Kean Birch is Associate Professor, Department of Geography, York University
As a university researcher, I talk to many new technology companies, their investors and the various policy-makers and stakeholders who are financially and politically invested in their success. Often, I’m left with a sense that their intellectual property (IP) is both a blessing and a curse. On the pro-side: holding an IP asset – usually a patent – gives companies something to show investors, in the hopes of receiving some investment. On the con-side: the same IP asset can end up becoming a large target for unscrupulous “non-performing entities” – perhaps better known as “patent trolls” – or larger competitors to aim at. Basically, a patent troll or large competitor can quite easily drive a new tech company into the ground with the threat of litigation; who, after all, wants to invest in a company with an impending court case hanging over them?
The federal government’s recently announced “patent collective” plan is meant to mitigate these sorts of threats and legal bullying with the ultimate aim of driving forward technological innovation. All well and good, but I’m left with a question: Will the federal government’s plan actually achieve what people want it to achieve? It might, but it might also generate side effects that are equally problematic.
Let me try out a metaphor: IP assets are like roads, the more of them you build the worse things get. And anyone living in a city like Toronto or Vancouver knows how bad congestion has got. As Columbia University law professor Michael Heller points out, the more IP assets you have, the more they create a “gridlock economy” in which overlapping IP claims end up actually stifling innovation.
I am specifically calling IP an asset here because this is part of the gridlock problem. IP is an asset because it’s the main way that new tech companies can identify and monetize their activities; most produce nothing, most never make any money and most have no clear revenue streams at the start – except, that is, from selling or licensing their IP.
But that means that IP assets are the only thing of value they usually have. Even if they survive for a few years, the main way that new tech companies realize value for their founders and investors is through their sale to a larger company. Small and highly innovative tech companies – in Canada and abroad – are sold to their larger competitors all the time, since this provides a larger return to investors than most public market offerings, which are actually a rarity. If they don’t sell out, then they sell their IP in order to finance further research. Either way, IP assets are not being commercialized by most of these companies; they are not being turned into new products or services. Rather, IP ends up as a way to make money for investors or a way to finance the development of further IP.
A more worrying issue arises around IP assets, though. Two international-law professors – Rochelle Dreyfuss from New York University and Susy Frankel from Victoria University of Wellington – point out that the understanding and treatment of IP in international law has changed quite significantly over time, moving from an incentive to a tradable commodity to an investment asset as bilateral trade and investment agreements have replaced more general World Trade Organization rules.
This assetization of IP – as they call it – has meant that IP owners can claim damages from governments in opaque investor dispute panels designed to protect those owners against direct or indirect expropriation resulting from government policies – whether those policies have a democratic mandate or not. And, it is important to note, expropriation can refer to an expectation of future earnings. So, as IP proliferates, it not only leads to economic gridlock, it also locks-in our societies to a range of expectations about the future that we have no say over as citizens.
It doesn’t matter where the IP is developed or where it is commercialized in this regard. Rather, IP has become a way to signal financial worthiness rather than an incentive to innovate new and useful technologies. It is one of the reasons that we’ve ended up with massive investments in Uber and autonomous vehicles, rather than something useful like public transit; it’s safer, financially speaking, to invest in an IP-intensive company whose aim is to capture and monopolize existing markets – “disrupt” them in management parlance – than it is to invest in existing and unprotected technologies that might require us to change the way we live.