The Technology Exception Listing (TEL) System and Patent Strategy in korea

Concept and Procedure of the Technology Exception Listing (TEL)

The Technology Exception Listing (TEL) system is a special track established to allow companies with outstanding technological capabilities, but which may not meet traditional financial requirements, to list on the KOSDAQ market. Initially introduced in 2005 targeting bio-companies, the system was expanded to encompass all industry sectors in 2013. By 2023, approximately 150-190 companies had listed on KOSDAQ via this route. The track has become particularly active since 2019, with over 20 companies entering the stock market through TEL each year. It has now become so prevalent that a significant portion of new KOSDAQ listings utilize the TEL pathway.

The procedure for a Technology Exception Listing is fundamentally similar to a standard IPO, but with the crucial addition of a mandatory "Technology Assessment" phase prior to the main review. A company first signs an underwriting agreement with a securities firm. Then, it must undergo a technology evaluation conducted by two Professional Assessment Institutions designated by the Korea Exchange (KRX). To qualify for a preliminary listing review application, the company must receive a grade of at least 'A' from one institution and 'BBB' or higher from the other. (Certain exceptions exist; for instance, designated 'Deep Tech' companies or specialized materials, parts, and equipment manufacturers may qualify with an 'A' grade or higher from just one institution.) Upon successfully passing the Technology Assessment, the company submits the results along with its application for a preliminary listing review to the KRX. Subsequent steps involve submitting a prospectus, conducting the public offering, and finally completing the listing process.

While the TEL system significantly relaxes financial requirements (e.g., revenue, profit thresholds), it places intense scrutiny on the company's technological merit and growth potential. Therefore, companies preparing for a TEL must focus on demonstrating the innovativeness and market competitiveness of their core technologies. In this context, the company's patent portfolio serves as a critical piece of evidence.

The Role of Patents in the Technology Exception Listing (TEL)

In the TEL screening process, patents are a key objective indicator of a company's technological prowess. The Technology Assessment evaluates various factors including the technology's innovativeness, distinctiveness, completeness, competitive advantage, and difficulty of imitation. Patents serve as vital evidence for each of these elements.

Demonstrating Differentiation:Patents are granted after examination for novelty and inventive step, thus proving that the technology is distinct from prior art. Patents registered in all three Trilateral Patent Offices (USPTO, EPO, JPO) are considered particularly strong evidence of technological innovation and originality. Technology recognized even in advanced economies is deemed highly credible. Furthermore, if a company secured patents before its competitors, it can highlight its pioneering advantage by emphasizing that any subsequent imitation by latecomers constitutes patent infringement.
Ensuring Technological Reliability and Completeness:The TEL assessment also evaluates how validated and reliable the technology is. Key indicators include whether the core technology was developed in-house or licensed-in, and crucially, whether related patents have been registered. Securing patent registrations not only domestically but also internationally (e.g., in the US and Europe) can lead to an evaluation of "very high technological reliability," as it implies the technology is robust enough for the global stage.
Assessing Technological Independence:The evaluation considers whether the company's main technology can form the basis of its products/services independently, without relying on third-party technology. The scope of claims in patents protecting this technology is critical. The patent rights must be broad enough to sufficiently cover the products and services, ensuring comprehensive protection for offerings built on the company's core technology. A lack of patents directly related to the core technology, or patents with narrow claim scope, can result in a negative assessment, indicating inadequate protection. There are actual cases where companies failed the TEL process despite holding over 40 patents, simply because only one minor patent covered the core technology. This underscores the importance of patent "quality"—the existence of patents providing comprehensive protection for core technologies—over sheer quantity.
Establishing Imitation Difficulty and Entry Barriers:Patents provide a legal means to block competitors' imitation. Therefore, possessing a broad patent portfolio is a key factor in increasing the difficulty of technological replication. Assessment institutions examine the extent to which the technology is protected by intellectual property rights, including patents. If a company has secured comprehensive patent rights such that potential competitors attempting to copy the technology would inevitably infringe, the technology is rated highly for being "difficult to imitate." This is explicitly reflected in the TEL Technology Assessment models, where extensive patent protection is regarded as evidence of competitive advantage.
Evaluating Intellectual Property (IP) Management Capability:Since 2021, the qualitative assessment of IP management has been strengthened within the Technology Assessment criteria. It now goes beyond merely counting patents ("How many patents does the company hold?") to evaluating how strategically the company manages its IP, including patents and trademarks. Professional Assessment Institutions comprehensively evaluate whether the company has a dedicated, independent IP team or personnel, whether it has secured core patents in key domestic and international markets, whether it uses patents to build market entry barriers, and the overall quality level of its patent portfolio. Therefore, it is crucial to demonstrate that IP acquisition is organically linked with R&D activities, and that a high-quality patent portfolio protecting core technologies has been strategically built both domestically and internationally. For example, systematic IP management efforts, such as incorporating patent strategy from the R&D planning stage through IP-driven R&D (IP-R&D), or conducting Freedom to Operate (FTO) analyses to ensure non-infringement of third-party patents, are likely to receive high marks.
Verifying Expertise of Technical Personnel:The TEL assessment also scrutinizes the company's key R&D personnel, evaluating their expertise and achievements in the relevant field. Beyond academic qualifications and career history, the involvement of researchers as inventors on patent applications is considered important. Researchers with a track record of patent filings and registrations are seen as actively contributing to technological development, which positively impacts the assessment. This means patenting activity serves as an indicator of the team's overall technological capability.

In summary, patents are core materials that substantiate a company's technological innovation, differentiation, and level of protection across various aspects of the TEL assessment. A well-prepared patent portfolio effectively impresses upon assessors the uniqueness and competitiveness of the technology, significantly increasing the likelihood of passing the Technology Assessment. Conversely, a weak patent strategy can lead to low scores even for companies with strong technology. It is no exaggeration to say that succeeding in a Technology Exception Listing without a solid patent foundation is highly improbable.

The Investor's Perspective

Investors evaluating companies pursuing or having completed a Technology Exception Listing also consider patents a critically important value indicator. Since TEL companies are often early-stage growth companies yet to achieve profitability, investors must gauge their future growth potential and technological competitiveness. The patent portfolio becomes a major influencing factor in investment decisions.

Evidence of Technological Originality and Competitive Advantage:A rich patent portfolio demonstrates that the company is armed with numerous innovative ideas and is pioneering unique technological territory that competitors cannot easily replicate. From an investor's standpoint, technology protected by patents signifies clear market competitiveness and differentiation. The patent portfolio is perceived not just as a protective measure but as a strategic corporate asset, often considered central to the investment value of a TEL company. Firms with robust patents are seen as more likely to maintain a market advantage, making them more attractive to investors.
Enhancement of Corporate Value and Trust Building:Patents, as intangible assets, positively contribute to corporate valuation. In the context of TEL, where technological capability is the core determinant of value, a solid patent portfolio enhances the company's overall worth. Patents are a significant component of valuation during the listing review and can influence stock prices post-IPO. For example, if a company holds patents with potential for generating additional revenue through licensing (technology transfer), investors perceive a higher likelihood of commercial success. The potential for patent licensing income or future technology transfer deals acts as a strong investment attractor.
Legal Protection and Risk Management:Investors are highly sensitive to the level of technological protection and legal risks associated with their target companies. Patents are powerful tools that legally safeguard a company's technology and block unauthorized imitation by competitors. Companies holding core patents are expected to sustain their market share more effectively. Post-IPO, patents continue to act as a shield, hindering competitors' market entry and helping maintain a dominant position. This assures investors that the company is a stable investment and helps build long-term trust. Conversely, a lack of patents for core technologies signals high risks of future disputes or imitation, potentially deterring investment.
Diversification of Revenue Models:Many investors also focus on the potential for revenue generation through patents. They examine opportunities for technology transfer, licensing-out, or patent sales based on the existing portfolio. Particularly in the biotech sector, even without product revenue, companies protecting drug candidates with patents may license them out to large pharmaceutical firms or engage in co-development, potentially yielding substantial milestone payments or royalties. The option value derived from such potential technology transactions positively influences investment decisions. Consequently, investors tend to meticulously scrutinize the patent portfolio status, lists of core patents, and their utilization strategies when reviewing company prospectuses.

Ultimately, investors view a patent portfolio as both an indicator of competitiveness and a means of risk mitigation. When investing in a TEL company, they consider questions like, "How exclusively can this company protect its technology?" and "What future benefits can be expected from its patents?" A well-constructed patent portfolio provides investors with a sense of security akin to an economic moat, facilitating investment attraction and enhancing the company's valuation in future M&A or additional funding rounds. The importance of patents in the investment ecosystem is growing to the point where securing large-scale investment for a tech startup without patents is considered increasingly difficult.

Patent Strategy for Startups Aiming for Technology Exception Listing (TEL)

Startup founders targeting a Technology Exception Listing should establish a clear patent strategy from the early stages. As discussed, patents are a key means of appealing to both assessors and investors regarding the company's technological prowess and future potential, necessitating a strategic approach. Below are methods and strategic advice for utilizing patents to increase the chances of a successful TEL:

Thorough Patent Protection for Core Technology:Identify your core technology and secure strong patents that provide comprehensive protection. Prioritize foundational patents covering the technology critical to the company's fate over patents for peripheral technologies or minor features. When filing patents, draft claims that cover the broadest possible implementation scope of the core technology to make it difficult for competitors to design around. If competitors already hold patents in your core technology area, consider patent design-around strategies or, if necessary, explore licensing-in options to mitigate risks. Having numerous ancillary patents without core protection will likely result in a poor assessment score. Aim to build a narrative that "we possess the foundational patents in this technological field."
Establish a Patent Portfolio Roadmap:Develop a patent portfolio strategy aligned with the company's technology development roadmap. For instance, anticipate products/services to be developed in the next 2-3 years and proactively plan patent filings. Many successful TEL companies exhibit a pattern of explosive growth in patent filings at a specific point during IPO preparation. This reflects companies refining their patent strategies, systems, and roadmaps, and strengthening their portfolios by filing multiple patents concurrently. If your company is considering an IPO, adopt a strategy of consistently securing patents for R&D outcomes and steadily increasing the number of filings. However, it's advisable to stagger the filing dates. Concentrating filings within one or two years close to the IPO can lead to examination delays, resulting in patents remaining pending during the listing review. It is better to plan and file patents at least 2-3 years before the intended listing.
Secure Patents Not Only Domestically but Also in Key Overseas Markets:A global patent strategy is crucial. Holding patents in the Trilateral Offices (US, Europe, Japan) can significantly boost assessment scores, and investors use international patents to gauge potential for overseas market expansion. Therefore, pursue patents in key foreign markets through PCT international applications or direct national filings where possible. The US market is indispensable for technology valuation, so securing at least one or two US patents for each major technology is highly recommended. For example, even an AI software company can enhance its perceived technological credibility by registering patents in the US. Resource-constrained startups should prioritize patent filings based on countries directly linked to their core business, expanding coverage later as resources allow. Utilize government support programs for overseas patent filing costs if available.
Strengthen Patent "Enforceability":Equally important as increasing the number of patents is enhancing the enforceability (strength of rights) of each patent. Enforceability refers to the patent's ability to be upheld as valid in disputes and effectively block infringement. Vague or overly narrow claims render a patent ineffective. Claims should be drafted clearly and broadly enough to cover minor variations by competitors. Furthermore, don't consider the job done once a patent is granted. Conduct post-grant analyses to prepare for potential disputes. If critical prior art is discovered, consider actions like filing amendments or divisional applications to adjust the claim scope. To enhance portfolio quality, enlist the help of professional patent attorneys to maximize the completeness and robustness of patent specifications. As highlighted in earlier examples, building a portfolio focused on "enforceability" often leads to successful technology assessments.
Utilize IP Management Organization and Experts:Even as a startup, try to have an internal IP manager for systematic patent management if feasible. If a dedicated team is initially too costly, actively leverage consulting from external IP specialist firms. Patent law firms and specialized consultants offer TEL consulting services; use them to review preparation according to assessment criteria and identify areas needing patent reinforcement. For instance, obtaining a mock assessment of your patent portfolio from experts (perhaps former assessment institution professionals) can help identify weaknesses (e.g., lack of core patents, inadequate claim scope) early on for timely improvement. Preparing IP-related documentation now (patent lists, explanations of technology linkage) will streamline the process when drafting listing documents later. Since patent status information is often requested during fundraising, establish a systematic patent management ledger and cultivate a habit of periodic portfolio reviews.
Continuous Patent Acquisition and Maintenance:Patent strategy is an ongoing process, not a one-off event. Don't stop filing patents after the intensive IPO preparation phase. Continue R&D investment and patent filings consistently even after listing. A company's post-IPO success depends on sustained innovation. Demonstrating ongoing technological development through continuous patenting helps maintain investor confidence. Furthermore, as a public company, scrutiny from competitors may intensify, necessitating even stronger patent defenses. Regularly monitor granted patents, check for overlaps with competitor patents, and consider defensive strategies (oppositions, invalidation trials) if needed. Proactively patenting in emerging fields aligned with technological trends can build a valuable portfolio for future business expansion. Ultimately, what's needed is not a "one-time patent strategy," but one that evolves and upgrades with each stage of the company's growth.

Examples of Companies Successful in Technology Exception Listing (TEL)

Next, let's examine cases where companies successfully leveraged patent strategy for their Technology Exception Listing. Companies across various industries have effectively used patents to gain investor trust and achieve listing. These examples illustrate how the principles discussed earlier apply in practice.

Nanobrick – Nanomaterial Technology:Nanobrick, a specialist in nanomaterials, listed on KOSDAQ in 2019 via TEL. It received the highest possible grades (AA, AA) in its Technology Assessment, signifying strong recognition of its technological capabilities. A key success factor was the robust patent protection surrounding its core nanoparticle control technology. Nanobrick thoroughly defended its foundational technology (Active Nanoplatform) by securing numerous domestic and international patents, consistently emphasizing that "our source technology related to nanoparticle control is protected by domestic and international patents." Holding patents not only in Korea but also in the US and Europe enhanced its technological credibility, enabling business expansion into diverse application areas like security materials, biomaterials, and display materials. The entry barriers created by its patent portfolio blocked competitor imitation and secured a unique market position in multiple fields, leading to high evaluation scores. This case highlights the importance of building a comprehensive domestic and international patent network around core technology.
Lunit – Medical AI Technology:Lunit, an AI-based medical diagnostic solution provider, listed on KOSDAQ via TEL in 2022. Known for its deep learning AI for diagnosing lung and breast cancer from medical images, Lunit garnered attention as the first Korean medical AI company to receive AA-AA grades in its Technology Assessment. While its technology gained global recognition through FDA approvals and partnerships with global corporations, this success was underpinned by an extensive patent portfolio. Lunit held over 120 patents related to deep learning, which it stated enabled the company to achieve near 99% accuracy for its AI algorithms and products, securing a competitive edge. By meticulously protecting its core technology with dozens of AI patents, Lunit was assessed as having built significant data assets and technological barriers that latecomers could not easily replicate. Consequently, it attracted global investors and continues to receive market validation for its corporate value post-IPO. This case demonstrates that even startups can build large patent portfolios, which serve as a foundation for trust both during the TEL assessment and in the market afterward.
3billion – Digital Health/Genomic AI:3billion, a biotech startup providing AI solutions for rare disease genetic diagnosis, is a promising company that passed its Technology Assessment (receiving A grades from both the Korea Invention Promotion Association and SCI Information Service) while preparing for a KOSDAQ TEL in 2024. Recognized for its technology, providing diagnostic services in over 50 countries, its patent strategy shone during IPO preparation. 3billion actively filed patents not only domestically but also in the US and Europe, reportedly focusing on strengthening patent enforceability while building its portfolio. By preemptively securing core patents related to AI algorithms and genomic analysis technology and broadly surrounding related technologies with peripheral patents, it solidified its unique technological position with IP rights. This effort earned it an excellence award at a venture/startup patent competition, recognized as a model IP strategy for startups. It shows that even early-stage startups can achieve high evaluation scores in a short period through global patent acquisition and rights strengthening strategies. Investors highly value the company's patent assets, leading to continued venture investments.
Konan Technology – Artificial Intelligence Software:Konan Technology, a software company specializing in AI-based search engines and natural language processing, listed on KOSDAQ via TEL in 2022. Despite having a long operating history (founded 20 years prior), it achieved a positive assessment outcome by emphasizing its growth story driven by new AI technology development and related patent acquisitions. Konan Technology supplemented its long-accumulated search engine technology by developing new deep learning-based product lines and securing additional patents for them, adopting a strategy of protecting both legacy and new technologies with patents. This resulted in excellent grades in the Technology Assessment and a successful listing. This case shows that even companies with mature technology can succeed in TEL through continuous patent acquisition and technological innovation.

Beyond these, many bio companies (e.g., involved in new drug development) often succeed via TEL, as patents are frequently synonymous with corporate value in this sector. For instance, companies with solid substance patents and use patents for drug candidates typically receive high scores in Technology Assessments and achieve high market capitalizations post-IPO. Conversely, there are cases where companies struggle after listing due to inadequate patent strategies. Statistics showing that a significant number of TEL-listed companies trade below their IPO price suggest that many lose technological momentum or investor confidence post-listing. This further underscores the importance of a continued patent strategy even after achieving listing.

Conclusion: Patents as the Starting Point for Technology Exception Listing (TEL)

Success through the Technology Exception Listing becomes a reality when outstanding technological capability converges with a supportive intellectual property strategy. Patents are not mere technical documents; they represent a startup's future blueprint and serve as a promise securing investor trust. A company with a well-structured patent portfolio gives listing examiners the impression of a "prepared technology enterprise" and assures investors that "this company's technology is worth protecting."

Of course, patents alone do not determine everything. Other factors – the 'alpha' beyond patents, such as commercialization strategy, team capabilities, and marketability – are equally important. However, given that the fundamental premise of TEL is listing based on trust in technological prowess, few tools are as effective as patents in building that trust. Companies preparing for a TEL should review their patent status based on the insights provided above, address any deficiencies, and formulate strategies to maximize their strengths.

Finally, listing is merely a new beginning. Patent strategy must continue post-IPO. As markets and technologies constantly evolve, companies must continuously innovate and accumulate intellectual property accordingly. Sustained R&D investment, consequent patent filings, and strategic IP management are essential for translating TEL success into long-term corporate growth.