Businesses need public support to commercialize intellectual property

by Daniel Katz, Natalie Raffoul. Originally published on Policy Options
November 12, 2021

To increase its competitiveness and position in global innovation rankings, Canada must incentivize and support domestic industry in its efforts to commercialize new intellectual property (IP). We need a new approach to exploit publicly and privately funded IP because Canadian businesses are failing to exploit their IP and reap the economic benefits from the outputs.

IP rights include – but are not limited to – trademarks, patents, industrial designs and copyright. IP products ─ the marketable knowledge resulting from R&D ─ were only 1.87 per cent (roughly $37 billion) of Canada’s gross domestic product in 2019. In the quest for a knowledge-based economy, Canada’s IP assets remain trivial.

Ownership of relevant IP enables a Canadian company to advance toward its strategic objective. When Canadian companies fail to properly protect and monetize their IP, they lose out on the economic benefits of maximizing its value.

Protecting their IP in foreign markets provides greater opportunity for scaling. However, the proportion of Canadian businesses that hold IP rights abroad is sobering – only 5 per cent – and only 1.6 per cent of businesses indicated in a survey that they own patents outside Canada. Patents are important for Canadian innovators to protect their ideas from being stolen, to obtain financing from investors and to secure freedom to operate. Our competitors are outpacing us in filing for patents as well – only 1.1 per cent of businesses in Canada filed for patents between 2017 and 2019, while the OECD average in 2016 was 5.9 per cent.

Canada saw a decline in the number of Patent Cooperation Treaty (PCT) international patent filings between 2014 and 2017, a grim hurdle in our ability to stay competitive in the global economy, given that the global trend is upward and China is now leading the U.S. in the sheer number of PCTs. As PCTs are a “proxy for a country’s ability to generate valuable IP assets,” according to an Ontario report, the fact that Canada’s filings dropped 22 per cent between 2014 and 2017 – the worst among the 152 member states – while global filings grew by 14 per cent is troubling. This downward trend shows no sign of stopping soon. There was a four per cent decline in annual growth rate of PCT applications originating from Canada between 2019 and 2020 (see figure 1).

How government can help

Our domestically headquartered companies must be assisted in generating economically valuable IP that creates benefits for Canadians. What is the federal government doing to help Canadian companies generate more IP and exploit it better?

The Roadmap for Open Science, which makes all federal government science accessible to Canadians, has in some circumstances led to “innovation philanthropy,” where Canadian taxpayers pick up the tab, and foreign companies reap the benefits. For example, Tesla has been benefiting from an arrangement with Dalhousie University researchers, who are contributing to patents forming the basis of the company’s “million mile” battery. Stakeholders in this agreement argue that the mentorship and education students receive through this partnership is invaluable for the Nova Scotia clean-tech ecosystem. Meanwhile, Tesla keeps the exclusive rights to the resulting inventions, which are now worth billions of dollars.

The purchase of Montreal-based Element AI by the U.S. firm ServiceNow in 2020 is another example of taxpayer-funded research that was not leveraged and exploited. The federal and Quebec governments invested more than $30 million in the once highly touted AI firm. However, the company was bought out for its talent and IP, and Canadian tech faced another upstart young company leaving the country.

Canada must be more aggressive in thinking about who benefits from the windfalls from publicly funded research. As an example of how to follow a different path, Google purchased GPS navigation company Waze, which received public funding from Israel’s Innovation Authority, in 2013 for a reported $966 million (up to $1.3 billion in some reports). The Israeli government earned $370 million in tax revenue from the deal, $230 million of which was for the right to export the company’s IP rights. To maintain our competitive position worldwide, we must help ourselves first.

Why does the government not do more to support the private sector in commercialization? The Scientific Research and Experimental Development Program is the biggest tax incentive for research and innovation, yet nothing is earmarked for commercialization costs. The program pays businesses to conduct research but not to protect it. With 98 per cent of businesses defined as small (one to 99 employees), the private sector needs a centralized regime to help it manage and exploit IP outputs.

It seems that Ottawa is now taking small steps to address the problem. In the 2021 budget, the government proposed $165 million in funding to increase businesses and entrepreneurs’ awareness and use of IP, in addition to the $85 million Intellectual Property Strategy introduced by Innovation, Science and Economic Development Canada in 2018. NRC IRAP is only the first stage. But now in November 2021 – seven months after the last federal budget – there still have been no details about how the funding related to IP awareness and education will be spent.

In 2017 a House of Commons standing committee reported there are glaring data gaps when it comes to general understanding of IP licensing practices, technology transfer and exploitation in Canada. Innovation ecosystems place value upon measurable outcomes. If we’re not even tracking commercializing and technology transfer, is it any wonder we are doing so poorly in that area?

A centralized agency to address IP commercialization

We need a centralized agency that acts as gatekeeper and knowledge synthesizer to address these commercialization challenges – to connect Canadian SMEs and innovators to the commercialization tools, education and expertise they need.

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Some provinces are not waiting for the federal government to act. In 2020, Ontario launched an IP Action Plan to establish a new provincial agency, the Centralized Resource Entity on Intellectual Property. A special advisor will assist in creation of this resource to enable entrepreneurs and startups to access IP legal expertise and education, to develop a governance framework for supporting entrepreneurial and innovation activities, to strengthen IP literacy and education and to clarify the roles and mandates of commercialization agreements with post-secondary institutions. Why wouldn’t something like this be feasible on a national scale? The federal government must take a leadership role in making sure that new outputs generated from public and privately funded Canadian R&D are properly protected and exploited, and policy must have an end goal when investing in research. Providing the toolkit that enables businesses to generate more and commercialize better IP will help to increase Canada’s competitiveness and better position us in global innovation rankings.

This article first appeared on Policy Options and is republished here under a Creative Commons license.