Highlight：China’s new policy on intellectual property pledge，which will help startup firms in technology or creative industries but increase the risks for the banks.
For more innovation and settlement on fund shortages with startups in the technology and creation industry, the Guidance on Financial Support on Revitalization and Development of Culture Industry was issued on 19th March, 2010, by which the collaboration is established between the government of China and more loans to support with company culture is also demanded.
According to statistics, there has added loans of 27.6 billion Yuan to all culture industries under such mechanisms by the end of 2010. From the third quarter of 2011, China began to speed up the extensive piloting of its intellectual property pledge, and the following is the news brief related:
News 1: The government of Qingdao, a developed coastal city in Shandong province, published the Guidance on Loans to Culture Creation Industry through Copyright Pledge, and then 17 culture creation enterprises successfully obtained credit loans of 758 million Yuan in all from 12 banks by setting copyright pledges. The reports said that only the registered copyright holders can be pledged to get the loans. However, Bridge IP Commentary noticed that the standard of the loan amount decided by banks is vague.
News 2：It was reported that the first loan on the mortgage of animation images in China was approved recently in Guangzhou, a developed coastal city in China. The well-known original cartoon brand “Zhang Xiaohe” successfully got a loan of 3 million Yuan in all.
As a cartoon image rocketing in fame with the rapid development of the internet in China, “Zhang Xiaohe” represents the emerging cultural industry which has been drawing the interest of banks to explore the new methods. Before such a loan, “Zhang Xiaohe” was evaluated by an assessment company employed by the bank.
The intellectual property pledge has been regulated in Security Law as early as 1995, which says that all the transferable trademarks, patents or copyrights by law could in effect be pledged upon a written agreement and administrative registration. However, such pledges remain inapplicable in practice for the problem of operation and value assessment.
China government’s policy to support intangible asset pledges in the culture creation industry which marks the implementation of intellectual property loan system in China. The operation problem is eliminated by local regulations through the pledge scope and applicable procedure. Furthermore, the exploration on the possibility of IP pledge is encouraged for banks and IP owner through policy orientation.
But the determination of real value of intellectual property is still an unsolved and inevitable problem. The reliability and fairness of the assessment by the third party in the above news remains doubtful. Furthermore, the loan amount shall not be finally determined by the assessment report, otherwise the bank may face great risk.
As decided by its characteristic, the value of intellectual property relies more on its holder. For the requirement of technology, creativity and relative narrow distribution channel, the value of intellectual property could be directly influenced by the ability of its holder. For banks, it should be taken into consideration that the value of intellectual property is necessarily reduced when the IP holder losses their repayment ability due to management problem. And there’s must a vast devalue as transferring the intellectual property to the bank on fulfilling the pledge right. The biggest risk of full realization of IP pledge will also confront the bank.
The startups may face more risks. In U.S., their demand for funds is mainly solved by venture capital, which also operates in China while only limited to developed region. Although China government has introduced the system of intellectual property pledge to help the startups, it needs more observation on its possible influence to increase the amount of bad debts in banks.
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Editor-in-Chief of Bridge IP Commentary
Partner & Attorney-at-law of Shanghai DeBund Law Offices
Email: Bridge@chinaiplawyer.com, Tel: 8621-5213-4900,
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Bridge IP Commentary is a website focus on the introduction of commercial laws in China, especially the intellectual property laws. All the posts here are our original works. All news or cases referred here are from public reports, and our comments or analysis are of due diligence, neutrality and impartiality, representing our own opinions only. You may contact us shall you have any opinions or suggestions.
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