"Innovation without IP is philanthropy”: Superclusters must protect Canadian IP, say experts

Canada’s innovation superclusters need rigorous intellectual property strategies to ensure IP generated in supercluster projects stays in Canada and benefits the national economy, say two of the country’s top IP specialists.

IP strategies should be designed to protect the IP of smaller Canadian companies participating in the five superclusters, say IP lawyer Jim Hinton, founder and principal at Own Innovation in Waterloo, Ont., and Peter Cowan, founder and principal consultant at Northworks IP in Victoria, B.C. The risk is that the clusters’ large foreign multinational members, with much greater IP expertise and resources, could transfer or simply acquire the Canadian SMEs’ IP, data and other valuable intangible assets.

“The question is: Who’s going to end up being able to commercialize the IP that comes out of this and is it going to benefit the Canadian economy?” Hinton told RE$EARCH MONEY. “I think this [IP strategy] should be the cornerstone of the superclusters. But I’ve always been concerned it’s sort of been an afterthought or a hindrance more than a driver.”

[rs_quote credit="Jim Hinton" source="Own Innovation"]Innovation without IP is philanthropy.[/rs_quote]

“I think it is a critical issue,” says Peter Cowan, founder and principal consultant at Northworks IP in Victoria, B.C. “It needs to be dealt with and talked about and some creative solutions need to be proposed and built around.”

Hinton and Cowen say the five superclusters should ensure their smaller Canadian SME members have access to a level of IP protection, expertise and legal advice similar to what’s available to multinationals. “Innovation without IP is philanthropy,” Hinton says. “Then we’re giving it away and the economic advantage goes to whoever is best positioned to capitalize on it.”

Only 9% of innovative SMEs in Canada had an IP strategy as of 2017, according to estimates by the Canadian Intellectual Property Office and Statistics Canada.

There also needs to be provisions that a foreign multinational in a supercluster can’t simply buy a Canadian SME member along with all its IP, the two IP experts say. Cowan suggests that in the event of a foreign acquisition, if taxpayer-funded capital has been used to build the IP, the government and the superclusters could require provisions to ensure that IP access is still available for other Canadian companies.

Agreements with ISED

Each supercluster, as part of its contribution agreement with ISED, had to have preliminary IP strategies in place and signed off by ISED Minister Navdeep Bains.

On one hand, ISED’s guidelines said the superclusters’ proposed IP strategies would be evaluated on how they will benefit Canada’s economic development. But on the other hand, the guidelines also required that all supercluster-supported IP be either owned or licensed “in a manner that maximizes accessibility” to supercluster members, which “should be able to execute that right substantively.” ISED even gave superclusters the option of providing greater IP access to members that make a greater financial contribution to the clusters, including the right to sell or otherwise commercialize the IP.

Each supercluster’s IP strategy and projects strike a balance between facilitating access to IP to promote innovation and protecting members’ commercial interests, Hans Parmar, media relations advisor at ISED, said in an emailed response to R$’s questions. “As part of their project plans, participating firms must develop an IP agreement that includes a description of the intellectual property that is expected to be generated by the project and the applicants’ agreed ownership and licensing terms governing access to the intellectual property.”

As for the possibility that a foreign multinational will acquire a Canadian SME, Parmar says the superclusters’ approach to IP “is intended to provide members with flexibility to adapt to dynamic technological and business environments and maximize the value of their IP.” In addition, the government’s national Intellectual Property Strategy aims to build sophisticated IP actors who can use IP strategically to grow to scale, Parmar says.

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Economic stakes are high around IP

Smaller SMEs with a critical piece of IP can have substantial leverage, Cowan says. “But there’s going to have to be a boost in understanding by the SMEs and coaching by the superclusters to make sure the SMEs are well versed in the value they can bring and negotiate.”

The economic stakes are high for getting IP right. Microsoft, for example, is a member of and industry investor in four of the five superclusters, and also is a project partner in one of the B.C.-based Digital Technology Supercluster’s initial seven projects. The project is to develop a platform to aggregate and analyze geospatial and earth observation data that can be used by the natural resources sector. The worldwide market for such products is an estimated $10 billion. Boeing is a partner in another project, a proof-of-concept to apply digital twinning to the manufacturing of aerospace components – a global market expected to reach more than $1 trillion by 2025.

The Digital Technology Supercluster, which was still advertising five months ago for an IP manager after launching its initial projects, didn’t respond to R$’s questions about how IP is being handled for these projects.

The Atlantic Canada-based Ocean Supercluster’s first project on advanced seafloor imaging, in which the supercluster is investing $5.9 million, is being led by Kraken Robotics based in St. John’s, Nfld. Kraken’s management declined to talk to R$ about how IP is being handled, saying it was too early in the project’s contracting process. The global market for such technology is projected to be about $4 billion by 2023.

Project partners decide on sharing IP

Kendra MacDonald, CEO of the Ocean Supercluster, says each supercluster has an IP rationale that outlines how IP should be approached and shared for every project. Each supercluster will also create an IP registry to develop, protect, commercialize and share IP.

“But it’s truly up to the project participants to decide [how to handle IP],” MacDonald says. “It is based on the company’s decision around their commercial interests and around the IP and how much they decide to share.”

Of the five superclusters, only the Ontario-based Next Generation Manufacturing Canada (NGen) supercluster has made its detailed IP strategy publicly available, on its website. NGen requires a legally binding collaboration agreement, which the supercluster must approve, for all projects, Rhonda O’Keefe, NGen’s manager of IP, said in an email to R$. The agreement includes the agreed-upon rules on how IP generated in the project will be used and shared, she says. “Every company understands what they are getting into when they sign that agreement, because they wrote it.”

NGen provides guidance on IP to SME members through workshops and advice on IP protection, including that companies obtain their own legal counsel, O’Keefe says. In the event of a foreign multinational acquiring a Canadian SME, NGen can suspend or stop project funding if there are “material changes” to the project and its collaboration agreement, she says.

Hinton, who’s also IP advisor to the Council of Canadian Innovators, says there’s an opportunity for the superclusters to be a test bed for more sophisticated Canadian IP strategies that could be models for other fledgling clusters. “[The superclusters] have been paid by public money to build these IP strategies. It would be good for other people that are clustering to be able to learn from that.”

R$