Economy

The innovation economy calls for proactive growth of intellectual property by various innovation carriers – A China case

China’s innovation-driven development strategy is yielding great results, and there is a new round of planning creating very large collaborative innovation communities in the three major regions of the BeijingTianjin-Hebei Region, the Guangdong-Hong Kong-Macao Greater Bay Area, and the Yangtze River Delta Region, where a total population of 500 million reside. The development excites the authors who are practitioners in the areas of university technology transfer, venture capital investment, intellectual property, and technology in general, and have many years’ interactions with all kinds of “innovation carriers” that in our opinion will see even faster growth.

An innovation carrier, a terminology in China’s innovation theory and practices, refers to an entity that produces innovation; the most common innovation carrier is the enterprise, meanwhile the municipality, the industrial cluster, and the science and technology park each is considered by innovation researchers as an innovation carrier, too. We further consider venture capital investment funds, as well as the special case of China’s sector of the high-speed retail, as innovation carriers.

We believe that with their already innovation tremendous capacity, innovation carriers should all consider proactively growth intellectual property for themselves, because the coming economic competition will focus heavily on intellectual property and more generally, intangible assets. We also believe that the timing is right for this heightened nurturing of intellectual property because China’s innovation economy is fast becoming world’s largest by some measure.

Value is the first aspect for proactively growing IP. Innovation capacities and intellectual property are worth something, and sometimes worth a lot, which is long known to the IP industry but not quite to the general public, and fortunately the public in China got educated in 2019 by several high-profile initiatives. One is the July opening of the Sci-Tech innovAtion Board (STAR ) of the Shanghai Stock Exchange, which has the explicit purpose of registering companies that are considered high-tech, thus all observers pay much attention to a listed company’s innovation capacity and intellectual property.

Two is that in the province of Guangdong an official report in July 2019 estimates that those invention patents granted in 2018 to applicants from the province was worth 24 billion RMB. The report generates a lot of interest in the IP industry and beyond, because it is the first time in the nation (maybe in the world to our best knowledge) a monetary figure is put on such a large and diverse set of patents, and the report uses a novel “industrialization method” proposed years back by a co-author of this article.

Public educated: intellectual property can worth a lot

China’s current form of economy has a relatively short history. Readers of this article are likely familiar with a few milestones: 1978 was the Reform and Opening Up, 1992 was Deng Xiaoping’s “Southern Excursion” Talks, and 2001 was China’s accession to the World Trade Organization (WTO). The entire journey has been only four decades, and within it there have been a few major shifts.

In light of this historical background, enterprises and governments and other innovation carriers alike have had little time to understand how the economy works, and when it come to the topic of intellectual property, they have had a fast changing, compressed learning curve on intellectual property’s examination, its right, its protection, and ultimately its value to enterprises, to governments, and in general to the economy. In 2019 a string of initiatives educated the public the value of intellectual property, both at a macro-level as in for an entire province, and at a micro-level as in IP financing for individual enterprises.

We believe this education will continue, therefore decision makers in enterprises and officials in governments will continue to finesse their understanding of the value of intellectual property.

China’s innovation economy is going strong

In the much watched annual Global Innovation Index by Cornell University, INSEAD, and the World Intellectual Property Organization (WIPO), in 2018 China was ranked in the top 20 for the first time, and the upward trend continued in 2019. Also indicated by the Index is that in China there have merged an increasing number of cities of innovation.

According to the 2019 Index, among the top 100 world’s largest “science and technology clusters”, measured by locations of inventors listed in international patent applications and authors appearing in scientific journal articles, the U.S. has 1/4 of these top clusters, followed by China which has 1/5. China occupies two spots in the top 5 which are Tokyo–Yokohama, Shenzhen–Hong Kong, Seoul, Beijing, and San Jose–San Francisco, California, USA.

And compared to 2018, in 2019 almost all of the Chinese clusters moved up the ranks. Such results are not surprising to us as observers of innovation output from various countries, and we believe that one important reason is that for quite a few years China’s R&D investment has been number 2 in the world, and with the annual growth rate, China might take over the U.S. very soon if not already. We also believe that another important reason is that in China, governments plan for what to do for innovation, and learn how to do innovation.

Intellectual property bridges innovation and value

A question we have been asking is: isn’t it true that IP is valuable to every type of innovation carriers? To answer the question, we draw upon our collective understanding and practices in university technology transfer, venture capital investment, and intellectual property, and visit with the carriers. It is a pleasant coincidence that in a short few months of 2019 events showed that IP is valuable both to an entire province, and to an individual enterprise: from the “industrialization value” of tens of thousands of invention patents from an entire province, to debt financing for individual enterprises backed by IP, there is a spectrum of the ways in which IP manifest its value.

Therefore it is rational to contemplate that IP is valuable to innovation carriers in between a province and an enterprise, as in investment funds, municipalities, science and technology parks, to name a few. We observe that in China’s university technology transfer, the 40- year trajectory in recent years is becoming more IP-centric, as increasingly IP is at the center of the transfer.

We apply Paul Romer’s endogenous growth model to help understand this trajectory, and gain the understanding that it is precisely Romer’s “research sector” and “intermediary goods sector” that are becoming increasingly important in the economy, and the two sectors produce knowledge in general, and patents and designs in particular. We also recognize that China has built a strong foundation for future maturity in intellectual property, as evident by the world-leading number of patent applications in recent years, and frequent directives and funding from important government agencies and regulators.

Proactively grow intellectual property for various innovation carriers

With the above discussed facts and trends, we first take a brief, fresh look at how enterprises should grow its intellectual property, in lightof the recent developments with the STAR Board and in IP financing. To enterprises, especially those rooted in university technologies and in high-tech, or generally in “hard-core technologies”, intellectual property, especially invention patents, is a well understood topic by the CEOs.

What is new to the CEOs is that the financial market will demand both quantity and quality, which takes a company’s multi-year effort, money, and human capital to produce; the market will at some point want to know whether a company has in place internal governance that encourages an orderly and proactive growth of IP. We then take turn to report our recent proposals and discussions with various innovation carriers on the topic of proactively growing IP for themselves. Traditionally these economic actors do not own IP, however we believe the time has come that they do.

 

Author: Rongxiang Zhao, Yu Uny Cao , Xianrong Zheng, Hu Wang

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