IP owners are changing tactics to make the most of China’s increasingly attractive monetisation opportunities

It has often been said that as US courts, legislators and lobbyists make it progressively difficult to enforce and license patents in the country, rights holders will turn their attentions to foreign markets like China in order to monetise their IP portfolios. In doing so, however, many patent owners will need to adopt different tactical approaches. Two developments in recent weeks suggest that, at least for some IP owners, this strategic shift is already in full swing.

Patent pool operator Via Licensing recently introduced changes to its pricing for licences to its Advanced Audio Coding (AAC) pool in an effort to accommodate businesses in developing countries. Under the new pricing structure, device makers in emerging markets, including China, pay an alternative rate at a 30%-36% discount on rates paid for units sold in highly developed countries. This new arrangement appears to have helped Via to land two headline Chinese licensees – Lenovo and Xiaomi – in recent months.    

On December 30 Zhejiang-based Chilwee Group announced that its subsidiary Chaowei Lvna had entered into a joint venture (JV) agreement with General Electric’s (GE) Technology Development unit to develop and sell a line of energy storage products. According to some reports, this represents a resurrection of GE’s abortive sodium ion battery business. A Chilwee regulatory filing provides some interesting detail on the technology transfer agreement between the contracting parties.

Under the terms of the deal, GE will grant the new JV company an exclusive royalty-bearing licence to certain patents and know-how that will enable it to design, manufacture and sell relevant products. In return, GE will get a $14 million lump sum payment, in addition to $1 million that it has already been paid. Moreover, the regulatory filing outlines a forward payment schedule, with GE expecting a further $63 million in accrued exclusivity payments by August 2022 under the current agreement terms. The JV company will additionally pay GE royalties for each relevant product it sells, leases or exports, with earned royalty rates set at $1.50 per kilowatt-hour on the licensed patents and $1.85 per kilowatt-hour on the know-how. Should the JV company make all of its exclusivity payments on time and develop “a viable business for the commercialisation of the licensed products”, it will also have the option to purchase the GE patents in August 2021 for $50 million.

GE has been able to monetise its patents here by tailoring a deal for Chilwee. Instead of going in hard with a stick, it has dangled a carrot by latching on the know-how crucial for building an operating business around the patents; and by giving the Chinese company an option to buy the assets farther down the line. More to the point, GE has approached its Chinese counterpart as a prospective partner with a business proposition, not as a rights holder with a legal grievance. Similarly, Via Licensing’s transparency and creation of bespoke rates for developing market businesses sends out the message that it can be a helpful partner for potential licensees, rather than simply a tax collector working on behalf of foreign rights holders.

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