An initial public offering (IPO) refers to a company’s first sale of shares to public investors through a stock exchange in order to raise funds and increase the company’s visibility and transparency. For a company, going public not only provides direct financing from the capital markets and lowers financing costs, but also enhances brand image and market influence, thereby strengthening competitiveness. In addition, listing can bring a better corporate governance structure and higher managerial efficiency. For these reasons, many companies are eager to list and are sprinting toward boards such as the Main Board, the STAR Market, and ChiNext.
However, during the IPO process—especially for technology companies—core technologies and products often draw the close attention of competitors. To maintain their advantage, competitors will try every possible means to block others from listing. On the one hand, if they can derail a peer’s path to IPO financing by filing a patent infringement lawsuit, it may benefit their own room for survival; on the other hand, by exploiting the target’s desire to quickly eliminate the negative impact of litigation on the IPO, they may gain substantial benefits through settlement negotiations. These two factors make it easier for companies to be hit by intellectual property lawsuits from competitors during the IPO process.
If an IPO-bound company fails to properly resolve a patent infringement dispute, the IPO will inevitably suffer a fatal impact and may even be forced to terminate. Statistics show that, in recent years, the number of failed listings due to intellectual property issues has been increasing year by year. For example, Anhan Technology voluntarily withdrew its STAR Market application due to a patent infringement lawsuit; during its STAR Market IPO application, Zhuhai Zhirong Technology faced patent suits brought by a competitor involving nearly RMB 70 million, and 27 of Zhirong Technology’s own patents were challenged for invalidation, ultimately forcing the company to withdraw its IPO application from the Shanghai Stock Exchange.
So how should a company respond when confronted with a patent infringement dispute during the listing process? In the authors’ view, the following strategies may be adopted.
Strategy 1: Respond proactively to the patent lawsuit
When a patent dispute arises during the IPO, first analyze what type of dispute it is—generally, infringement disputes and ownership disputes are the main categories. In either case, the company should respond proactively and use legal means to safeguard its rights. For example, when Zhongheng Co., Ltd. was sued for patent infringement during its IPO, it retained attorneys to respond actively and provided the listing review authorities with analyses showing it did not infringe the plaintiff’s patented technology and that the legal risks were low, ultimately achieving a successful listing while “carrying the suit.”
Strategy 2: Initiate patent invalidation proceedings
If the dispute is a patent infringement suit, the first step is to analyze whether infringement is established. If so, the IPO company can fight back by filing a request to invalidate the patent(s) at issue. An invalidation request can weaken or eliminate the plaintiff’s patent rights foundation, thereby reducing or eliminating the company’s infringement risk. For example, in the patent dispute between Goertek and Memsensing, four utility model patents asserted by Goertek were challenged for invalidation; the China National Intellectual Property Administration declared two entirely invalid and two partially invalid. As a result, the defendant Memsensing greatly mitigated the impact of the infringement litigation on its IPO by employing the patent invalidation strategy.
Strategy 3: Settlement and licensing
A company may choose to reach a settlement with the plaintiff or pay for a patent license to quickly remove the adverse effect of the litigation on IPO review. For instance, Altenergy Power System (APS) and Tigo Energy Inc. reached a settlement concerning IP matters and related litigation, effectively avoiding impacts on the listing process.
Strategy 4: Information disclosure and communication
An IPO company should fully disclose litigation-related information and communicate effectively with regulators and investors to minimize adverse effects on the IPO process. For example, shortly after its STAR Market application was accepted, ASR Microelectronics faced six infringement suits filed by Spreadtrum Communications totaling RMB 230 million. ASR analyzed that even in the event of an adverse outcome, the impact on the company’s financial condition would be limited, and it ultimately succeeded in registering on the STAR Market.
In practice, the above strategies can proceed in parallel and be used in combination—a “comprehensive playbook” to resolve patent disputes.
The authors previously represented a client in a series of patent infringement cases that exemplify this approach. The client, a Beijing technology company and a leading enterprise in the home-appliance industry, began preparing for an IPO in 2021 to expand production, enhance R&D capabilities, and improve market competitiveness. During this period, a competitor launched three waves of patent infringement attacks—relying on more than ten invention, utility model, and design patents—by filing suits in Beijing, Hangzhou, and Guangzhou, aiming to block the company’s path to listing. To safeguard the listing process, the company retained patent counsel to address the imminent litigation. After taking the case, the team flexibly employed multiple legal tools: in some matters, they conducted detailed analyses of the accused products and actively asserted non-infringement defenses; in others, they exhaustively searched for prior art to challenge the stability of the opponent’s patent rights; in still others, they directly initiated patent invalidation proceedings against the patents in suit. Ultimately, they achieved comprehensive victories across the series and successfully invalidated six core patents of the opponent, sparing the client up to RMB 30 million in economic losses.
During the handling of these cases, the company—through its attorneys—proactively reported case developments to the listing review authorities, provided professional legal opinions, and explained potential legal risks and likely outcomes. With these litigation victories as a solid foundation, the client ultimately “carried the suits through review” and successfully listed on the Main Board of the Shenzhen Stock Exchange.
A final reminder: companies preparing to go public should embrace a preventative mindset and complete appropriate IP preparations before the IPO. First, verify whether the company’s own patent rights have defects, suffer from instability, or involve potential ownership issues. Second, conduct an infringement risk audit for the company’s products—especially the core products—to confirm there is no major risk of infringing others’ patents. If patent disputes arise during the listing process, adopt a diversified response strategy, including proactive litigation responses, patent invalidation proceedings, settlement and licensing, and thorough disclosure and communication. Through these strategies, companies can effectively reduce the impact of patent disputes on the IPO process, protect their lawful rights and interests, and ultimately achieve a successful listing.