With continual improvement of laws, regulations and relevant supporting policies in recent years, enterprises are increasingly joining hands with universities and research institutes to transform science and technology (S&T) breakthroughs and achievements into companies for a domestic stock market listing.
Supportive legislation has included the Law on Promoting the Transformation of S&T Achievements, along with Several Provisions on its implementation, and Several Opinions of Education and Science & Technology ministries on Strengthening the Transfer and Transformation of S&T Achievements of Higher Education Institutions.
In this article, with case studies, the author discusses how to effectively and compliantly migrate S&T achievements in line with relevant regulations.
TRANSFERRING TO COMPANIES
Article 16 of the Achievement Transformation Law stipulates ways to transfer S&T achievements from holders to companies, illustrated by the following domestic listing cases:
In the cases of GemPharmatech and Huaqin Technology, the issuers simply bought out relevant intellectual property rights of the higher education institutions with monetary funds.
- As in-kind investment is converted into shares, as in the cases of Hwatsing Technology and Beijing Navigation Control Technology, the higher education institutions invested their corresponding intellectual property rights into the issuers by capital contribution in-kind with S&T achievements, holding shares of the issuer.
- In the cases of Huaqin Technology and Keqian Biology, the issuers and higher education institutions realised their R&D co-operation, implementing transformation jointly through the division of R&D work and co-established R&D centres.
- Through licensing, the union of BLT and Northwestern Polytechnical University saw eight patents licensed to the issuer for use on an exclusive basis.
The author believes that although there are successful domestic listing cases of all types of transformation modes stipulated in the Achievement Transformation Law, when designing and implementing transformation schemes entities should still focus on their impact on the issuer’s independence and asset integrity.
For example, unlike transfer modes with technology ownership redefined and investment with achievements converted into shares, under the co-operative R&D mode the issuer should pay attention to its own R&D capability and core technological developments, to avoid forming dependence on the S&T achievement holder’s technology.
Under the technology licensing mode, the issuer should hold licensed exclusive rights before expiration of the patent to ensure its stable use of technology.
In practice, compliance of the transformation process of S&T achievements directly affects the definition of their ownership after transformation; and more importantly, it is of primary concern to the domestic listing audit.
According to the Achievement Transformation Law, Several Provisions, Several Opinions and other relevant documents, R&D and higher education institutions can independently decide to transfer or license their S&T achievements to others, or invest them with others as in-kind capital contribution, with no need for a separate approval or filing.
However, it is noteworthy that R&D institutions and higher education institutions have different respective examination and approval processes for transformation. In the case of Hwatsing Technology, for example, only special approval from Tsinghua University was required before Lu Xinchun’s team invested in Hwatsing Technology with intellectual property rights by way of capital contribution. While in the case of Huaqin Technology, the transfer achievements at an agreed price by BLT-Northwestern Polytechnical University underwent approval by the faculty, the university-level science and technology management department, and the state-owned assets management department.
In addition, according to the Notice of the Ministry of Finance on Further Expanding the Authorisation Scope to Promote the Transformation of S&T Achievements, for transformation of achievements involving state secrets, national security and key core technologies, the competent authorities of central R&D institutions and higher education institutions should conduct examination and approval in accordance with provisions of the relevant national secrecy system – and report it to the Ministry of Finance for filing within 15 working days from the date of approval. In the case of Beijing Navigation Control Technology, the Beijing Institute of Technology fulfilled these relevant procedures according to the above-mentioned regulations.
In this regard, it is strongly suggested that relevant entities should, in the process of transformation, carefully analyse the examination and approval procedures of R&D and higher education institutions, combined with the nature of S&T achievements, to avoid compliance obstacles, and the resulting influence on subsequent domestic listing.
Taking higher education institutions as an example, as the relevant scientific researchers possess a lot of information and skills related to these S&T achievements, they often take an office in participating companies to ensure subsequent development and iteration of those achievements in the transformation process.
In this respect, the Several Provisions and Several Opinions stipulate that scientific and technical personnel of higher education institutions, under the premise of fulfilling their job duties and completing their own work, may work part-time in companies to engage in transformation of S&T achievements with the consent of their units, or leave the units to start their own business.
In the cases of Keqian Biology and BLT, the listing audit authority inquired whether necessary approval, filing or other procedures had been completed for the post held by the relevant scientific researcher in the issuers; questioning whether the procedures complied with legal provisions, and requiring the issuers to explain whether the post held by the relevant personnel would affect issuers’ independence and stability.
Therefore, to meet domestic listing audit requirements, in the process of formulation and implementation of technology transformation schemes, prior or simultaneous written approval or confirmation documents should be obtained from the relevant scientific researcher’s unit regarding compliance of their employment with the issuer.
Wang Yan is a partner and Zhao Lihua is a paralegal at Grandway Law Offices
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