Brief on Intellectual Property Contribution

By Lily Gao and Richard Hoffmann, ECOVIS Beijing China

In China, normally, IP rights refer to trademark, patent, copyright and software, which are formulated under a comprehensive regime of intellectual property laws. The protection of IP rights is subject to its registration jurisdictions. The owner of the IP rights has the right to choose which jurisdiction he/she wants to use to register his/her IP products.
If a foreign investor is going to invest both cash and IP rights to set up a company within China, according to the Company law of the PRC and the specific foreign invested companies laws, it is feasible to use the IP rights to be contributed to the company. These are subject to patent, trademark and know-how only under current relevant Chinese laws.
There are two ways for foreign investor to use IPs as contributions as follows:
1) Transfer IPs to the company that shall be set up; or
2) License the IPs to the company that shall be set up;
The above option 1) is preferred by the Chinese government and feasible under current relevant Chinese laws; while the relevant Chinese laws and regulations are silent on option 2).
In practice, the commerce bureau in charge will conduct a scrutiny inspection under option 2), and sometimes the approval will be given on case-by-case basis by local governments. Per our understanding and previous experience, only IPs with all of the below mentioned characteristics will probably be approved:
1) The IP is clear of encumbrance of any kind;
2) The total license period shall be longer than the operational period of the company;
3) The exclusive license shall be provided to the company; and
4) The IPs must be evaluated by relevant asset assessment company and the written report can be issued which specifies the evaluation price of the IPs contribution;

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