From academy to industry: China’s new trend and policies on academic technology transfer

Chinese universities and public research institutes produce a large number of inventions. According to World Intellectual Property Organization data, four Chinese universities were listed among the top 10 patent applicants from educational institutions in 2021. However, the commercialisation of university research in China is not proportional to the massive number of patents, with less than 5% of university patents being transformed.

Collaboration with academic institutions is tricky around the world, with several special considerations needing to be considered. For China, as most of the universities and research institutes are government-funded, and university­-generated intellectual property is considered state-owned property, the most prominent issue of academic technology transfer is the concern over the improper disposal, or even loss of, state-owned property. This makes both universities and enterprises cautious when approaching industry-­academic collaboration.

In the hope of waking up silent factories of knowledge in academics, since 2015, China has issued a series of policies, known as China’s Bayh-Dole Act. The core spirit behind this act is to encourage the commercialisation of academic research by empowering universities to make independent decisions on technology transfer and on sharing profits with researchers. This article reviews recent regulations and the practice of China’s academic technology transfer, and provides suggestions on how to avoid potential pitfalls in the industry-academic collaboration.

Reforms on the academic technology transfer policies

In 2015, the revised Law on Promoting the Transformation of Scientific and Technological Achievement (PTSTA) came into force. Following this, several supporting policies and measures were implemented by government bodies, including the State Council, the Ministry of Finance and the Ministry of Education. Together, they constitute strategic legislation at the state level, giving operational guidelines on academic technology transfer.

One highlight of these reforms lies in empowering universities with the right to implement their patents.

In the past, as state-owned property, university­-generated intellectual property had been subject to the stringent regulations of government departments. Two applications and two approvals from both the Ministry of Finance and the Ministry of Education were required for university technology transfer.

From 2015, decision-making power has been given to universities and, except for those involving national secrets or interests, approval or recordation from the government is no longer required. Universities are now allowed to make their own decisions on technology transfer strategy, such as whether to commercialise through assignment, licence or technology investment; whether to have patent valuation; and how to transact (eg, by public exchange, auction or direct negotiation).

The State Council enacted the Rules for the Implementation of PTSTA in 2016, exempting university officials from decision-making responsibilities in technology transactions (with the duty of diligence being reasonably made), which was further elaborated on in the recently revised Law on Progress of Science and Technology. This provision relieves universities’ misgivings over the potential loss of state-owned property and, thus, addresses one major concern on university technology transfer.

Another issue to be addressed is profit distribution.

In the past, for service inventions, most universities followed the Rules for the Implementation of the Patent Law 2010, which stipulate a minimum inventors’ reward on a magnitude of several thousand yuan.

Now, according to the PTSTA, government-funded universities and institutes must give inventors no less than 50% of the profits resulting from the transaction, and this could be granted as a royalty or equity share. The revised Law on Progress of Science and Technology takes this one step further, allowing researchers to be entitled to the relevant intellectual property. This would further give researchers access to future benefits of the invention and may motivate them to take part in product development and commercialisation.

In addition, the Ministry of Human Resources and Social Securities issued an opinion in 2017 encouraging university faculties to participate in industrial collaboration, for example, through paid outside work or by starting a spin-off company, which further addresses researchers’ concerns on working with enterprises.

Taken together, these policies and reforms since 2015 represent the Chinese government’s positive attitude toward the commercialisation of academic research. In response, a big wave of industry-­academic collaboration has been set off.

Universities’ provisions on technology transfer

In recent years, there has been increasing enthusiasm from universities towards industrial collaboration. More and more universities have established their own technology transfer platforms and issued relevant internal policies, including specifying the procedure of evaluation and approval, building up broker teams for technology transactions and reforming regulations on paid outside work.

For example, as a leading university with a high level of innovation, Tsinghua University created the Policies on Evaluation, Disposal and Profits Distribution Relating to Scientific and Technological Achievements, detailing the stages of the technology transfer procedure, such as valuation, approval, publication and profit distribution. Briefly, prior to the transaction, the technology is required to be valued by a qualified professional institute, and the transaction must be approved by a relevant university committee. The profits from this transaction shall be distributed to the university (15%), the department to which the inventors belong (15%) and the inventors (70%). When it comes to equity shares, those from the university and relevant department shall be held by an asset management company.

In addition, the Office of Technology Licensing (OTL) of Tsinghua University has been established, overseen by an IP management committee. The OTL functions as a bridge between the university and enterprises, aiming at facilitating innovation commercialisation in a more efficient manner. As a ‘research broker’, the OTL completes a wide range of functions, including technology valuation, patent management, enterprise networking and screening, business negotiation and contract execution. In general, the OTL intends to provide a one-stop service by standing side by side with innovators during a transaction, from beginning to end.

Practice on the industrial side

Under both strategic policies at the state level and operational provisions at the university level, a significant change has been made to the industrial environment in China. An increasing number of start-up companies show up, with more and more universities behind them, through collaborations, investments and other approaches.

One method of technology transfer is technology investment, which means the university provides a company with their technology and, thus, obtains certain equity. Some of the equity shares go to the researchers as a bonus. In this way, both the universities and the researchers are able to share future income from commercialisation. It also stabilises long-term bilateral cooperation with enterprises.

An example of this is Beijing Navigation Control Technology Co Ltd (Navigation Control), which was invested in by the Beijing Institute of Technology (BIT). In 2016, BIT contributed to Navigation Control six patents and four instances of know-how and obtained a 30% equity share, with 60% (ie, 18% of the equity share) awarded to the inventors in 2018. As a result, both BIT and the inventors became stakeholders of Navigation Control.

Further, in 2017, Southwest Jiaotong University proposed a provision to jointly own service inventions with the inventors. In other words, instead of rewarding inventors with cash or equity, it is the intellectual property itself that is rewarded. This reform caused a heated debate, but was later acknowledged by the government and adopted by other universities, such as Shanghai Jiaotong University (SJTU).

In 2018, to commercialise a diabetic glycated haemoglobin developed by a faculty, the SJTU entered into a collaboration agreement with Thalys Medical Technology Group Inc to start a joint venture company. After assigning 60% of the relevant intellectual property to the inventors with a nominal price, the SJTU gave permission to the inventors to invest in the joint venture company together with the university through technology assignment. Through an equity management company, the university holds an 8% equity share, and 12% equity goes to the inventors themselves.

Another common approach is to encourage faculties to start their own businesses and to collaborate with these start-ups.

Keqian Biology Co Ltd (Keqian) is a spin-off company from Huazhong Agricultural University (HZAU). The company focuses on vaccines for animal use and was initiated by several HZAU employees. Being a stakeholder, HZAU is in close collaboration with Keqian, with HZAU taking care of the preliminary study and Keqian being in charge of the subsequent parts. The patents and marketing authorisations generated from the collaboration are jointly owned by both parties. This collaboration has lasted for years, and Keqian was listed on the Shanghai Stock Exchange Science and Technology Innovation Board in 2020.

Beyond the above, technology licensing and assignment also makes up a significant part of technology transfer. According to the Annual Report of the Transformation of Scientific and Technological Achievement in China (2020), technology assignment occupies 60% of technology transfer contracts, and the revenue therefrom makes up 35% of the total transaction revenue. On the other hand, licensing is preferred by some universities, for it leaves the universities as the right holders, thus preventing the risk of privatising state-owned property. In addition, unlike the lump sum payment brought by assignment, licensing provides universities with access to future profits from the technology through royalty payments.

Pitfalls to avoid under current policies

Although the previously stringent restraints on university patents have, to some extent, been relaxed by recent reforms, it does not change the nature of state-owned property. Therefore, while compliance is still an important consideration during university technology transfer, now it is the university’s internal provisions that matter more.

The foremost issue to remember is asset val­uation. For untested technology, there is no good way to give an appropriate valuation, and prices may deviate by orders of magnitude, making valuation a sensitive matter. Recent legislative reforms eliminate the burden by allowing the universities to decide whether to conduct a formal valuation.

In practice, most universities are cautious and stipulate a mandatory valuation step, (eg, Tsinghua University and Nanjing University), and Nanjing University even requires that, for technology assignment, the assignee pay an additional amount of money if the technology value increases within two years. Moreover, for technology investment, although not required by laws regarding technology transfer, asset valuation is still necessary according to the Corporate Law. In that case, valuation of the technology to be transferred is unavoidable and is something to be emphasised during the transaction.

Besides valuation, universities’ approval provisions on state-owned property are another important aspect to look into. According to revised state policies, transferring university intellectual property, in principle, no longer requires government approval, but there remain internal procedures to follow within the university. For example, the SJTU regulates that approval from a university office specifically managing the state-owned property is necessary for technology transfer. Therefore, when making a deal with a university, it is important to be aware of the university’s policy on state-owned property and make sure the provisions are strictly followed.

Other details to pay attention to when making a deal with universities include related-party transactions, paid outside work and limitations on licensing. For example, most universities require the disclosure of any related-party transactions, and in some universities (eg, Fudan University and Wuhan University), direct negotiation is not a preferred transaction mode in this case. Paid outside work, although generally encouraged, still needs to go through an approval procedure, and the matter of compliance should be considered in particular when university leadership is involved. For licensing, some universities have detailed provisions on certain terms. For instance, the SJTU stipulates that sublicensing is in principle discouraged when licensing a university patent.

In this regard, although university technology transfer no longer involves a cumbersome government procedure, due diligence still needs to be conducted on university provisions.

Intellectual property ownership is another aspect that must not be neglected in industry-­academic collaboration.

Theoretically, joint intellectual property ownership is not preferred due to the complexity of possible exploitation. However, in reality, co-owned intellectual property is still widely adopted. In this case, it is highly recommended to include an ownership clause in the agreement to give further clarification on, for example:

• how to implement the intellectual property;
• who decides on prosecution, maintenance and enforcement;
• how to split the costs and revenues; and
• what happens if one party doesn’t want to continue.

If it is difficult to come to an agreement upon execution, at least an effort should be made to incorporate a clause prohibiting either party from doing anything with the jointly owned intellectual property until a further agreement is reached.

For university spin-offs with faculties involved, ownership of the foreground intellectual property also needs to be taken care of. Before being listed on a capital market, several companies must be asked to specify the relationship of the companies’ founders with the universities to which they were previously employed, if there is concern of potential intellectual property ownership dispute. In this regard, it is advisable to differentiate personnel’s job responsibilities in the company from their research at the university. Most of the time, a confirmation letter from the university certifying the differences would be a more persuasive and practical way to do this.

In conclusion, in this article, we have reviewed the recent reforms in China on university research commercialisation, and we have discussed the consequent changes in the industrial environment. It is believed that, with an in-depth exploitation of the academic ‘gold mine’, both technological and economic development in China can be further boosted.