Matter note: IP and licensing for a technology group expanding into Asia

A European technology group seeking to expand into Asia through Hong Kong faces a layered problem: its intellectual property arrangements, built for a single-jurisdiction licensing model, do not map cleanly onto the multi-system environment of Greater China and the principal offshore centres. The governing instruments – from the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (the AML/CTF statute administered by the Securities and Futures Commission and the Hong Kong Monetary Authority) to the general licensing rules applicable to technology-related activity – apply differently depending on how the group's products are characterised and where the economic substance sits. Getting the structure wrong at the outset creates regulatory exposure that is difficult to unwind.

This matter note sets out, in anonymised form, the approach we took for one such group. No client or counterparty is identified. The note is intended as a transferable read for general counsel and founders facing a comparable cross-border alignment problem.

What was the situation, and what made it difficult?

The group – a mid-market technology business incorporated in continental Europe – had built its revenue model around a suite of proprietary software products licensed to enterprise clients on a subscription basis. Expansion into Asia had been planned for some time. The board's preference was to use Hong Kong as the regional hub, with initial commercial activity directed at Mainland China and Southeast Asian markets.

Two things made the expansion structurally complicated. First, the group's existing licensing agreements had been drafted for a single legal system. They contained choice-of-law and dispute-resolution clauses that pointed to a European forum – unworkable for counterparties based in the Mainland or in common-law jurisdictions across Asia. Second, and more pressingly, certain modules within the software stack touched on data processing and financial-technology functions. That characterisation question – whether a product is a software tool or a regulated financial service – sits at the centre of Hong Kong's regulatory perimeter, and the group had not worked through it before establishing its regional entity.

In our cross-border technology practice, we regularly see this sequencing error. The holding structure and the commercial licensing programme are designed in parallel, but the regulatory characterisation step that should precede both is deferred until the entity is live and counterparty negotiations are under way. By that point, the exposure is real.

What was the core legal problem?

The central issue was characterisation. Under Hong Kong's regulatory regime, a software product that facilitates dealings in securities, futures contracts, or virtual assets may bring its operator within the licensing perimeter of the Securities and Futures Ordinance or – for virtual-asset-related activity – the mandatory licensing regime for virtual-asset trading platforms (VATPs, meaning centralised exchanges and similar platforms operating in or targeting Hong Kong).

The VATP licensing regime, which commenced on 1 June 2023, is administered by the Securities and Futures Commission. It applies to centralised virtual-asset trading platforms. Where a product or service does not itself operate as a trading platform but sits adjacent to one – for example, by providing order-routing, data feeds, or embedded transaction functionality – the question of whether SFC licensing is triggered requires careful analysis. The group's fintech modules sat in precisely that adjacent space.

Separately, the AML/CTF obligations under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance applied to the group's planned Hong Kong entity independently of the licensing question. Any business conducting relevant financial activity in Hong Kong is subject to customer due diligence requirements and, for virtual-asset-related transfers, the travel rule (the FATF-standard obligation to pass originator and beneficiary information with transfers). The group had not built travel-rule compliance into its product architecture.

The IP licensing agreements compounded both problems. The existing template granted licensees broad rights to sub-license and integrate the software into their own product stacks. In a context where the licensee's use case might itself be regulated, that breadth created an indirect exposure for the licensor.

What route did the team choose?

The work proceeded in three parallel tracks. The tracks were designed to reach a defined conclusion in sequence, because the output of the characterisation exercise directly determined both the licensing structure and the form of the AML/CTF compliance programme.

Track one: regulatory characterisation. We mapped the group's software modules against the regulatory perimeter of the Securities and Futures Ordinance and the VATP licensing regime. The question was whether any module, in its current or proposed form, would make the Hong Kong entity an operator of a centralised virtual-asset trading platform or a provider of regulated financial services under the Securities and Futures Ordinance. The analysis also considered the position if a licensee used the software to offer regulated services to its own end users.

The conclusion was that two modules required architectural adjustment to sit outside the direct licensing perimeter. A third module, dealing with data aggregation, could remain as designed, but required a disclosure regime and contractual carve-outs in the licensing agreements to make the licensor's position defensible if a licensee used it in a regulated context.

Track two: restructuring the licensing programme. The existing agreement template was rebuilt for the Asia deployment. The new template used Hong Kong as the governing law for agreements with non-Mainland counterparties, with arbitration seated in Hong Kong under the HKIAC Administered Arbitration Rules (2024 edition, effective 1 June 2024) as the dispute-resolution mechanism. For Mainland counterparties, a parallel template was prepared pointing to a recognised Mainland arbitral institution, with enforcement considerations mapped against the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), which came into force on 29 January 2024.

The sub-licensing provisions were substantially narrowed. Use-case restrictions were introduced for modules touching financial data and transaction functionality, with audit rights and termination triggers if a licensee deployed the software in a manner that would engage the regulatory perimeter. These provisions served two purposes: they limited the licensor's indirect regulatory exposure, and they gave the licensor the contractual basis to suspend or terminate without full compensation if a licensee triggered a compliance issue.

Track three: AML/CTF compliance architecture. The group's Hong Kong entity needed a compliance programme aligned with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance from day one. We worked with the group's compliance team to design a customer due diligence process appropriate for enterprise technology licensing – lighter in some respects than a financial institution's programme, but anchored to the same statutory obligations. The travel rule position was addressed at the product level: the two adjusted modules were redesigned so that the entity did not itself originate or receive virtual-asset transfers in a manner that triggered the travel-rule obligation.

Where was the turning point?

The turning point came during the characterisation exercise. The group's European counsel had taken the view, based on their home-jurisdiction analysis, that the software was a "pure tool" with no regulatory dimension. That analysis was defensible in the European context. It was not defensible in Hong Kong.

What foreign counsel frequently underestimate is that Hong Kong's regulatory perimeter is drawn around the nature of the activity, not around the self-description of the operator. A technology company that facilitates dealings in virtual assets – even as an infrastructure provider rather than a principal – may sit within the VATP regime depending on how the product functions. The SFC's published guidance on the VATP licensing regime makes this clear. The group had not worked through that guidance before designing its product architecture for the Asia deployment.

Identifying this gap early – before the entity was licensed, before the first customer agreement was signed – allowed the architectural adjustments to be made at a point when they were commercially manageable. Had the issue surfaced after commercial launch, the remediation cost and the regulatory risk would both have been significantly higher.

The sequence above describes the standard position for a technology group at this stage of expansion. Your matter turns on the specific modules, the regulatory characterisation in your case, and the structure of your existing licensing programme – which is where the route is won or lost.

For a structured read on your cross-border licensing and regulatory position, write to us at info@lockhartyip.com.

What was the outcome, and what is the transferable lesson?

The group completed its Asia deployment with a Hong Kong entity that sat outside the mandatory VATP licensing perimeter, a licensing programme adapted for both common-law and Mainland counterparties, and a compliance architecture aligned with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance. The commercial launch proceeded on the agreed timetable.

The transferable lesson is structural. Technology groups expanding into Asia through Hong Kong typically approach the exercise as a corporate task: incorporate the entity, open accounts, sign agreements. The regulatory characterisation step – which must precede all three – is treated as background. For a technology group whose products touch financial data, payment flows, or virtual assets, that sequencing error creates exposure under the VATP licensing regime and the AML/CTF statute that can be very difficult to correct after the fact.

A second lesson concerns the licensing agreements themselves. Agreement templates drafted for a home jurisdiction carry assumptions about the regulatory environment, the scope of sub-licensing, and the dispute-resolution mechanism that do not survive transplantation into the Hong Kong and Greater China context without material revision. The sub-licensing breadth that is commercially standard in one market becomes a source of indirect regulatory exposure in another.

If an earlier structure or licensing arrangement has produced a compliance gap or a stalled commercial position, a second read on the regulatory characterisation and the agreement terms can identify both the gap and the routes still available. Write to us at info@lockhartyip.com.

Related practices

Related practices

• Tech & Web3 – licensing, VATP regulation and AML compliance for technology and digital-asset businesses
• Sanctions & AML – customer due diligence, travel rule and compliance programme design across jurisdictions

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.