The great IP debate in Canada

By Daniela Bassan, K.C.

Daniela Bassan, K.C. is a Partner and Practice Group Chair at the law firm of Stewart McKelvey (Canada) where she focuses on intellectual property and complex, multi-jurisdictional dispute resolution.

The premise of this essay is that there is a significant gap in domestic-owned intellectual property (IP) in Canada as measured by key indicators such as patent ownership and corresponding levels of R&D investment.

The thesis of this essay is that deep collaboration among policy makers is needed to close that gap and increase Canadian competitiveness.

The Dilemma of the IP Ownership Gap

Today’s economy is not only data-driven (DD) but increasingly AI-supported such that generating and capturing the value of intangibles, i.e IP assets, is more critical than ever to a nation’s growth and competitiveness.  In addition, while IP spans a wide gamut of rights, patents in particular (as well as their overlap with R&D investment) can be used to measure a country’s position as an IP leader or laggard.

Studies and statistics consistently show that Canada is lagging on both IP ownership and innovation fronts:

• The Organization for Economic Co-operation and Development (OECD) forecast in 2021 that Canada would be the worst-performing economy for the period 2020 to 2030.^[i]
• Levels of Canadian R&D investment, whether as gross domestic expenditure or by business enterprise, have fallen as a percentage of GDP since the early 2000s.^[ii]
• The Canadian Intellectual Property Office (CIPO) reported that of all patents granted by the office from 2006 to 2016, about 12% were to Canadian residents.^[iii]
• Across 15 Canadian universities where R&D is heavily concentrated in Canada, there were 2,381 patents granted over a ten year period (2006 to 2015); however, corresponding levels of R&D funding over the same period show that patent count is a fraction of where it could (should) be.^[iv]
• Of the patents generated by Canadian universities over the same ten year period, there was a net generation in favour of foreign companies, thereby translating into a net deficit for the Canadian innovation ecosystem.^[v]
• The number of unicorns (i.e. privately owned companies with a valuation of US $1 billion or more) is disproportionality lower in Canada when compared to (and adjusted for population/size) to the United States. ^[vi]

So why does this matter? Three words: Freedom To Operate (FTO).

In essence, FTO represents both positive and negative rights against competing firms in the same industry, sector, or technology covered by the FTO.  If a firm has FTO over certain technology it can assert its IP position against competitors and collect rents (royalties) from anyone licensed to use that IP-protected technology.  Conversely, the same firm can use its FTO to halt other market players, penalize third parties, and build market dominance over the subject technology.

From a state perspective, in today’s DD / AI economy, the more foreign FTO that is being asserted, the less opportunity there is for domestic innovators to dominate, scale, and compete.

Coordination of Strategies and Solutions

Across Canada, awareness of this dilemma is acute.  Recent initiatives support the commercialization of new inventions from public institutions as well as IP programs to assist Canadian startups.^[vii]

Each initiative targets, in part, the IP ownership gap in Canada.  However, the race to acquire more FTO for more Canadian companies on a global scale will require more collective effort across agencies, ministries, and governments.

There are a number of reasons why collaboration makes the most sense.

• First, there is an urgent need to build IP capacity across provinces, regions, and target sectors.  The pool of IP experts in Canada is finite; accessing their collective experience and expertise requires coordination across entities that may not have been natural collaborators in the past.  For example, provincial governments should collaborate more openly in their FTO journeys, in order to optimize access to the same IP resources.
• Second, the process of identifying and acquiring IP rights can be bewilderingly complex for startups (and even larger entities). Being able to commoditize the IP process from start to finish on a national scale, or even at a regional level, would go a long way toward creating a “one-stop-shopping” approach to acquiring FTO.
• Third, while there is significant IP funding available, more strategic direction is needed hon the best use of those funds.  This means realigning and reorganizing existing funding so as to avoid reinventing the wheel in foundational areas. For example, the delivery of high-calibre, high volume training and programming should be scaled dramatically at a national level with the use of advanced EdTech platforms, thereby replacing outdated and inefficient education campaigns.

Adopting these strategies and solutions would go a long way toward carving a new FTO path for Canadian innovators.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact the author.

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[i]            See David Williams: “OECD predicts Canada will be the worst performing advanced economy over the next decade… and the three decades after that” (2021) https://bcbc.com/insights-and-opinions/oecd-predicts-canada-will-be-the-worst-performing-advanced-economy-over-the-next-decade-and-the-three-decades-after-that at Figure 1a.
[ii]           See ISED Report “Building a Nation of Innovators” (2019) at https://ised-isde.canada.ca/site/innovation-better-canada/en/building-nation-innovators at page 11.
[iii]           See CIPO IP Canada Report (2017) at https://ised-isde.canada.ca/site/canadian-intellectual-property-office/en/ip-canada-report-2017 at pages 8-10.
[iv]          See James Hinton et al: “Economic Mirage: How Universities Impact Freedom To Operate” at https://www.cigionline.org/publications/an-economic-mirage-how-canadian-universities-impact-freedom-to-operate/ at pages 8-10.
[v]           See James W. Hinton et al: “Economic Mirage: How Universities Impact Freedom To Operate” at https://www.cigionline.org/publications/an-economic-mirage-how-canadian-universities-impact-freedom-to-operate/ at page 15.
[vi]          See “Number of unicorns globally as of November 2022” published Nov 30, 2022 at www.statista.com
[vii]         For example, Axelys in Quebec https://www.axelys.ca/en/, Intellectual Property Ontario https://www.ip-ontario.ca/, Innovation Asset Collective https://www.ipcollective.ca/, Springboard Atlantic https://www.springboardatlantic.ca/, and CIPO’s Elevate IP and IP Assist programs.  The author of this essay is a Director at Innovation Asset Collective.