Teresa Huang and Eddie Shih
I. Highlights of the Draft Amendments to the MOEA Regulations Governing the Ownership and Utilization of the Results of Scientific and Technological Research and Development
The MOEA promulgated the MOEA Regulations Governing the Ownership and Utilization of the Results of Scientific and Technological Research and Development in 2000 pursuant to the authorization under Article 6, Paragraph 3 of the Fundamental Science and Technology Law to plan the implementation of scientific and technological research and development plans (hereinafter, the “Sci-tech Plans”) undertaken, commissioned or subsidized by the MOEA and its affiliated agencies with technology transfer for use to private enterprises via licensing or assignment and cash as consideration as the model for utilizing research and development results. To accommodate the continued emergence of unicorn startups valued at over US$1 billion worldwide, the Ninth Draft Amendments (hereinafter, the “Draft”), which were released on October 20, 2021, added a new dedicated chapter titled “Startups Derived from Research and Development Results” (Article 35-1 through Article 35-6 of the Draft) with a notice period ending on December 21, 2021. The amendments are highlighted below:
1. Definition of “startup”
A startup indicated in the Draft refers to (1) a company that has been incorporated for less than eight years or (2) a company determined by a Sci-tech Plan implementer (hereinafter, the “Implementer”) with a longer development or marketing period due to the characteristics of its products, services or technologies (Article 4-1 of the Draft).
2. Exemption of job responsibility for price changes after price determination
To encourage the Implementers to actively utilize the results of research and development, the personnel who handle, review or decide on the management or utilization of research and development results shall be exempt from their responsibility of implementing job for price changes after price determination if price determination is implemented in accordance with internal procedures and no violation of the law is involved (Article 35 of the Draft).
3. Application criteria of the dedicated chapter
The provisions of the dedicated chapter shall apply in principle to the Implementers who invest in the establishment of a startup and serve as the promoters with the technologies resulting from the research and development used as consideration for equity (Article 35-1 of the Draft).
4. Utilization of research and development results should be a compensated assignment in principle with no need for public announcement
If it is required to openly transfer technologies to an established company pursuant to the existing requirements, this will be unfavorable to the subsequent fundraising of a startup derived from the Implementer. In addition, if a business model for software services does not require the copyright of such software to be acquired through assignment, allowing exclusive licensing, non-exclusive licensing, or other means of utilization can better meet the gist of the Fundamental Science and Technology Law, which is not limited to the utilization of research and development results through a compensated assignment (Article 35-2 of the Draft).
5. Deregulation of the restrictions on the utilization targets or areas of research and development results
To support the startups derived from the Implementers and to accommodate the trend and need of global deployment for startups with respect to their operation and manufacturing processes, the research and development results are not required to be utilized by prioritizing the provision to domestic research institutions or enterprises for manufacture or use within the jurisdiction of the Republic of China except for the utilization in China, Hong Kong, Macau, or other area announced by the MOEA that may affect the competitive advantage of Taiwanese industries, which shall be reported to the MOEA for approval (Article 35-3 of the Draft).
6. The minimum ratio of the original shares obtained by the Implementer for establishing a startup and the requirements for external fundraising
The value of research and development results is specifically reflected in the share price. Before external fundraising is conducted, the technology shares originally obtained by the Implementer shall not account for less than 90% to prevent the research and development results from being undervalued. However, the minimum ratio restriction does not apply if approval is obtained from the MOEA. When external fundraising is conducted after incorporation, the startup shall externally disclose the fundraising information by way of public announcement (Article 35-4 of the Draft).
7. Permitted reduction by the MOEA of the ratio by which the original shares are handed over to the national treasury
To provide more incentives for the establishment of startups by the Implementers, the MOEA may, by special approval, reduce the ratio by which the share income is handed over to the national treasury (Article 35-5 of the Draft).
8. Stock incentives for personnel transferred to startups
To provide more incentives for a research and development team to commit themselves to a startup, the Implementer shall reward the personnel transferred to the startup with a certain percentage of shares and agree with them that such shares shall not be transferred for up to two years after the original shares are handed over to the national treasury pursuant to the aforementioned requirements (Article 35-6 of the Draft).
II. Matters to be subsequently observed
The agencies affiliated with the MOEA (such as the Industrial Development Bureau, IDB; the Department of Industrial Technology, DoIT) and the foundations supervised by the MOEA (such as the Industrial Technology Research Institution, ITRI; the Development Center for Biotechnology, DCB) undertake, commission, or subsidize the implementation of many Sci-tech Plans and are responsible for driving the development of industries. To accommodate the global development trend of “startup-driven innovation,” the Draft encourages the Implementers to establish startups based on research and development results by two channels, namely the optimization of processes (Article 35 through Article 35-4 of the Draft) and the increase of incentives (Article 35-5 and Article 35-6 of the Draft). It remains to be observed if a Taiwanese unicorn startup can be cultivated in addition to Gogoro and Appier.