The late Nobel laureate in Economics, Douglass North, reviewed the rise of Western economies and pointed out that the 18th-century “Industrial Revolution” originated from a series of institutional changes in society. By the end of the 17th century, Britain had gradually established a set of institutions and laws that encouraged production efficiency, ensuring that each factor of production received a large portion of returns commensurate with its economic value. Among these changes, the development of patent systems and other intellectual property (IP) laws encouraged innovative growth. These institutional innovations not only enhanced the profitability of private economic activities but also internalized externalities, ultimately driving improvements in social efficiency and output. [1]
Today, the IP system is no longer a novelty. However, significant differences persist among regions in terms of laws, enforcement, commercialization, and even societal culture. In the context of the Fourth Industrial Revolution, the success or failure of various economies in the fierce global competition may depend on their ability to establish efficient IP systems, thereby maintaining a leading position in innovative technologies.
Hence, institutional innovation remains crucial for Hong Kong’s future economic development. Despite Hong Kong’s respectable international reputation in IP protection, it must still accelerate the progress of IP commercialization to amplify the economic benefits of the IP system. While arrangements outlined in the “National 14th Five-Year Plan” provide Hong Kong an opportunity to develop as a regional IP trading centre, the positioning and development strategies are yet to be clarified.
Considering the aforementioned points, the subsequent paragraphs will briefly introduce the worldwide progression of IP commercialization and offer recommendations for the economic development of Hong Kong, referring to the development experiences of China, the United States, and Singapore.
1. Exploring the Vast Potential of IP-intensive Industries
The global IP economy is experiencing robust growth. Data from the World Intellectual Property Organization (WIPO) indicates that the total number of global IP applications increased from 11 million in 2012 to 26 million in 2021 (see Figure 1). Additionally, data from the World Bank reveals that the total value of global IP trade rose significantly from USD 278 billion in 2012 to USD 435 billion in 2021 (see Figure 2).
Figure 1: Total IP Applications in the World, by Types (2012-2021)
Data source: WIPO statistics database (Last updated: February 2023)
Figure 2: Total Value of Global IP Trade, 2012-2021
Data source: World Bank
Meanwhile, IP has also been proven to generate significant positive externality, promoting high-quality economic growth and creating more high-quality employment opportunities. For instance, research by the United States Patent and Trademark Office[2] shows that IP-intensive industries accounted for 41% of the U.S. domestic economic output in 2019, creating 44% of employment opportunities in the country. Meanwhile, employees in IP-intensive industries had an average weekly income of USD 1,517, 60% higher than USD 947 for non-IP-intensive industries.
Research by the European Patent Office and the European Union Intellectual Property Office[3] also found that from 2017 to 2019, the average weekly cost per person in IP-intensive industries was EUR 840, nearly 41% higher than EUR 597 for non-IP-intensive industries. During the same period, IPR-intensive industries were responsible for 39.4% of all employment in the European Union, contributed to over 47% of the EU’s gross domestic product (GDP), accounting for over 75% of intra-EU trade, and over 80% of external trade, generated a trade surplus of EUR 224 billion.
The importance of patent-intensive industries to the Chinese economy is also increasing. According to data from the China National Intellectual Property Administration[4] (CNIPA), the added value of patent-intensive industries in China rose from CNY 10.7 trillion and 11.6% of GDP in 2018 to CNY 14.3 trillion and 12.44% of GDP in 2021. In 2021, patent-intensive industries created 48.7 million jobs in China, accounting for 6.52% of total employment, higher than 6.18% in 2018. Meanwhile, the annual income of workers in China’s patent-intensive industries was CNY 116,000, 10.2% higher than that of non-patent-intensive industries. The seven major patent-intensive industries, including pharmaceutical and medical, information and communication technology, and manufacturing, achieved growth rates ranging from 12.5% to 40.9%, effectively supporting high-quality economic development.
2. The Focus of IP Activities is Shifting towards the Asia-Pacific Region
With the global trends of the digital revolution, the Fourth Industrial Revolution, and the technology race, there has been significant worldwide demand for IP commercialization. Meanwhile, the focus of IP activities is shifting towards the vibrant Asia-Pacific region. Data from WIPO reveals that the total number of IP applications in the Asian region accounted for 73% of the global total in 2021 (see Figure 3). Over the past decade, from 2012 to 2021, the total number of patent applications filed by CNIPA has continued to rise. Among the top 20 IP offices worldwide in terms of patent application volume, CNIPA’s share has risen from 29% to 49% (see Figure 4).
Figure 3: Total IP Applications in the World, by Regions (2012 & 2021)
Data source: WIPO statistics database (Last updated: February 2023)
Figure 4: Patent Applications for the Top 20 IP Offices (2012-2021)
Data source: WIPO statistics database (Last updated: February 2023)
In this context, there is growing demand for a regional IP trading center in Asia. However, if Hong Kong is to seize opportunities and stand out, we also need to understand the various challenges in the IP commercialization process. Furthermore, building upon the experiences gained from other regions, we should design our development strategies based on Hong Kong’s unique strengths.
3. Challenges in Building an Ecosystem for IP Commercialization
According to interviews conducted by the author with over 20 experts in the IP ecosystem (covering areas such as creation, adoption, commercialization, trade, and professional services), the challenges of IP commercialization encompass almost all parts of the ecosystem.
- Legal Framework and Law Enforcement: A robust legal framework and effective enforcement are essential for safeguarding IP. Dealing with legal disputes related to IP often involves substantial costs. On the other hand, the lack of coordination in IP-related laws between different jurisdictions and inadequate enforcement mechanisms in certain countries complicate cross-border IP commercialization. Therefore, governments need to establish clear and consistent legal frameworks, coordinate legal system differences between various jurisdictions, ensure adequate protection for IP both locally and internationally, and explore cost-effective mechanisms, including alternative dispute resolution, to promote IP commercialization.
- Valuation Mechanism: Accurate valuation of IP is necessary but could be expensive and challenging due to the involvement of financial and technical expertise. On the other hand, considering the cross-border nature of IP transactions, third-party valuation services are often required. Therefore, governments need to collaborate with stakeholders to establish common standards for IP valuation. It would lower the costs for small and medium-sized enterprises to conduct IP valuation, making it easier to bring innovative products to market and leverage IP for financing purposes.
- Information Dissemination: Buyers and sellers of IP require accurate information to make informed investment decisions. Therefore, there is a need to establish a transparent information-sharing framework and effective transaction platforms that enable stakeholders to easily access necessary information and facilitate connections between buyers and sellers, thus reducing transaction costs.
- Risk Management: It is necessary to assess the risk of technological obsolescence and continuously monitor market changes to optimize the IP investment portfolio. Additionally, prior to acquiring or licensing any IP, it is important to manage infringement risks through due diligence and develop enforcement strategies to protect IP rights.
- Incentivization of Stakeholders: The early-stage investment costs in IP commercialization, especially in research and development, could be significant, involving substantial investments in personnel, equipment, and materials. Additionally, marketing and distribution expenses could be expensive. The government needs to encourage stakeholders’ participation through policies such as funding support and tax incentives.
4. IP Commercialization in China, the United States, and Singapore
4.1 International Trade
The United States holds a massive global IP trade and trade surplus (see Figure 5). From 2016 to 2021, the amount of IP trade for the United States ranged from USD 154.96 billion to USD 167.96 billion, and the amount of IP trade surplus increased from USD 67.85 billion to USD 81.27 billion. These figures demonstrate the dominant position of the United States in global IP trade.
Figure 5: Charges for the use of IP, receipts & payments, United States (2016-2021)
Data Source: World Bank
Singapore’s IP trade deficit has rapidly decreased (see Figure 6). From 2013 to 2022, the total value of IP payments for Singapore fluctuated with a downward trend, and the total value of IP receipts rose significantly, resulting in the IP trade deficit plummeting from USD 19.58 billion to USD 3.46 billion. Meanwhile, the overall scale of Singapore’s IP trade remained relatively stable. These figures illustrate significant progress in Singapore’s transition from an IP consumer to an IP producer country.
Figure 6: Charges for the use of IP, receipts & payments, Singapore (2013-2022)
Data Source: World Bank
China’s IP trade scale experienced continuous growth (see Figure 7). From 2016 to 2021, the total IP trade for China more than doubled, increasing from USD 25.14 billion to USD 58.59 billion. Meanwhile, IP exports climbed over ten times from USD 1.16 billion to USD 11.74 billion. However, due to simultaneous growth in IP imports from USD 23.98 billion to USD 46.85 billion, China’s IP trade deficit still rose from USD 22.82 billion to USD 35.11 billion.
The data reflects China’s rapid development in IP trade. The significant growth in both IP import and export signifies the increasing role of IP in China’s economy. The substantial growth in IP exports signifies China’s emerging prominence as a global player in IP-driven industries. However, the persistent growth of the IP trade deficit also indicates that China still has a high degree of dependence on foreign countries.
Figure 7: China’s IP Trade Import and Export Statistics, 2016-2021
Data Source: World Bank
4.2 Development Characteristics of the United States
The United States and China have distinct approaches to addressing the challenges of IP commercialization. The driving force behind IP commercialization in the United States primarily comes from the private market. On the other hand, in China, the government often takes the lead in promoting IP commercialization through top-down initiatives.
In the United States, where the private sector dominates the IP market, IAM Market and other private platforms allow patent sellers to publicly showcase their patents and engage in direct transactions with interested buyers. Additionally, the Industry Patent Purchase Program simplifies the transaction process and reduces the cost of price negotiations by setting fixed deadlines and prices.
The role of the United States government is primarily to create a favorable environment that encourages inventors, businesses, and investors to participate in IP commercial activities. For example, the United States Patent and Trademark Office (USPTO) has established the “Patents 4 Partnerships” platform, integrating information related to U.S. patents, reducing the cost of information search, and connecting technology owners with potential buyers. The USPTO has also launched the Law School Clinic Certification Program, which grants clinic law students, under the supervision of registered attorneys or agents, the authority to represent innovators to file and register patents and trademarks. This program provides a low-cost alternative for early-stage innovators to access professional legal services.
Moreover, the National IP Rights Coordination Center (IPR Center) collaborates with both public and private entities, such as Alibaba, Merck, 3M, the Motion Picture Association, the USPTO, and Europol, to combat infringement activities and safeguard IP rights in the United States.
The case of the United States demonstrates the importance of fostering an efficient IP market and highlights the crucial government role in creating a conducive environment for IP commercialization. The successful experiences of the USPTO and the IPR Center emphasize the significance of establishing robust IP institutions.
4.3 Development Characteristics of Mainland
China’s role in global IP commercialization has become increasingly important, as evidenced by its annual patent licensing volume, IP trade volume, and influence within the global Patent Cooperation Treaty (PCT) system. Driven by the demand for innovation and financing of indigenous technologies, China’s IP financing primarily focuses on cultivating small and medium-sized enterprises, as well as high-tech companies.
As a rising player, China has been vigorously promoting IP commercialization in recent years through top-down initiatives. For example, the State Council released the “Outline of Building an Intellectual Property Power (2021-2035)” in September 2021, which sets various working and development targets. One of these targets is to increase the contribution of patent-intensive industries to the country’s GDP to 13% by 2025.
While China’s capabilities in developing market-oriented financing models and implementing internationally recognized standards may be relatively weak, the Chinese government has taken proactive measures to incentivize IP commercialization. The China National Intellectual Property Administration announced its plans to establish several national-level institutions in 2022 to build an effective secondary market for IP transactions. Additionally, several provinces in China have implemented subsidy policies for IP financing, aiming to reduce costs such as loan interest rates, insurance premiums, and valuation expenses.
The Chinese government has also made efforts to strengthen legal protection for IP by establishing the Intellectual Property Court of the Supreme People’s Court and multiple specialized IP courts. Similar to practices in other regions, China has set up the Intellectual Property Dispute Mediation Committees to offer a cost-effective solution for resolving IP disputes. In Beijing, multiple professional organizations have also been established to handle internal disputes in industries such as electronics, software, and medicine.
China’s IP valuation mechanism consists of internal valuation within financial institutions and valuation services provided by independent third-party professional institutions and government-affiliated organizations. However, there are still noticeable deficiencies due to the lack of a nationwide standardized framework for intangible assets valuation, as well as a shortage of professionals and the immaturity of the secondary market for transactions.
To enhance the risk mitigation mechanism for IP commercialization, the Chinese government has provided special funds to guarantee institutions and share risks with financial institutions on a proportional basis. Another approach China has taken to reduce the financing risk of IP is requiring a basket of assets as collateral. This basket can consist of tangible and intangible assets or the bundling of IPs, such as patents, copyrights, and trademarks.
The case of China highlights the efforts made by the Chinese government in promoting IP commercialization. While China’s position in global IP commercialization is becoming increasingly important, it still faces challenges in developing a mature secondary market, implementing internationally recognized valuation standards, enforcing IP rights, and training professionals in the field. It presents ample opportunities for Hong Kong to contribute to the nation and develop into a regional hub for IP trading.
4.4 Development Characteristics of Singapore
Singapore has positioned itself as a leading international hub for IP trade through government-led initiatives and substantial investments. The Singaporean government has established efficient secondary markets for IP transactions and facilitated connectivity across the ecosystem. For instance, vibrant platforms, such as the Innovation Marketplace by Innovation Partner for Impact and the Collaborative Commerce Marketplace launched by the Agency for Science, Technology, and Research (ASTAR), connect technology providers with businesses. Additionally, the Intellectual Property Office of Singapore (IPOS) has established “Patent Prosecution Highway” arrangements with major countries, including China and the United States, to solidify its position as a global and Asian IP hub.
In addition, Singapore has actively taken measures to strengthen its legal system and talent development in the field of IP. The Singaporean government established the IP court in 2012 and released the IP court guide in 2013. In recent years, Singapore has also introduced the Copyright Act 2021 and the IP (Amendment) Bill 2021 to ensure its relevant laws keep pace with the times. Starting from April 1, 2022, the IPOS extended the “Enhanced Mediation Promotion Scheme” for three more years and renamed it the “Revised Enhanced Mediation Promotion Scheme”. The scheme provides subsidies to parties involved in litigation proceedings with the IPOS, encouraging them to choose mediation as an alternative to litigation. Furthermore, Singapore established the IP Academy in 2003 to nurture legal professionals in the field of IP.
Regarding IP valuation, Singapore adheres to the standards set by the International Valuation Standards Council. It has also tried to develop its valuation guidelines for intangible assets and IP based on the International Valuation Standard (IVS 210). Additionally, the IPOS has committed to training a group of qualified intangible asset/IP valuators. In recent years, the Singaporean government has actively encouraged companies listed on the Singapore Exchange to disclose their intangible assets. In 2020, the Singapore Exchange and IPOS jointly initiated the “Intangible Disclosure Evaluation and Audit Scheme,” providing financial support for businesses to evaluate their intangible assets. Recently, Singapore has released the “Intangible Asset Disclosure Framework,” which provides guidance to companies listed in Singapore on voluntary disclosure of relevant information about their intangible assets.
In 2021, the Singaporean government launched the “Singapore Intellectual Property Strategy 2030,” providing comprehensive support to the ecosystem. The strategy encompasses three interrelated areas：strengthening Singapore’s position as a global hub for IP, attracting and growing innovative enterprises using IP, and developing good jobs and valuable skills in IP.
The case of Singapore demonstrates the critical role of the government in fostering an IP ecosystem. It includes establishing effective secondary markets for IP transactions, maintaining up-to-date legal frameworks, promoting transparent information dissemination, and cultivating legal talent. Furthermore, the Singaporean case highlights the significance of building a comprehensive ecosystem for IP financing instead of merely offering subsidies.
4.5 Summarizing the Development Experiences of the Three Regions
While the strategies employed by the United States, China, and Singapore governments to address IP commercialization challenges may differ, we can still identify common elements within their respective frameworks. In order to build an ecosystem conducive to IP commercialization, all three economies have established effective secondary markets to promote information transparency and encourage IP transactions. Additionally, the three economies have strengthened their legal frameworks by establishing IP courts, updating laws and regulations, formulating valuation standards, and promoting mediation as a cost-effective alternative for dispute resolution.
Due to the high costs associated with registration, legal services, valuation, financing, insurance, and other IP services or products, the three countries’ governments often provide subsidies, tax incentives, or other cost-effective alternatives to stakeholders involved. Additionally, the three countries emphasize talent development and professional training. Whether through universities, industry organizations, or government initiatives, various IP-related courses and even sponsorships are offered to support the cultivation of expertise in the field.
Lastly, the three economies pursue international collaboration to strengthen their positions in the global IP arena. For example, they established the “Patent Prosecution Highway” to enhance cooperation with patent offices in different jurisdictions. It involves mutual recognition of approved patents and streamlining the examination processes.
The unique experiences of these three economies also have limitations. The thriving IP markets in the United States can be attributed to its world-class research and development capabilities, financial system, and economic scale. While allowing private players to establish platforms and brokerage firms in the market has clear benefits, it can also lead to the incentive for brokerage firms to acquire patent clusters, reducing market competition among innovative companies and potentially stifling innovation through monopolistic practices. The Chinese model, driven by government intervention, leverages the power of state-owned enterprises to ensure effective policy implementation. On the other hand, Singapore provided subsidies for IP valuation to incentivize enterprises’ participation in its IP Financing Scheme. However, the participation rate in the scheme ultimately fell below expectations, resulting in its failure in 2018.
5. Eight Recommendations to Promote IP Commercialization in Hong Kong
In recent years, the HKSAR government has made significant efforts to promote IP commercialization. For example, the government developed the “Original Grant Patent” system, facilitated the local implementation of the Madrid Protocol (the Madrid Agreement Concerning the International Registration of Marks), and introduced tax incentives through the “Patent Box” scheme. The Patent Box scheme provides tax concessions for profits sourced in Hong Kong from qualifying patents generated through R&D activities.
Despite these efforts, Hong Kong’s progress in IP commercialization has not been as satisfactory due to intense regional competition. Therefore, it is necessary to consider how to more efficiently enlarge the “cake” and mobilize stakeholders to develop Hong Kong into a regional hub for IP trade.
Hong Kong possesses a wealth of experienced and efficient professional services, a robust legal framework, a favorable business environment, and strong research and development capabilities. While drawing lessons from experiences elsewhere, it is also important to leverage Hong Kong’s advantages and explore a unique development path for the city.
Based on country case studies and interviews with over 20 stakeholders and experts in Hong Kong and Shanghai, Hong Kong could consider the following eight recommendations to enhance its ecosystem for IP commercialization:
- Using the green finance framework as a model, develop standards to encourage companies to disclose IP-related investments and projects and support enterprises using IPs as collateral for financing.
- Establish valuation criteria, use big data to provide reference prices, and provide subsidies and risk-sharing programs to reduce the cost and risk of IP valuation.
- Establish an IP stakeholder alliance to pool resources to promote the commercialization of scientific research results.
- Strengthen cooperation with the Mainland to combat infringement; encourage dispute resolution through mediation to reduce IP-related legal costs.
- Provide annual financial support and develop an IP trading platform to stimulate stakeholder participation and build an IP commercialization ecosystem.
- Collaborate with universities and international organizations to provide local courses related to IP; provide recruitment subsidies for IP-related professionals to strengthen the IP talent pool.
- Deepen cooperation with the Mainland, join the Patent Prosecution Highway, and expand the international network of IP platforms.
- The Government procures IPs in advanced industries such as life and health technology through investment funds such as the Hong Kong Growth Portfolio.
[1] North, Douglass C., and Robert Paul Thomas (1970). An Economic Theory of the Growth of the Western World. The Economic History Review, vol. 23, no. 1, 1970.
[2] U.S. Patent and Trademark Office (2022). Intellectual property and the U.S. economy. Third edition.
[3] The European Patent Office and the European Union Intellectual Property Office (2022). IPR-intensive industries and economic performance in the European Union, industry-level analysis report. Fourth edition.
[4] 中國國家知識產權局（2023）：《知識產權統計簡報》，2023年第2期。
