(Yicai) Oct. 23 -- The focus on intellectual property should shift from trading to commercialization, enabling businesses to generate value from patents, trademarks, and other IPs in more ways, according to Michael Lin, president of the International IP Commercialization Council.

Shifting from IP trading to IP commercialization should be the first step, while the second one should be opening up areas where people can make money from IPs in different ways, Lin, who coordinates the Asia-Pacific Financial Forum's IP Finance Working Group, told Yicai in an interview.

A US patent attorney who has worked in Asia for 30 years and has been based in Hong Kong for the past 16 years also explored the challenges of commercializing academic research, the role of valuation in IP financing, and the importance of understanding local markets when Chinese companies expand overseas.

Excerpts from the interview with Lin are below:

Yicai: You work closely with university spin-outs and scientists. What separates IPs that can attract financing from those that remain difficult to commercialize?

Michael Lin: A lot of the IPs that I see are not commercialized simply because they are too far upstream. I work with a lot of university spin-outs and professors. They're world-class scientists and know their science and technology better than anyone else. But if you're saying ‘I'm gonna use this technology, and I'm gonna cure cancer,’ that's a 25 to 35 year research project. The patent will probably expire by the time you actually get this to market, if you ever get it to market, and the failure rate is 90 percent anyway. So that is something which is very, very difficult to commercialize. It's almost impossible to get investment for.

What a lot of professors and spin-outs need to think about is: here's the 35-year end goal, but how can I make money to support my research along the way? What products or services, such as reagents, stem cell lines, or cancer cell lines, can they make and sell now to fund the next 35 years of research?

That is how you reposition the invention so you can actually attract investment and commercialize it.

Yicai: IP valuation is frequently cited as a major bottleneck in IP financing. Why do banks and investors struggle to trust IP valuations, and how can this be fixed?

Lin: I really love the valuation people. There are a lot of them. They even admit that sometimes, when they provide a valuation, the people requesting it aren't doing the right thing with it. Valuation is good for certain things, but if you use it for something else just because it's a number, you may not be using it right.

If you have a startup doing a product line like I was talking about curing cancer, the valuation is gonna be very, very low. I can take this patent and say, for a startup, it's worth HKD1 million (USD127,530), but for Sanofi or Roche, if it's going to be that one piece of IP which makes them win the court case against the other, this is worth USD200 million or USD300 million, not Hong Kong dollars.

There's a lot of misunderstanding about what valuation is and why it's being used, and I think education is a big part of it. The message is lost when you start talking to the finance people and the bankers and other people who are actually going to use the valuation for valuing this loan or something like that.

Yicai: Hong Kong has been promoting itself as a regional hub for IP for years. What conditions are needed for a mature IP financing and commercialization market to grow here?

Lin: Hong Kong has been doing this for at least since I got here, which is 16 years. But I think that the first thing they need to do is change the name. It's not IP trading they've been talking about.

Trading implies that things are of equal value. IP is by definition unique. A trademark for IIPCC, as much as I love it and think it's a great organization, doesn't have the same value as the Apple trademark, the Huawei trademark, or the Tencent trademark, since those are worth billions of US dollars. One patent is not the same as another. But to finance people, to accountants, one patent is one patent, one trademark is one trademark. They think everything is fungible, and it's not. So there's a need for education, but I also think understanding the economics of IP matters too, because again, it's not the IP, it's what you do with the IP.

That's why the IP trading hub has had such huge difficulties. For the most part, there's no secondary market in most IPs right now. The closest thing you actually have to a secondary market in IP is domain names, an open market where you can bid on them.

So the first thing I would do is change it from IP trading to IP commercialization. Then you open up a lot of different areas where people can make money from the IP in different ways. Frankly, I think that we should overcome a lot of the business bias against the term 'IP trading.' IP commercialization is much more accurate, and I think it has much broader appeal.

Yicai: As more Chinese technology and manufacturing companies expand globally, what are the biggest IP and commercialization challenges they face beyond the technology itself?

Lin: The IP itself is useless unless you're gonna do something with it. There are many things you can do with it, and they vary widely from one economy to another.

Brand recognition alone can vary sharply by market. "BMW's trademark is worth a lot in the US and in Europe, but in China they have a different name for it, which is Baoma.

It's often not just one technology, but a combination of the technology, the brand, the sourcing, the reputation of the company, the goodwill, the trade secrets. I know a lot of places where my friends say: 'Oh, we love buying Chinese products. They're higher quality than our local products.’ So they sell for a premium. Whereas in China, they're just very, very competitive with all the other Chinese products.

Chinese companies looking to expand overseas need to investigate the local market, laws, regulations, and economic conditions, then adjust their business accordingly. You could gain a huge advantage, or it could be a disadvantage if you don't understand what's going on.

Editor: Futura Costaglione