Highlights of the law concerning technology
  transfer
• Categories Technology development, technology
  transfer, technical consultancy and technical
  services ( 322).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Technology Development Contracts
• Sub-categories Technology development contracts
  are further divided into commissioned
  development contracts and cooperative
  development contracts and must be in writing.
  The provisions applicable to this type of
  contract (i.e., 330341) shall also be
  applicable, mutatis mutandis, to any contract for
  the purpose of commercialization of a
  technological achievement and having the
  potential value of industrial application (
  330).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Recession If and when the targeted technology
  in a technology development contract is made
  public by others, which render the performance of
  the contract meaningless, the parties may rescind
  the contract ( 337).
• Risks For the lack of an agreeable term and
  application of Article 61, the risks of
  technological failure shall be shared by both
  parties on a reasonable basis ( 338).
• Commissioned Works Without agreeable terms, the
  commissioned in a commissioned development has
  both the right to apply for and ownership of a
  patent. The commissioning party, however, has the
  right of first transfer and may freely exploit
  the patent ( 339).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Right of First Use and License For technical
  know-how or other trade secrets, in the absence
  of agreeable terms or if the terms are ambiguous,
  either party has the right to use and transfer,
  but the commissioning has the right of first
  notice and transfer ( 341).
• Technology Transfer Contracts
• Sub-categories Technology transfer contracts are
  further divided into patent transfer, patent
  application transfer, technical
  secrets/know-how transfer and patent licensing
  and exploitation. They must all be in writing
  ( 342).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Technology Transfer Contracts
• Sub-license Without agreement, no sub-license is
  permitted ( 346).
• Guarantee Clause The transferor/licensor shall
  guarantee his/her lawful ownership of the
  technology and the supplied technology is
  complete, without mistakes, effective, and
  capable of accomplishing the agreeable goal(s) (
  349).
• Liability Except agreed upon by both parties,
  the transferor/licensor is liable where the
  transferee/licensees exploitation of a patent or
  the use of know-how in accordance with the
  contract is found to have infringed upon the
  legitimate rights or interests of others ( 353).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Technology Transfer Contracts
• Acquired-after Technology Without stipulation or
  applicability of Article 61, no one has the right
  over technological improvements other than the
  party who made the improvement ( 346).
• Technology Consultancy and Service Contracts
• Sub-categories Feasibility studies,
  technological forecasts, technological
  investigations and analyses reports ( 356).
• Definition One party undertakes to solve
  specific technical problems by using its
  expertise for the other party, but does not
  include construction contracts ( 356).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Technology Consultancy and Service Contracts
• Ownership of Technical Achievement Unless agreed
  upon by the parties, the commissioned has the
  right in the course of technological achievement
  even though the data or raw materials were
  provided by the commissioning party on the
  other hand, the commissioning party has the right
  over his/her technological achievements even
  though it involves the usage of work product of
  the commissioned ( 363).

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PRCs Tech Transfer Framework

• Highlights of technology contracts (contd)
• Why these categorizations? It is critical in the
  Chinese administrative process to render a given
  contract valid and enforceable (e.g., lixiang
  and registration under Article 10 of the Patent
  Law Any assignment of the right to apply for
  a patent or the patent right, must be approved by
  the competent authority. Any assignment by a
  Chinese entity or individual of the same
  rights to a foreigner must be approved by the
  competent department concerned of the State
  Council. Where the right to apply for a patent
  or the patent right is assigned, the parties must
  conclude a written agreement, which will come
  into force only after it is registered with and
  announced by the Patent Office. ).

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PRCs Tech Transfer Framework

• Decision Concerning the Enhancement of Technology
  Innovation, Development of High Technology and
  Realization of Industrialization (State Council,
  Aug. 20, 1999)
• Organizational/System Reform The starting point
  for high-tech commercialization and
  industrialization.
• Focus Balance among market, social and state
  security demands.
• Openness Policy Expansion of reform and
  openness policy, strengthen international
  cooperation and exchange.
• Governments Role On the basis of market
  mechanism, exercises broadview adjustment and
  control authority.
• Targeted Fields Information technology,
  biotechnology, aviation, pharmaceutical
  development and oceanology.

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PRCs Tech Transfer Framework

• Decision on Technology Innovation, Development of
  High Technology and Realization of
  Industrialization (contd)
• Traditional Technology Upgrades Create added
  value on the quality of technology and a
  favorable environment for traditional industry to
  transit.
• Enhance service industry quality With emphasis
  on E-commerce and distant learning.
• Enterprises are the key Innovation capability
  and management know-how for enterprises, esp. for
  state-own enterprises.
• IndustryEducation Cooperation A portion of an
  enterprises RD budget must be set aside for
  this purpose. An enterprises RD budget is
  targeted to reach at least 5 of its annual gross
  sales.

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PRCs Tech Transfer Framework

• Decision on Technology Innovation, Development of
  High Technology and Realization of
  Industrialization (contd)
• Transformation of Research Labs 242 research
  entities on applied sciences shall first be
  transformed into corporations or technology
  exchange. Management shall be localized.
• Industrial Parks At the central level, there are
  at least 26 major industrial parks under the
  auspices of the Ministry of Science and
  Technology, with several being greatly showcased.
• Technology Exchange Services Technically
  non-governmental agencies, they shall be quickly
  formed to become a one-stop shop for management,
  technology, marketing, information, human
  resources, finance, banking, and legal services
  concerning technology development and management.

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PRCs Tech Transfer Framework

• Decision on Technology Innovation, Development of
  High Technology and Realization of
  Industrialization (contd)
• Agricultural Technology Promotion To create a
  network among universities, research labs and
  agriculture industry.
• State Financial Support Changed from entity-wide
  support to project-based support create startup
  and commercialization funds for SMEs.
• Tax Preferences No corporate tax for technology
  transfer, development or its related consultation
  or services income. Software developers pay 6 of
  the valued-added tax, plus total deduction of
  payroll expenses. Zero tax on high-tech export
  and support for the importation of advanced
  technologies or equipments.

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PRCs Tech Transfer Framework

• Decision on Technology Innovation, Development of
  High Technology and Realization of
  Industrialization (contd)
• Capital Market for Technology The banking system
  is required to reform its loan policy and
  practices to accommodate technology-based
  enterprises. The government will help to
  formulate a capital market more favorable to the
  growth of venture funds and firms.
• Human Resources More delegation to research
  laboratories on hiring and dismissals of
  personnel after transforming into being
  corporations.
• Enhancing IPR Protection National campaigns on
  public education and enforcement against piracy.

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PRCs Tech Transfer Framework

• Certain Opinions Concerning the Promotion of
  Private Technology Enterprise Development (a/k/a
  kemaoxingguo or Nation Strengthening with
  Science and Trade Notice, July 26, 1999)
• Notice Concerning Tax Issues in Implementing the
  State Councils Decision of Aug. 20, 1999
• Interim Measures on the Management of
  Enterprises Patent Works (jointly promulgated by
  State Intellectual Property Office and the State
  Economic and Trade Commission in 2000)
  applicable primarily to state-own enterprises

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PRCs Tech Transfer Framework

• Laws and regulations regarding import/export
  restrictions and liberalization measures on
  foreign trade corporations (FTCs)(gradually but
  surely)
• E.g., Research entities under the State Councils
  direct auspices or having the deputy bureau
  level status or having gross annual sales of
  US385,000 may engage in import/export in their
  own rite (1997 Joint Notice by MOFTEC and SSTC).
• Interim Measures for the Administration of Trade
  in the Importation of Technology and Equipment
  (issued by MOFTEC on March 22, 1996)
• Standard Licensing Forms offered by the China
  National technical Import Corporation
  (Techimport)

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PRCs Tech Transfer Practices

• The Shanghai Experiences leader of the pact
• Legal Basis The so-called 18 Provisions, i.e.,
  Certain Rules on the Enhancement of New and High
  Technology Achievements Conversion in Shanghai
  (revised Nov. 12, 2000).
• Organization 17 different municipal agencies now
  form a single, one-stop window for tech
  transfer-related services The Shanghai New
  Hi-Tech Services Center (SNHTSC). In addition, as
  of 1996 and 1997, the local SSTC has established
  two independent legal entities, namely, the
  Shanghai Technology Exchange and Shanghai
  Technology and Property Rights Exchange in tandem
  to SNHTSC.
• Revenue In 2000, more than 12,000 transactions
  involving US7.5 billions, a 200 growth rate
  from 1999 (Xinhua News).

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PRCs Tech Transfer Practices

• The Shanghai Experiences (contd)
• Other Official Statistics (China Technology
  Market Journal)
• Currently 8,000 private enterprises and 70 of
  the public-private joint ventures in Shanghai
  have technology development department.
• In 2000 alone, 140 technology RD centers were
  established, a growth of 30 from 1999.
• Independent, private capital contribution to RD
  amounted to US1.4 billions in 2000, a net
  increase of US200 millions.
• The one-stop service window reduces the
  administrative processing time from 3 months to
  less than 2 weeks.
• The venture capital fund has exceeded US2
  billions, with US750 millions contributed by the
  Shanghai Municipal Government.

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PRCs Tech Transfer Practices

• The Shanghai Experiences (contd)
• Other Official Statistics (contd)
• SNHTSC claimed 400 commercialization of
  technologies in 2000, with total value near
  US37.5 billions.
• The three technology exchanges have experienced
  doubt-digit growth each year since their
  inception.
• Establishment of special stock options for
  technicians A total of 30 equity may be granted
  to essential personnel.
• Methods of Operation To treat technology
  (includes patent and know how) as
  over-the-counter commodity, with
  semi-governmental sponsored intangible asset
  assessment and evaluation service unit playing a
  major role.

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PRCs Tech Transfer Practices

• The Shanghai Experiences (contd)
• Effects Other local governments are following
  the Shanghai example. In late 2000, Shengzhen
  established the first technology exchange in the
  form of a corporation in China.
• Assessment
• China is definitely more hospitable to foreign
  business to conduct licensing.
• WTO accession will not quickly crack open the
  remaining barriers.
• China has a good, solid base for basic science
  and technology RD, and is now exploring ways to
  expand its marketing skill.

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Overall Status on Technology Transfer in Chinese
Taipei (Taiwan)

• Major change in 1999 to basically adopt the U.S.
  Bayh-Dole model
• Government is still the single largest RD
  sponsor, but is in search of a new role
• Major training efforts are taking place
• Great potential and strong marketing capabilities
• Still focus on technology-based transfer, not
  patent will need time to adjust

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Taiwans Tech Transfer Framework

• 1999 Basic Science and Technology Law IPR
  derived from achievements of government sponsored
  RD projects goes to the research entity, the
  State-Owned Property Law no longer applies here
  (Article 6).
• Measures on the Ownership and Usage of
  Government-Sponsored Science and Technology
  Research and Development Achievements (Feb. 25,
  1999)
• Unless specifically identified to be state
  property, all rights and interests of technology
  research achievements belong to the research
  institutions or enterprises, and must be
  indicative as such in writing ( 3).

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Taiwans Tech Transfer Framework

• Measures on the Ownership and Usage of
  Government-Sponsored Science and Technology
  Research and Development Achievements (contd)
• Sponsoring government agency enjoys the right to
  exploit the technology achievement on a
  royalty-free, global, nonexclusive, and
  non-alienable bases. In the event the government
  contribution amounts to less than 50, the term
  of exploitation shall be determined by
  agreements ( 4).
• The title holder shall bear all responsible for
  the management and implementation of the rights
  ( 5).
• This has been a major contentious point who
  bears the costs?

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Taiwans Tech Transfer Framework

• Measures on the Ownership and Usage of
  Government-Sponsored Science and Technology
  Research and Development Achievements (contd)
• With prior approval from the sponsoring agency,
  the technology achievements may be alienable to a
  third party ( 6).
• Such alienation should be conducted in conformity
  with the following principles
• Fair, open and with reasonable consideration
• With domestic research institutions or
  enterprises being the first party and
• The use or manufacture is within the domestic
  jurisdiction.

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Taiwans Tech Transfer Framework

• Measures on the Ownership and Usage of
  Government-Sponsored Science and Technology
  Research and Development Achievements (contd)
• Income distribution In principle, income derived
  from technology transfer shall be distributed in
  accordance with the following
• If the contractor is the Academia Sinica or
  universities, 20 shall be submitted to the state
  treasury
• For other organization or research institutions,
  50 ( 9).
• Income Types May be in the form of cash, equity
  (stocks) or other interests with value ( 9).

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Taiwans Tech Transfer Framework

• Measures on the Ownership and Usage of
  Government-Sponsored Science and Technology
  Research and Development Achievements (contd)
• Income distribution A certain percentage of the
  income shall be appropriated to the inventor(s),
  research institution(s) and/or enterprise(s), yet
  no specific figure is provided ( 10).
• International Cooperation This set of rules does
  not apply, the terms shall be based upon the
  cooperation/licensing agreement ( 12).
• Other Rules Each granting government agency may
  issue its individual rules in respect to the
  alienation of IPRs another contentious area.

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Taiwans Tech Transfer Practices

• Some Statistics
• Financial Resources In 1998, the total RD
  budget in Taiwan was US5 billions, approximately
  1.9 of the GDP. Of this amount, 40 came from
  the government and 60 from the private sector.
• Uneven Spending Although the average ratio of
  RD expenditures in the Hsin-tsu Industrial Park
  exceeded 6.5, less than 2 was spent on
  island-wide manufacturing industry.
• U.S. Patent Filings With regard to the total
  number of approved foreign utility patents filing
  before the U.S. Patent and Trademark Office,
  Taiwan ranked 7th in 1997, 5th in 1998, and 3rd
  in 1999 (11,392 cases, behind Japan and Germany).

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Taiwans Tech Transfer Practices

• Some Statistics (contd)
• A Major Electronic Manufacturer In 1997, Taiwan
  reined the manufacturing of many computer-related
  products, such as palm scanner, graphic card,
  power supply, mouse, keyboard, mother board,
  monitor, sound card and desk-top scanner.
• Research Personnel Based on National Science
  Councils calculation, approximately 75,000
  individuals out of a total of 23 million
  population are conducting research works, with
  half of them working in the college or university
  environment.
• Domestic Patent Filings The Industrial
  Technology Research Institute (ITRI) is the clear
  leader of all filings. Universities are still in
  need of catching up.

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Taiwans Tech Transfer Practices

• Some Statistics (contd)
• Original Equipment Manufacture (OEM) The primary
  means of manufacturing/licensing arrangement in
  Taiwan.
• Patent Licensing Based on the IPOs statistics,
  between 1989 and 1999, only an average of 159
  licensing cases took place each year. The actual
  figures, however, should be much higher.
• RD Flowchart Traditionally colleges and
  universities have been focused more on the basic
  science research, with non-profit research
  institutions focus on applied science research
  and enterprises involve commercialization. This
  model does not function very well in todays fast
  changing industry environment. Venture capital
  firms are not really investing in high-risk,
  rudimentary technology developments.

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Taiwans Tech Transfer Practices

• Challenges
• Setting the ground rules straight Various
  government agencies are still in search of ways
  to accommodate themselves, especially what role
  it should play under the new model. Many proposed
  rules could greatly interfere with the market
  thereby create disincentives to license.
• Patent Enforcement A number of areas in the
  Patent Law and Civil/Criminal Procedure Law are
  critically in need of reform, such as the use of
  a prosecutor in resolving a private dispute.
• From Technology to Patent Oriented Licensing
  Traditionally Taiwan tends to purchase a given
  technology package without much regard to its
  patent value. Moves are underway to shift the
  practice to more patent-centered.

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Thank You

• For questions or comments, please contact
• Professor Andy Y. Sun
• Executive Director
• Asia Pacific Legal Institute
• 7046 Cradlerock Farm Court
• Columbia, MD 21043-4436
• (Office)[phone]
• (Fax)[phone]
• Website http//apli.org
• E-mail asun_at_apli.org