Organizer: patent commercialization through auctions—An interview with Guo Shugui, President of CTEX

2012/9/20By Kevin Nie, China IP magazine,[Patent]

On the basis of two successful patent auctions, the autumn of 2012 will witness the third patent auction sponsored by China Technology Exchange (CTEX). CTEX’s President Guo Shugui, the representative of both the organizer and the undertaker, as well as the “general director” of the auction, accepted the interview of China IP with pleasure. Polished by repeated thinking and the happiness of success, Guo shows more confidence now.
Indissoluble bound with technology service industry
“Technology transfer was not included in my original career plan; It was purely a coincidence for me to start the career.” Guo told China IP frankly. Majored in finance, Guo worked for the government in the Office of Economic Restructuring in Beijing in his early years, mainly dealing with economic restructuring affairs, such as the restructure of research institutes and enterprises, the listing of enterprises, the reform of the property rights system of technology enterprises, the pilot project of equity incentives and so on. Guo joined the Zhongguancun Technology Property Exchange (which was later renamed as the China Beijing Equity Exchange in 2004 after mergers and restructures), and was in charge of equity registration and trusteeship of unlisted companies, research of companies’ developing strategies, dynamic analysis of the economic environment and the equity market in succession. Meanwhile, he was also responsible for intellectual property exchanges, financing of cultural creative enterprises as well as developing new modes of transactions. While working, Guo gradually realized that supports from professional service agencies were in urgent need during the process of technology transfers.
“Although I am not a scientific researcher, my work has always been connected with technology services since the beginning of my career. I may well call myself as a non-scientific-researcher in the technology field,” Guo said with a smile. “I remember that when I was just appointed to run the CTEX, I was quite intimidated, feeling the work too hard to handle. The chairman then said to me: ‘If it is easy, why appoint us to do it? All easy jobs have been well taken care of, we have no choice but to face the music,” these words awakened Guo.
Dedicate to build an independent, fair, open and efficient fourth party platform
CTEX was found in August 2009 with approval of the State Council as a national technology transaction service provider jointly established by the Beijing Municipal People’s Government, the Ministry of Science and Technology (MOST), State Intellectual Property Office (SIPO) and Chinese Academy of Sciences (CAS). Since its foundation, CTEX has been following the innovative service concept of “technology + capital + service,” and devoted itself to building the Internet Platform of the Technology Transaction, the Innovation Platform for the Technical Financing and “the Market-based Operation Platform of the Technical Policies.”
Guo once wrote an article on the background of CTEX’s establishment in which he pointed out that in the post-financial-crisis era, China’s economic development faces dual challenges: the international financial crisis and the domestic economic restructuring. Both the Chinese market mechanism and China’s innovative capability need further improvement. At present, China is fostering strategic emerging industries with great efforts while continuously increasing support for innovative enterprises, therefore the development of the technology market has to meet new and higher requirements. It requires further changes in functioning modes and innovative mechanisms of the market to boost the technological transactions and speed up the transferring of S&T achievements to productive force. CTEX is designed to satisfy the inner needs which sprang from China’s technological developments and industry upgrades. With innovation as its soul, it will innovate and practice during the process of accelerating the industrialization of technological achievements so as to develop the Zhongguancun National Innovation Demonstration Zone, a hightech Beijing and an innovative nation.
In Guo’s opinions, the goal of setting up the CTEX is to give full play to the fundamental function of technology market in allocating technology resources and therefore promotes the transfer of technological achievements through integrating and accumulating technological resources, creating new transfer mechanisms, improving the transfer modes and increasing the transaction rate.
“It was not a lack of technology market or technology transfer agencies that lead to establishment of CTEX,” explained Guo. With 30 years development of technology market, there are over 10,000 agencies that accommodate various technology transfer services. However, the market still faces common problems such as inactive transactions, financing difficulties and mismatched services, etc. But if China is not short of technological resources, capital or service providers, then how should CTEX position itself? This is the main concern of Guo and his colleagues.
CTEX functions to allocate different parties. “As a market platform, CTEX does not need to become a professional evaluation agency, an IP agency or an auction agency. Even if it dedicated itself to one of the above three fields, it has no advantages. CTEX is not a professional agency; but has advantages in gathering resources and providing comprehensive services as a platform. Just like the worldwide popular Apple Inc., which forms unique advantages by integrating hardware, software and content with commercial mechanisms, CTEX can also become a fourth party as a platform. With the guidance and support from the fifth party (relative governmental departments), CTEX can integrate the service resources (evaluation, consultation, agency service, tender, auction, etc.) of the third party agencies to provide the sellers (first party) and the buyers (second party) with low-cost, highly-efficient and comprehensive services throughout the entire process of their technological cooperation under a variety of different forms,” explained Guo.
Historically we can see that CTEX keeps developing under the attention and support of all relative parties, and gradually forms its developing mode of “3 business lines, 3 service levels, and 3 support systems.” First was the successful organization of the first patent auction in China co-sponsored with public institutes to the successful release of the “Zhongguancun Self Innovation, IP Finance and Collective Funds Trust Plan.” Then came the project of “New Cerebral Electrical Impedance Tomography” which was appraised as a “valuable first try in China,” to achieve new high transaction price set by the Longjia Tongluo Capsule (used to promoting blood circulation and removing obstruction in channels) in projects involving Chinese medicines. Another example is the establishment of it one-stop IP service platform to the transactions of national important S&T achievements guided by MOST.
It is clear that CTEX expands business field on the basis of three main lines including technology exchange, technology finance and supporting services. With the aim of being “based in Beijing, serving the entire nation, and building an international technical exchange center and market,” CTEX has made remarkable progress in the construction of the broker membership system, the IT service system, and the talent support system. Guo showed great confidence when he discussed these aspects of CTEX.
Successful practices in patent auctions
For a long time, Chinese people have been confronted with the serious gap between R&D and the industrialization of R&D achievements. How to promote the industrialization and commercialization of R&D results has been regarded as the key to future technology transactions.
“There are large amounts of distinguished scientific and technological achievements which have ended up being merely papers instead of practical productive forces. In my understandings, the values of technologies should be found in reforming and improving the traditional industries, in providing products or services and in increasing the revenues of the enterprises and the Country. Since large amounts of technological achievements are presently ‘sleeping’ in institutes, it is necessary for us to awaken the technological wealth,” Guo stated as he expressed his unique opinions on the transfer of technological achievements.
In China, there are various forms of technology transactions, including transfers, licensing, setting up companies, joint exploitation, and even mergers and acquisitions (M&A), etc. However, the transaction period is often prolonged by complicated transaction processes. At present, the majority of domestic technological transactions take the form of agreements and negotiations which are high in cost, low in efficiency and time consuming.
Traditional technology transactions often adopt one-to-one negotiations, leaving limited options to both buyers and sellers, and are criticized for the low transaction rate. In order to facilitate the efficient connection of technology and capital, and promote the commercialization of IP assets, CTEX introduced the bidding mode and attempted to achieve more technological transactions through auctions.
CTEX’s first patent auction was successfully concluded on December 16th, 2010. 28 ICT patents were sold, which amounted to approximately 3 million yuan; the transaction rate was as high as 41%. This auction demonstrated a new exploration and a new path in technological transactions. It was considered as a model case. It was the first auction where large quantities of items from China’s national scientific research institutes were made available for bidding. The auction drew wide attention and has been highly praised by the public, which in return expanded CTEX’s market.
CTEX held the second patent auction on October 27th. It was held to serve more patent obligees, meet market demands and accelerate the transaction of intangible assets. The auction adopted both online bidding and on spot bidding. A total of 16 items were transferred for a price of more than one million yuan. Over 10 bidders from Beijing Municipal and Hebei Province participated in the auction. Representatives from domestic and foreign well-known enterprises, institutes and transaction service agencies viewed the event.
Compared to the first patent auction, the second patent auction was inferior in many factors, including the volume of transactions. Social media expressed their doubts as well. Some thought that patents were suitable for auctions while others criticized it because it had few bidders when compared to something like an art works auctions. Guo thought it was normal for the two auctions to render two different results. He said that the first reason was because of the nature of patents. Patents are intangible and therefore different from traditionally auctioned items, which have direct practical usage. They are also different from art works, which could be visually appreciated. It is totally different from an object of daily consumption. Enterprises in different industries have different needs as well as objective requirements for the absorption and industrialization. “Compared with traditional tangible goods, patents could neither been seen nor been touched. As a special kind of consumption, the success of a patent auction should not be measured by the number of bidders,” said Guo.
According to reports, there have been a few events which resembled CTEX’s patent auctions in local areas, but none of them rendered good results. When asked for the reasons for the lack of success, Guo held that although auctions have been widely applied in traditional commodity circulations, patent auctions are still hard to hold because of newly emerging problems, such as due diligence, intangible asset evaluation and finding potential bidders. Guo summarized the key to the success of CTEX’s auction by stating that, “The success of CTEX’s patent auctions should be attributed to the sellers’ confidence in us and their active cooperation, as well as our joint working mechanism between technology transfer agencies, property evaluation agencies and professional auction houses.”
“Patent auction is foreign to the Chinese market and still needs confirmation in practice. When the first patent auction was held, we were prepared for the worst result.” Guo told China IP a rarely known detail: “Although at that time we had prepared for four months, the auctioneer still expressed her worries in a low voice before stepping on the auction stage. She was afraid that we might not be able to sell a single patent. I told her that we had succeeded as long as she went on that stage and announced the beginning of the auction, so there’s no need to be worried about.”
Guo said frankly: “We were not afraid of the worst results since all we wanted to accomplish was a patent auction in its true sense. The whole auction was conducted in line with marketization. There were no arrangements beyond normal procedures. All enterprises involved were truly bidding for the items.”
Service modes innovation
A patent evaluation system is critical to the whole patent auction. So what is CTEX’s consideration and operation on this issue? Guo’s answers were: “A patent, as an intangible asset, has its unique features. Patents are different from real estates which can be priced according to the location, floor, dimensions, orientations, etc. Moreover, the value of a technology not only depends on its quality, but is also affected by other factors, such as the composition of patent application, and whether or not it has been filed for a PCT patent. By far, patent evaluation still remains an unsolved problem worldwide, while the aforesaid issues have added the difficulty in setting bottom prices.”
According to Guo’s introduction, CTEX has launched a “patent appraisal system” which combines expert evaluations with systematic analysis. It also takes into consideration dozens of standards in terms of technological level, legal environment and marketoriented evaluations. Since the second patent auction, CTEX initiated online dynamic quotation to supplement on spot auctions. Two hundred patents and patent portfolios, which were unsold or not on the bidding items list of the auction, became bidding items in the China’s first online patent auction on November 6th, 2011.
“Online bidding is not bound by time or place, bidders will not be influenced by bad weather or delayed flights, etc.,” said Guo. “The idea was inspired by what happened in the first patent auction. The bidders attended the auction kept calling their companies while the senior managers made purchase decisions back in their offices. Therefore, we adopted online bidding in the second patent auction. Thus, no matter whether you were in a Tokyo office or in a London cottage, you could still participate in the auction. It saves the bidders from traveling and allows the whole decision-making team to discuss each offer and operate together in front of the computer. In the next auction, in addition to on spot auctions and online auctions, we will also set small parallel sessions across the country.”
Guo also stressed that: “Consumer experience is vital to the service industry, and the same is true of technological transaction services. When the auction closed, we should keep on paying attention to consumers’ practical experience and continue offering follow-up services. The huge success of the iPhone should be attributed to consumer experience besides its excellent innovation and designs. They kept improving their products according to consumers’ feedback.”
“A patent auction as an efficient supplement to technological transactions, offers an ordered, rapid and high-efficient transfer channel for patent and technological transactions. It also serves to meet the technological needs of enterprises, use IP resources efficiently, involve more transaction subjects to participate in technological transaction processes fairly and openly. Patent auctions need greater public understandings and support from all walks of life. CTEX will continue to be open-minded and cooperative and do its best to complete the job with the help of other parties,” said Guo.
(Translated by Monica Zhang)

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