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China Patent Due Diligence

Due diligence is a necessary first step before embarking on any kind of business transaction and particularly important when considering entering into a long-term business relationship such as a license agreement. If you would like to do a patent due diligence in China, we advise you to retain our China Patent lawyer to do this job. Having identified one’s short- and long-term strategic objectives and how entering into a licensing agreement, whether it is to license-out technology or to license-in technology, fits into those objectives, it is imperative to engage in an exercise of due diligence. Such an exercise is the process of gathering as much information as possible on the potential licensor or licensee, the technology and other similar technologies available in the market or being developed, the market, the legal and business environment (local or international, as the case may be) and any other information that would enable the potential licensor or licensee to be better informed. The exercise must be conducted in a legitimate manner, keeping in mind one’s financial and time constraints, and undertaken within the bounds of the law.

It is difficult to prioritize or identify any one or more items of information as the most important in a due diligence exercise and it would be misleading to do so. What information is important depends on a variety of factors which vary from situation to situation. However, it may be useful to point out that in a due diligence exercise information is often sought with respect to the following: the ownership of the technology, is it proprietary and have all proper procedures been followed to ensure its protection in the relevant markets, are there any third parties claiming rights over the intellectual property asset, can it deliver, in that, will it serve to reduce costs, improve performance or deliver other identifiable benefit, do other intellectual property rights need to be acquired to fully implement the technology in question, what in fact is its economic and strategic value, in that, to what extent does it fit into and further the business objectives of the alliance?

For obtaining information on all of these areas a range of sources can be usefully consulted. These will include the following:
1. Publicly available information of publicly-traded companies.
2. Online and subscription database services for the relevant market or products.
3. Trade publications.
4. Trade and technology exhibitions, fairs and shows.
5. Technology licensing offices of research-based universities and publicly-funded research and development institutions.
6. Relevant government ministries, departments and agencies.
7. Professional and business magazines, journals and publications concerning the relevant products and markets.
8. Professional and business associations.
9. Technology exchanges.
10. Innovation centers.
11. Patent information services.

Depending on the particular field of interest and circumstances, a company will consult one or more of the above sources of
information. Of the above sources of information, patent documents as a source of business, legal and technological information are, for a variety of reasons, an underutilized source of competitive intelligence for enterprises, especially the small and medium-sized enterprises.

This is generally true of most small and medium-sized enterprises worldwide and more so in the developing and least developed countries. Therefore, in this chapter, the focus will be on explaining the reasons for using this extremely valuable source of competitive intelligence which is increasingly becoming more accessible and user friendly through the services provided by the national patent offices and by value-added private sector technological and business information service providers.


An agreement to license technology is often part of a larger business transaction, which may include agreements on a multitude of other issues that are generally linked to, but may be separate from, the agreement to license technology. The technology sought to be licensed may be protected by one or more patents, subject to copyright and/or may have been kept as a trade secret. There may be other intellectual property rights surrounding the technology, such as trademarks protecting the brand or name of the company, copyright protecting documentation, trade secrets protecting a whole host of confidential information including know-how and so on. Further, there may be a variety of other concerns relevant to the particular business relationship being formalized between the parties. All of these issues may merit different agreements or perhaps constitute different parts of a single agreement. Innovative technologies, however, are often protected by patents, given the intrinsic risk and technical difficulty of protecting technologies as trade secrets and the advantages that may be derived from patenting. In locating such technologies, identifying potential licensors and licensees and preparing for a technology licensing negotiation, consulting and researching the accumulated database of patent applications and granted patents, known as “patent information”, is useful.

What is Patent Information?

Since the patent system requires patent applicants to make public disclosure of their inventions, all inventions for which patent protection has been sought are documented, catalogued and made freely available for public consultation either 18 months after the filing of the patent application and/or immediately after the grant of the patent.National or regional patent laws require that the disclosure be made in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art in the technological field concerned. Therefore, patent documents provide more detailed information about a technology than most other publications. They are also a unique source of information, as much of the technical information contained in patent documents is never made available through any other means of publication.

Consisting of some 42 million documents published by patent offices all over the world and growing by about a million every year, patent information is the largest repository of technical information in the world. In a large number of countries, patent applications are published 18 months after the filing of the relevant patent application. This is often the earliest time that the relevant information becomes available to the public, and, even then, newly published patent applications are often the most up-to-date source of technical information in a new area of technology. Patent information encompasses every sphere of technical and scientific activity, from the simplest to the most complex of solutions to technical problems. All patent documents adhere to a unique format of bibliographic data. More than 50 different fields, eachrepresenting valuable technical or strategic/business information, are accessible for each document.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.