CCI Advisor Jim Hinton presented to the House of Commons Standing Committee on Industry, Science and Technology (INDU) on Tuesday, June 6th, about intellectual property and technology transfer. Below are his remarks.
Thank you, Chair and esteemed members of the committee, for the privilege of appearing as a witness before you.
I'm an IP lawyer and patent and trademark agent with Bereskin & Parr, and an assistant professor at Western University. I also advise the executive of the Council of Canadian Innovators. I work almost exclusively with Canadian companies to help them benefit from their technology through intellectual property.
I've researched and written in this space with the Centre for International Governance Innovation and the Centre for Digital Entrepreneurship and Economic Performance.
I will first identify where there are limitations with Canadian tech transfer and IP and finish by presenting constructive opportunities to move forward.
Should Canadian universities and research institutions drive innovation, fostering Canadian companies that own and benefit from Canadian-developed technology or should they only invent and educate, create world-leading technologies, and allow others to commercialize and reap the economic benefits of these technologies? If we want our publicly funded research institutions to be champions of innovation, we currently have problems. The technology is suboptimally protected, and even where protected, the technology is being given away.
Our academic institutions are not patenting at the same rate as their foreign counterparts, as we just heard. This is particularly relevant in the clean technology space. On average, Americans are patenting 2.3 times more per academic publication than Canada. China is patenting at a rate almost 15 times more per academic publication than Canada. We have not been keeping up with our international competitors to capture the value of our technology through international IP systems.
If there's no patent and the invention becomes public, then there is nothing to prevent someone from practising the invention. It's not only that we don't protect, but we also allow the technology that we have protected to be raided by foreign firms. In particular, IP benefits from public-private partnerships are flowing out of the country. To commercialize research, publicly funded institutions currently partner with industry players. Many agreements end up with newly developed intellectual property wholly owned by the industry partner, or licensed, because they have the vision to harness and capture the value of the IP. These industry partners are very often foreign companies, leading to critical IP leakage out of the country.
What's worse is when a Canadian company is looking to develop similar technology, the foreign tech can prevent that Canadian company from practising that technology, or force them to take a licence. We are essentially encouraging a system whereby Canadian companies must then license back Canadian taxpayer-funded IP from the big foreign technology competitors. Instead of reinvesting in Canadian R and D, Canadian companies are paying IP royalty fees.
How bad is the outflow of IP ownership? We've done some research on the invention and ownership in the artificial intelligence machine learning space, and more than half of Canadian-developed IP is now owned by foreign companies. This is not an isolated issue. Of all Canadian invented patents issued last year, 58% are now owned by foreign companies. This is up from 45% a decade ago. The trend is getting worse.
This means that Canadians are doing the hard work to create great technologies, but we are not able to benefit from them. This further prevents us from being able to reinvest in new technologies and new industries. If we are embarking on Canada's innovation age, we must prevent the IP from being raided by foreign firms and instead capture the resultant wealth and associated economic benefits so we can create successful and globally competitive companies that rival the world's best.
How do we do this? Education and increased sophistication for Canadian innovators is a start. Ultimately, we need to generate more IP and ensure that IP that is generated in Canada with taxpayer funding is available to Canadian innovators. Traditionally, policy-makers are focused on domestic IP rules. The problem with that approach is that most Canadian innovators don't secure Canadian patents because the market is just not big enough, so changing our domestic rules will have little impact for Canadian innovators.
We have to find mechanisms to help Canadian innovators compete in global marketplaces where the large commercialization opportunities lie. That means playing by the IP rules of foreign countries. IP exposure reduction measures, such as the strategically designed patent collective or sovereign patent fund is one solution we have studied that would help deal with the challenges facing Canada's innovation ecosystem.
As the data shows, we don't own the existing IP in many industry sectors, so our firms do not have the freedom to operate in those markets. The strategy is to acquire and bundle foundational patents, international patents, in a manner that provides Canadian innovators with market access opportunities. Instead of having to take licences individually when companies have the most to lose, the collective approach allows Canadian companies to have improved freedom to operate internationally.
Still further, many of the foundational patents developed by our public institutions can form part of the pool, providing Canadian firms with the freedom to operate under university-generated IP.
This improved freedom to operate ensures that Canadian companies are able to have a strong position when entering global markets and ensures that taxpayer investments are not flowing out via royalty payments to the owners of foundational patents.
Our taxpayers expect more from their investment—that the benefits flowing from the technology and the IP provide the expected taxpayer return. We have to ensure that the IP strategy for technology transfer has a focus on national public benefit.
Imagine having to tell a promising Canadian technology company which is trying to scale up, find markets, and increase profits that the government has just given its biggest established technology rival, foreign technology rival, access to Canadian university research. If the Canadian firms are not able to compete with the foreign technology firms for Canadian-developed technology, the funding research in Canada looks a lot like a subsidy for the development of foreign technology firms' IP. This not only wastes a lot of money but also disadvantages Canadian technology companies and our future prosperity.
In this innovation age, we can't treat IP as we do our natural resources, by selling it off early. The value in IP is speculative value, so selling early doesn't allow for that big upside. As Ben Bergen, executive director of CCI said, “The countries that have IP are wealthy, and the countries that lack it are seeing their prosperity erode.”
Mr. James Hinton is an Intellectual Property Lawyer at Bereskin & Parr LLP, and an advisor to the Council of Canadian Innovators. For further dialogue between Mr. Hinton and members of the Committee, visit http://www.ourcommons.ca/DocumentViewer/en/42-1/INDU/meeting-65/evidence.