Montreal — Canada has the right conditions for innovation, with its skilled workers, strong research institutions, generous tax credits, active venture capital scene and access to the large US market. Yet its record on patents and development of intellectual property (IP) is modest, at best, says a new study from the Institute for Research on Public Policy.
Drawing on US patent data that include the largest number of Canadian patent applications in the world, Nancy Gallini (Vancouver School of Economics) and Aidan Hollis (University of Calgary) find that Canadians are increasingly likely to transfer or sell their IP to foreign entities rather than continuing to develop it in Canada. Tracking US patents that have at least one Canadian inventor over a 20-year period, they show that the share of Canadian-invented patents transferred to foreign firms on the date of issue more than doubled, from 18 to 45 percent. Of the patents that remained in Canada, many were subsequently sold off or reassigned. “The bottom line is that many Canadian-invented patents do not result in Canadian-owned patents,” say the authors.
Patent ownership, they argue, is a key factor for Canadian innovators looking to commercialize their inventions and scale up. “By establishing their property rights through patents, innovators are better able to obtain financing and ward off competition. Without it, their ability to pursue future research or production in the area may be impeded.”
Changes in US patent policy and a litigious environment may have tipped the balance in favour of selling. This is especially true for small and medium-sized enterprises, which account for a significant share of the country’s innovation activity, but often cannot sustain the legal and licensing costs entailed in developing their inventions. The rise of dominant US technology firms that are both fierce competitors and keen buyers of Canadian IP has also increased the incentive to sell and not scale up.
The authors caution against policies aimed at impeding the sale of IP in Canada to foreign buyers, as they could be counterproductive for research activity necessary to enhance the country’s innovative capacity. “In a small, open economy such as Canada’s, strengthening intellectual property laws or raising the cost of IP sales is not likely to have much impact on scaling-up activity. More important to Canadian inventors is the ability to obtain and retain ownership of international patents in order to operate in global markets,” they say.
However, policies aimed at educating innovators on the value of patent ownership, and, more importantly, mitigating the costs and other bottlenecks in accessing global markets, could efficiently tip the sell-versus-scale-up balance toward the latter and increase the returns on Canadian research investment.
Promising measures to that effect are being implemented as part of the federal government’s Intellectual Property Strategy. Nevertheless, Gallini and Hollis conclude, further policies and incentives are required to encourage more Canadian innovators to retain their IP and help Canada make the most of its innovation potential.
To Sell or Scale Up: Canada’s Patent Strategy in a Knowledge Economy, by Nancy Gallini and Aidan Hollis, can be downloaded from the Institute’s website (irpp.org).
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