Two new reports released by the Innovation Economy Council (IEC) argue that Canada’s bemoaned lag in IP generation is just one component of a broader set of challenges faced by companies scaling their innovations.
The IEC, which was founded by a group of notable Canadian innovation organizations such as MaRS and Communitech, exists to be a voice for the innovation industry and delivers insights that drive growth and prosperity in the sector. Through these new reports, the IEC argues that Canada’s lag in IP generation is a symptom, rather than a cause, of the challenges in scaling Canadian innovation.
“Intellectual property should be a key part of Canada’s innovation strategy, but it’s not the only factor.”
In the last few years, IP protection has emerged as an important component of ensuring Canadian companies, including tech startups and scaleups, can compete on a global scale. Not only have private sector stakeholders sought to increase IP activity in Canada, but provincial governments, such as those in Alberta and Ontario, have also made efforts to ensure local companies are generating and protecting their IP.
The purpose of IP protection is to encourage the creation of a wide variety of products and services, through giving people and businesses property rights to the information and goods they create.
The numbers suggest the need to up Canada’s IP activity is dire. Canada ranked 14th in filing patents in 2019, and, according to the Canadian Intellectual Property Office, while most SMEs are aware of patents, only two percent of them actually own at least one patent.
Another area of concern is that Canadian firms that do own IP are increasingly being snapped up in foreign takeovers. Of the 1,565 patent families owned by 400 venture-back Canadian firms, 74.2 percent went to foreign buyers in the last three years, according to IEC research.
In one of its reports, the IEC argued these foreign takeovers do not always mean Canada is losing its homegrown IP. The report said the surge in foreign M&A activity could, in one way, be a positive sign for the Canadian innovation ecosystem.
“The flurry of foreign M&A activity is a sign that others see value in Canadian ideas and talent. It suggests the ideas-generation part of our ecosystem is thriving,” the council said.
The report explored the acquisition of Kitchener-Waterloo-founded Alert Labs, which was purchased by US-based Watsco in 2018. According to the report, Alert Labs continues to operate as a separate entity in Canada, and does its R&D, engineering, and sales at home. The acquisition helped Alert Labs triple its number of products sold, double its workforce, and begin selling in an entirely new market.
Eric Byres, CEO of aDolus Technology, argued in the report that keeping IP in Canada does not necessarily benefit a company with global customers. The IEC also argued foreign takeovers can create the seeds of the next wave of company formation, as the capital and talent can spawn new disruptive companies.
“IP that sits on a shelf or languishes in a lab is of little use to anyone,” the report said. “It doesn’t create jobs, spawn companies or address societal challenges.”
The IEC also explored how Canadian companies are creating and protecting IP, arguing that patents are “just one piece of a complex innovation landscape.” Another of its reports said for companies in the life sciences and hardware space, patenting can be essential, but it may not be as necessary for software companies.
The report highlighted that Shopify has grown to be a $160 billion firm with very few patents to its name. Notably, however, the e-commerce giant has recently begun prioritizing its IP strategy, as it goes up against an even bigger retail player: Amazon, which has thousands of global patents. IP experts like Natalie Raffoul have long touted the importance of IP for the growth for companies like Shopify and within the Canadian tech ecosystem broadly.
“It’s not about patents. It’s about having an overall IP strategy,” argued Cynthia Goh in the IEC report. Goh is a University of Toronto chemist who has co-founded several startups.
“It is about understanding what business you are going to be in,” Goh said. “Sometimes companies patent without knowing where they are heading. It can cost a lot of money to protect things that are not needed.”
The IEC highlighted trade secrets as being cheaper than, and just as effective, as patents in executing a strong IP strategy. Keeping IP in Canada means more than just generating as many patents as possible, the IEC argued, rather the objective should be to scale up companies so they are more likely to become acquirers of IP, instead of sellers. To do this, early-stage Canadian companies need more local support, so the ecosystem can be a destination for innovation, rather than a source for it, the IEC said.
“Building a healthy ecosystem is the way to counteract the narrative,” said one of its reports. “IP is only part of the challenge.”
The IEC presented several calls to action as part of its reports focused on strengthening Canadian’s innovation system, specifically through more access to capital, government-created incentives, and commercialization support to scale companies up and create a larger dearth of buyers.
“Intellectual property should be a key part of Canada’s innovation strategy, but it’s not the only factor,” the IEC said. “Ambition, access to capital, talent, government financial support and having a viable business model all play crucial roles.”
Image source Unsplash. Photo by Lagos Techie.