Two Chinese public companies in May obtained credit to access loans of 80 million yuan ($12 million) and 35 million yuan ($5.2 million) from the Bank of China (BOC) and Hankou Bank Co., Ltd. by pledging their trademark and utility model patents as collateral to their creditor banks respectively under the intellectual property (IP) financing scheme China has been pushing hard in recent years.
In the Annual Guidelines for Facilitating High-Quality Development of Intellectual Property 2022 (《推动知识产权高质量发展年度工作指引（2022）》) issued by the China National Intellectual Property Administration (CNIPA) on March 21, a 10% increase in the quantity of small and medium-sized enterprises (SMEs) nationwide to gain access to affordable credit by the use of their IP assets is set as a goal to achieve this year.
The two companies utilizing pledged assets to finance are Wuhan city, Hubei province-headquartered Jointown Pharmaceutical Group Co., Ltd. (九州通医药集团股份有限公司), which was founded in 1993 and became listed on the Shanghai Stock Exchange in 2010, and Guangzhou city, Guangdong province-headquartered Guangzhou Goaland Energy Conservation Tech. Co., Ltd. (广州高澜节能技术股份有限公司), which was founded in 2001 and became listed on the ChiNext, a NASDAQ-style subsidiary of the Shenzhen Stock Exchange in 2016.
Jointown Pharma was ranked 4th on the list of China’s top 100 pharmaceutical wholesalers by operating revenue (《药品批发企业主营业务收入前100位排序》) in the 2020 edition of the annual report on the Statistical Analysis of the Pharmaceutical Wholesale and Distribution (《药品流通行业运行统计分析报告》) released by the Ministry of Commerce of the People's Republic of China (MOFCOM). The company reported operating revenue of 110.8 billion yuan ($16 billion) in 2020 to secure a market share of 4.6%. Pharmaceutical wholesale and distribution companies like Jointown Pharma specialize in offering full-line services to pharmaceutical manufacturers. The company owns over 1,000 trademarks, including the most prominent ones such as JOINTOWN, 九州通 (Jointown’s Chinese transliteration, pinyin: Jiuzhoutong, English: Nine Regions Connection), and 九州大健康 (pinyin: Jiujiu Dajiankang, English: Nine Regions Grand Health).
Goaland manufactures pure water cooling devices for power electronic equipment, owning 228 patents including 32 invention patents, 108 software copyrights, 18 Chinese trademarks and 7 international trademarks. It became a qualified supplier of General Electric in 2012 and boasts a strong clientele including the State Grid Corporation of China (SGCC), China Southern Power Grid (CSG), Siemens AG, and ABB Ltd. Goland reported operating revenue of 1.69 billion yuan ($250 million) in 2021.
Jointown Pharma hired a third-party qualified appraiser to value its two JOINTOWN trademarks before reaching out to Hankou Bank. One of the two trademarks, determined to be 160 million yuan ($24 million) according to the appraisal issued by the appraiser, was accepted by the bank as pledged collateral in exchange for credit to access a bank loan of 80 million yuan ($12 million). Goaland hired Guangzhou Unitalen Asset Appraisal Co., Ltd. (广州集佳资产评估有限公司) to evaluate its nine utility model patents and then secured credit to access a loan of 35 million yuan ($5.2 million) from the BOC by pledging them, which had been formally valued at 153.129 million yuan ($23 million) on March 22 by the appraiser, as collateral. The loan agreement the parties entered into specified the term to be one year.
The CNIPA on November 16, 2021 issued the second amendments to the Measures for the Registration of Pledge of Patent Rights (《专利权质押登记办法》), which became effective in 2010. The national financing generated with pledged IP assets including patents and trademarks amounted to 309.8 billion yuan ($46 billion), with 17,000 transactions scored between 15,000 companies, up about 42% year on year. 71.8% of the transactions involved financing under 10 million yuan ($150,000) each and were secured between 11,000 SMEs. In 2021, an information platform Creditchina.gov.cn was launched, where over 200 million corporate credit reports and all transactions closed under the IP financing scheme are made accessible and retrievable to the general public.
In the cases of Jointown Pharma and Goaland, the provincial and municipal governments of the localities where the two companies are based have offered appealing subsidies to jump-start and facilitate the transactions within a national framework of fostering IP financing. According to the Guangzhou’s policy, companies are entitled to 100% refunds of appraisal costs, performance guarantee fees, and insurance premiums stemming from pledging activities, capped at 100,000 yuan ($15,000), or 2%, 3%, and 3% of sizes of loans secured respectively, whichever is lower.
IP financing has been a mature tool adopted worldwide. Some high-profile examples of such transactions include the securitized royalty streams on the copyrights owned by famous musicians. In 1997, David Bowie issued 10-year asset-backed bonds on the basis of future royalties on publishing rights and master recordings from 25 pre-recorded albums, and raised US$55 million. The purchaser of the bonds gained the right to receive future royalties from Bowie’s albums until the principal plus 8% annual interest was repaid. Nickolas Ashford and Valerie Simpson, songwriters and producers of hit songs including “Ain’t No Mountain High Enough” used the copyright on 247 of their songs as assets to back bonds, raising US$25 million.