Innovation stakeholders differ on new IP strategy

The federal government has unveiled details of its eagerly anticipated new intellectual property (IP) strategy to help innovators better protect their intellectual assets, encourage innovation and defend themselves against so-called patent trolls. The three-pronged strategy that includes legislation, literacy and advice, and providing tools, will cost $85.3 million over five years starting FY2018-19, as announced in the most recent Budget.

The strategy will be carried out with the following initiatives:

• $30 million in FY2019-20 to create a Patent Collective, where IP properties can be pooled to enable innovators to access them to help grow their business ;
• $21.5 million over five years, starting FY2018-19 to support the innovation community with IP expertise and legal advice; and,
• $33.8 million over five years, starting FY2018-19 for tools, including $4.5 million to create an IP marketplace - a one-stop shop for online listing of IP properties.

The government proposes changes in legislation to protect Canadian innovators from patent trolls - companies that aggressively challenge IP property held by others and are often non-operating entities.

The IP strategy also includes expedited and less costly IP dispute resolution.

Government is also investing in a team of in-house IP advisers who will advise Canadian innovators and train people to help in IP governance.

However, stakeholders who spoke to RE$EARCH MONEY have different perspectives on what the IP strategy means to the innovation ecosystem, suggesting that one size doesn’t fit all. While generally seen as a step in the right direction, some have expressed caution in expecting too much from the policy changes.

“The IP strategy lays out modest steps in the right direction, but one shouldn’t expect to see massive change in how we invent and what we commercialize,” says Dr Peter Phillips, distinguished professor at the Univ of Saskatchewan’s Graduate School of Public Policy.

Phillips says that some of the elements in the strategy such as patent pooling have already been tried before in some Canadian universities and public laboratories. But issues, such as encouraging innovation and keeping IP in the country, still remain. Instead, he cautions against focusing too much on patents alone to protect IP.

“I don’t think patents drive innovation. They’re certainly part of the innovation pathway, but for a lot of sectors, the patent contributes only a small part of the distraction to the effectiveness of the optimization of the invention,” Phillips says. “They’re not the only tool. There are trade secrets, which are critical in some sectors, while copyrights for software and design (sectors) are vital.”

He adds that different sectors – from agriculture to information and communications technology – require different ways for protecting IP at different stages of a company’s growth.

Phillips also expresses doubts as to who exactly are the targets of the IP strategy’s literacy initiative because many of the innovators are probably aware of the importance of IP protection and the opportunities they offer.

Michael Turner, VP for systems strategies at Wesley Clover, an angel investor and real estate player, says startups are aware that they need to protect their IP, but the global race to innovate has made them forego protecting their IP first.

“Most people involved in startups, particularly in the tech sector, tend to think that ‘we will move to the market quickly before anybody else can copy it.’ (But we tell them) you cannot build a company with global reach and high value – and make yourself attractive to investors – with an attitude like that. You need to protect your IP because that’s the company’s value,” says Turner.

Like Phillips, Turner expresses doubts over how the IP strategy will be implemented. For Turner, instead of spending taxpayers’ funds to hire IP expert legal advisers in government, he suggests giving innovators vouchers, through the Industrial Research Assistance Program, and let these innovators use the funds to engage IP legal experts. Turner says startups might be hesitant to approach government for legal advice as they may not be even aware there is such expertise in government. Also, it may be difficult for government to hire IP legal experts who may already be employed in private legal firms. He also suggests providing more funds for IP legal clinics, such as those associated with accelerators and incubators.

As for the patent collective provisions in the IP strategy, Turner suggests considering a government-funded national “patent bank” that will ensure that IP stays in the country even if the company that holds the patents goes out of business. He suggests that Canadian-held patents be considered like a national asset, which cannot be exported out of the country without a permit.

Tom Camps, founder and CEO of ChangeJar, a fintech startup based in Ottawa, says there was a time when there was a push to obtain patents, but because they’ve become so expensive, especially for startups, the importance of patents has diminished.

“It used to be that having patents was just fine. But recently the real issue is the patent trolls. It is a concern for everybody, … (whether) they have acquired patents, or they made noise about having patents in a new market space, everybody assumed that people will go after you. It’s a chilling effect on innovation … because somebody might have a patent claim,” he says.

That chill is not only felt by startups. Scale-ups that are earning at least $10 million in annual revenue and growing at 20% annually, also need help.

Adam Froman, founder and CEO of the Delvinia Group of Companies focused on consulting, data collection and research automation, says scale-ups that are expanding internationally are in need of IP protection from patent trolls. Though scale-up companies need not be educated and convinced on the importance of IP, Froman says his company is representative of companies that easily show up on on the radar of patent trolls because they are expanding fast and internationally.

He says companies like his need the support of government to expedite the process when they need to protect themselves from companies contesting their IP. From a wider perspective, Froman says IP is crucial to Canada’s GDP.

“As we focus on how to continue growing our economy, protecting our country’s IP will become even more vital,” he says, adding that it’s key to his company’s competitiveness as they enter foreign markets.

“For some reason, the government might think that once you’re a more advanced company, you don’t need their support. On the contrary, we need more support than the startups because we’ve already proven the return on any investment. … We’re prepared to invest; we’re already profitable; we are already growing,” says Froman. “Scale-ups have already commercialized their IP. The question is how do we not lose it.

Elliott Simcoe, partner at Smart & Biggar, an Ottawa-based IP boutique legal firm, says that though they have both startup clients and companies that have been in business for more than 75 years, the clients for which they spend more time stressing IP strategy are the startups, who are trying to understand where IP fits into their overall business plan.

Simcoe says the government IP strategy sends a message that Canada is serious about protecting IP. But it doesn’t necessarily mean that IP assets will stay in Canada.

“By setting these programs to improve IP literacy and raising the level of sophistication among Canadians about IP in general, that will make Canadian companies better able to protect their IP all over the world,” says Simcoe. “A Canadian company is far, far more likely to apply for their first patent application in the US and or Europe than in the Canadian patent office. By improving IP literacy, and sophistication among Canadian companies, you’re not necessarily increasing the amount of IP rights in Canada. In fact, what you’re doing is causing Canadians to do what they naturally do -- to invest their money to protect their IP in the largest and most important markets, which are usually in the US and Europe.”

Simcoe says he doesn’t think that the IP strategy was developed to keep IP assets in the country. Instead, government is trying to help Canadian companies focus on investing in R&D and not spend time and money dealing with the likes of patent trolls.

Turner, an engineer, also cautions against too much attention to patent trolls and not to confuse them with legitimate companies that buy patents. “It’s very fashionable now to complain about patent trolls. But what startup companies need to understand is that there are companies that buy patents, and that is a perfectly legitimate business, and it is helpful for some companies,” he says. This is true for young companies that invent, patent then pivot from their original plans and move in another direction. “They have patents sitting on their shelf. It’s useless to them, but they are assets that can be converted to cash by selling them to one of the patent holding companies.”

One of the criticisms of Canadian innovation is that firms are creating IP that is exported outside the borders when big companies with deeper pockets acquire Canadian companies, along with the IP assets. This is the reason why some are critical when Canada tries to attract multinational companies to invest in the country. Not only do these big foreign firms acquire IP assets, they also lure away scarce talent.

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