HKEX Risk Disclosure for Intellectual Property Litigation Facing an Applicant

The Hong Kong Stock Exchange (HKEX) has intensified its scrutiny of intellectual property (IP) litigation risks in listing applications, a shift driven by the 2024 amendments to the Main Board Listing Rules and a spate of high-profile disputes in the biotech and tech sectors. In 2025, the SFC issued a circular on 15 March reminding sponsors of their due diligence obligations under the Code of Conduct, specifically regarding IP-related contingent liabilities. This regulatory tightening comes as 12% of all new listing applications filed in Q1 2025 disclosed ongoing IP litigation, up from 7% in the same period in 2023, according to HKEX data. For applicants facing patent, trademark, or copyright claims, the exchange now demands granular risk disclosure under Listing Rules 2.13 and 11.07, covering not only the probability of adverse outcomes but also the financial impact on revenue streams and business continuity. This article examines the specific disclosure requirements, the role of expert evidence, and the strategic implications for listing pathway selection.

The Regulatory Framework for IP Litigation Disclosure

Mandatory Disclosure Under Main Board Listing Rules

HKEX Listing Rule 11.07 requires an applicant to disclose any litigation or claim that is material to its business, including IP disputes. The 2024 amendments to the Rules, effective 1 January 2025, expanded the definition of “material” to include any IP litigation where the claimed damages exceed 5% of the applicant’s net tangible assets or where the disputed IP accounts for more than 10% of the applicant’s revenue in the most recent financial year. This threshold is lower than the previous 10% and 15% benchmarks, respectively, as confirmed in HKEX Guidance Letter HKEX-GL117-24.

For example, in the 2024 listing of a PRC-based semiconductor company, the applicant disclosed a pending patent infringement claim in the Shenzhen Intermediate People’s Court with a claimed amount of RMB 45 million, representing 6.2% of its net tangible assets of RMB 725 million. The HKEX required the sponsor to provide a legal opinion from a PRC-qualified law firm assessing the likelihood of an adverse judgment, which was included in the prospectus under the “Risk Factors” section.

Sponsor Due Diligence Obligations

Under paragraph 17.6 of the SFC Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, the sponsor must conduct reasonable due diligence on all material IP litigation. This includes verifying the status of proceedings, the validity of the IP rights in question, and the financial exposure. The SFC’s March 2025 circular on sponsor work further clarified that sponsors must obtain an independent expert report on the technical merits of the IP claims where the disputed technology is central to the applicant’s core business.

In practice, this means sponsors must commission patent validity searches from registered patent agents in the relevant jurisdiction—whether the PRC, the United States, or the European Union—and include a detailed analysis in the due diligence report. Failure to do so can result in enforcement actions; in 2023, the SFC reprimanded a sponsor for inadequate due diligence on a patent claim against a Main Board applicant, leading to a six-month suspension of its sponsor licence.

Structuring Risk Disclosure in the Prospectus

Quantifying Financial Exposure

The prospectus must present a clear, quantified analysis of the potential financial impact of IP litigation. Under HKEX Listing Rule 2.13, all risk factors must be specific and not generic. For IP litigation, this requires the applicant to disclose:

• The maximum potential damages or settlement amount, based on the claim in the litigation.
• The estimated legal costs, including expert witness fees, which can range from HKD 2 million to HKD 15 million for a complex patent case in Hong Kong or the PRC.
• The potential impact on revenue if the disputed IP is invalidated or the applicant is enjoined from using it. For instance, if a patent covers a product line generating 25% of the applicant’s revenue, the prospectus must disclose the contingency plan, such as alternative technology or licensing arrangements.

A 2024 prospectus for a Cayman-incorporated biotech applicant listed on the Main Board included a table showing that a pending US patent litigation could result in a loss of USD 12 million in annual revenue, representing 18% of the group’s total revenue for FY2023. The table was accompanied by a sensitivity analysis showing the impact on net profit under three scenarios: adverse judgment, settlement, and dismissal.

Timing and Materiality of Disclosure Events

The HKEX requires ongoing disclosure of material developments in IP litigation during the listing process. Under Listing Rule 9.11(31), an applicant must update its prospectus if there is any material change in the litigation, such as a court ruling on summary judgment or a settlement offer. In 2025, the exchange issued a reminder that failure to disclose a material IP litigation development within 15 business days could result in the listing application being returned or the sponsor being sanctioned.

For example, in January 2025, a GEM applicant faced a trademark opposition in the PRC that was filed after the initial prospectus was published. The applicant’s sponsor disclosed the development within 10 business days, and the prospectus was amended to include a new risk factor. The HKEX accepted the amendment, and the listing proceeded on schedule.

Strategic Considerations for Listing Pathway Selection

Impact on Main Board vs. GEM Listings

The disclosure burden for IP litigation is heavier for Main Board listings due to the higher materiality thresholds and the requirement for more detailed expert evidence. For GEM listings, the HKEX applies a proportionate approach under GEM Listing Rule 6.21, which allows for less granular disclosure if the litigation is not central to the applicant’s business. However, the SFC’s 2025 circular applies equally to both boards, meaning sponsors must still conduct thorough due diligence.

For applicants with significant IP litigation, a GEM listing may be a lower-risk pathway because the exchange is more likely to accept a summary risk factor rather than a full sensitivity analysis. However, the trade-off is lower valuation multiples and reduced liquidity. In 2024, a PRC software company with a pending patent claim in the Beijing IP Court chose a GEM listing, raising HKD 80 million at a 12x P/E ratio, compared to a potential 18x on the Main Board.

SPAC and Introduction Listing Options

For Special Purpose Acquisition Companies (SPACs), the de-SPAC transaction requires the target company to disclose IP litigation as part of the business combination filing under Chapter 18B of the Main Board Rules. The HKEX has confirmed that the same disclosure standards apply as for a direct listing, including the need for expert reports. In 2025, a SPAC targeting a US-based biotech firm required the target to commission a patent validity search from a US law firm, which added HKD 3 million to the transaction costs.

Introduction listings, which do not involve a public offering, are not exempt from IP litigation disclosure. Under Listing Rule 7.14, the listing document must still include all material risk factors, including IP disputes. However, the HKEX has shown flexibility in accepting a condensed disclosure format for introduction listings, provided the sponsor certifies that the litigation does not affect the applicant’s ability to meet the listing requirements.

Actionable Takeaways for Applicants and Advisors

1. Conduct a pre-filing IP litigation audit at least six months before the listing application, commissioning patent validity searches in all jurisdictions where the applicant operates, to identify potential claims that could trigger the 5% net tangible assets threshold under Listing Rule 11.07.
2. Engage a Hong Kong-qualified law firm with IP litigation expertise to draft the risk factor disclosure, ensuring it includes quantified financial exposure under three scenarios—adverse judgment, settlement, and dismissal—as required by HKEX Guidance Letter HKEX-GL117-24.
3. Instruct the sponsor to obtain an independent expert report on the technical merits of any IP claim that covers more than 10% of the applicant’s revenue, in line with the SFC’s March 2025 circular on sponsor due diligence.
4. Establish a disclosure protocol with the sponsor and legal counsel to ensure any material development in IP litigation is reported to the HKEX within 15 business days, as mandated under Listing Rule 9.11(31), to avoid application delays or sanctions.
5. Consider a GEM listing if the IP litigation is peripheral to the core business, as the proportionate disclosure requirements under GEM Listing Rule 6.21 may reduce the administrative burden and legal costs.