Canada’s Intellectual Property (IP) Strategy was introduced in 2018 to modernize its IP regime. Canada has divided the IP strategy into three buckets: IP Awareness, Education and Advice; Strategic IP Tools for Growth; and IP Legislation. The aim is to create an ecosystem that will encourage Canadian businesses to focus on and emphasize IP rights and protections. This, in turn, will hopefully allow Canada to compete more effectively in an increasingly global economy.
A modern IP regime is crucial not only for Canadian businesses, but is a significant consideration for the government as well. According to the World Intellectual Property Office (WIPO), Canada ranks 17th overall in their 2020 Global Innovation Index (GII). This overall ranking results from Canada being ranked 9th for Innovation Inputs and 22nd for Innovation Outputs. This wide margin is concerning. It means that Canada’s Innovation Inputs (i.e. investments in research, talent pools, market sophistications, etc.) are not efficiently translating into productive Innovation Outputs (i.e. knowledge creation, business and market growths, intangible assets, etc).
Canadians are not patenting in Canada. In the most recent IP Canada Report, it was found that Canadians make up only 12% of patent filings in Canada; it is ranked 2nd behind the US which accounts for 46%. Further, Canadians submitted 4,348 patent applications in Canada but then submitted 13,301 patent applications in the US. What makes this statistic particularly alarming, is the fact that Canada has a strong and healthy innovative environment, but Canadians are just not exploiting and commercializing their products in Canada. Their IP is getting bought out by or transferred to foreign entities, which means less money flowing back into Canada. Having said that, Canada’s IP strategy represents a concerted effort by the government to improve their IP regime systematically, starting with educating Canadians about the importance of IP.
The strategy still falls short in helping Canadians acquire IP rights and protection. IP is expensive, especially when it comes to patenting. Patent protection can get even more expensive when considering the possibility of having multiple patents protecting a single product and the cost of enforcing patent rights through litigation. One potential legislative response is to reduce patent fees by changing the definition of ‘small entity’. Currently under Canadian Patent Rules section 44(2), a small entity has “50 employees or less or is a university”. Canadians who claim small entity status receive a 50% reduction in fees for obtaining and maintaining a patent. In the US, a small entity also receives a 50% reduction but the definition of a small entity covers 500 employees or less. There is good reason to align the Canadian definition to that of the US.
Although helping Canadians acquire IP rights is important, businesses should also be encouraged to exploit those rights in Canada. One method is to implement tax incentives that encourage commercialization. In the past few years, several countries have introduced patent boxes (also known as innovation or IP boxes). A patent box provides tax incentives to businesses where income derived from certain qualified IP assets is taxed at a lower rate. Variations of the patent box have been implemented provincially in Saskatchewan, Quebec, and British Columbia, but not been implemented nationally. In a journal article that evaluated the effectiveness of patent boxes, the authors stated, “If the objective is to generate more domestic R &D activity, ex ante expenditure-based incentives may be preferable to a patent box. If, on the other hand, the objective is to retain tax revenues associated with patent income, a patent box is more suitable.” Theoretically, patent boxes are quite appealing and warrants consideration as a policy tool.
Yet there are also reasons for concern. In 2016, Jason Furman, Chair of the US Council of Economic Advisers criticized patent boxes and characterized the resulting international economic competition as “a race to the bottom” for tax cuts. Australia’s Department of Industry, Innovation and Science in their Patent Box Policies report echoed Furman’s concern and added that patent boxes are “open to abuse” by corporations and may only produce a limited and temporary effect. Ultimately, Canada needs to approach the patent box idea cautiously and see whether its benefits outweigh the costs in achieving national objectives.
Written by Ryan Wong, Osgoode JD Candidate, enrolled in Professors D’Agostino and Vaver 2020/2021 IP & Technology Law Intensive Program at Osgoode Hall Law School. As part of the course requirements, students were asked to write a blog on a topic of their choice.