Column • InvEstmEnt
Mind over money
Better protection of IPR in China translates into more vC funding
By Henry (Litong) Chen, Carey C. Jordan and Angel Wang
V enture capital investment in
China is on the rise. The in-
crease is due to both the coun-
try's hunger to develop new technologies
and to improvements in its intellectual
by or licensed to a high-tech target, like a
biotech or pharmaceutical venture, could
be the most important asset. Moreover,
the IP of an investment target can en-
hance and safeguard revenue for the in-
property rights (IPR) enforcement mech- vestor through the protection of patents
anisms. Over the last two decades, China and trade secrets, licensing agreements
has created an infrastructure to protect and joint-venture partnerships.
IPR, which enhances its own develop-
ment while helping the country meet its Welcome mat
international commitments. Beijing is not only encouraging the in-
In the West, VC investment in emerg- crease in VC funding through better
ing technologies is often driven by the protection of IPR, but is also actively
Henry (litong) Chen, the value of IPR. However, many Western soliciting investment through preferen-
Commissioner of the
investors are concerned that IP and in- tial policies. In a speech on November
Economic Committee of
tangible assets are not sufficiently pro- 3, 2009, Premier Wen Jiaobao said it is
the All China lawyers'
Association, is a partner
tected in China. That perception has critical to choose emerging industries
of mWE China law deterred some Western VC firms from for strategic investment using three cri-
offices, a Chinese law investing in riskier projects in China. teria: potential investment target sectors
firm based in shanghai. External pressures and the country's should be stable and promise market
E-mail: HenryChen@ own economic objectives have brought demand; they should provide economic
mwechinalaw.com. China's IPR regime closer to that of de- and technical benefits; and they should
veloped nations. Since joining the World offer an opportunity for developmental
Trade Organization (WTO) in 2001, synergies. Wen identified seven such
China has amended its IPR laws and industries in China: new energy, new
regulations in compliance with the WTO material, life science, biotechnology, in-
Agreement on Trade-Related Aspects of formation networking, ocean and space
Intellectual Property Rights (TRIPS). The development, and geological prospect-
TRIPS Agreement specifies strong mini- ing technologies. IPR is very important
mum standards for the enforcement of in each of these industries.
laws protecting copyrights, patents and In response to Wen's speech, the
trade secrets. NDRC and the Ministry of Finance
China's adherence to these regula- jointly announced a development plan
tions better align its IPR infrastructure for emerging industries that will use the
with that of other WTO countries. More state government to leverage the funds
IPR infringement cases are now brought of local governments and non-govern-
Carey C. Jordan is a before the courts (many of which now mental funds. All three entities may es-
partner in the Houston
have specialised IP divisions) or handled tablish a joint VC fund to be managed
office of global law firm
through China's administrative proce- by a professional management company
mcDermott Will & Emery.
Jordan frequently helps
dures, and IPR owners can recover dam- in which the state fund shall not have
vC companies evaluate ages from infringers. more than 20 percent and the non-gov-
technologies for potential This evolution in the protection of ernmental funds shall not have less than
investment. E-mail: IPR has reassured VC investors wishing 60 percent.
ccjordan@mwe.com. to invest in China's technologies. For VC Wen's speech and the NDRC's plan
investors, intellectual property owned have attracted much interest from non-
32 June 2010 | EuroBiz
Chinese and domestic funds. Some mation technology, biotech/health and
funds outside mainland China (includ- clean technology, areas in which IPR
ing those from Hong Kong, Taiwan and protection is a significant concern. In the
Macao) are actively planning to establish IT sector, e-commerce was the hottest.
joint venture funds with local govern- For example, 360buy.com, a B2C web-
ments. Although structuring a national- site, received €56.2 million as the larg-
level fund brings more difficulties than est investment deal in January, with the
structuring multi-regional funds, efforts total investment by Tiger Fund expected
are nevertheless progressing. to double by year-end. It has become the
As a result of these measures, VC largest financing deal in China's internet
funding in China has been increasing sector since the global financial crisis be-
rapidly. In 2009, VC funds made nearly gan.
300 renminbi-denominated investments Venture capitalists want to maximise
Angel Wang is an in China, valued at €1.05 billion. Follow- returns and minimise risks. When per-
associate of mWE China
ing interim measures for establishing in- forming due diligence, they include an
law offices.
vestment funds in Beijing that went into analysis of the technology, assessment of
E-mail: anwang@
mwechinalaw.com.
effect January 1, 2010, global private eq- market and financial risks, as well as an
uity (PE) giant Carlyle Group said it will evaluation of the IPR of the target. The
join with China's largest non-state-owned economic value of any IP must be care-
conglomerate, Fosun Group, to launch a fully weighed, and protection of the IP
€74.9 million yuan-denominated private assets for any target in China is essential.
equity fund. Any measures the Chinese government
According to Zero2IPO, 13 of 24 VC/ can take to ensure that precious IPR is
PE investments in China during January protected will go far in seeing VC invest-
2010 were in the emerging areas of infor- ments continue to rise. ■
ADS.
EuroBiz | June 2010 33