Adam Froman is the CEO of Delvinia. Steven Denney is a researcher with the Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs and Public Policy.
The economy of today is increasingly defined and driven by an “intangible shift,” with economic growth powered by investments in intangible assets. As experts on the matter made clear in a 2020 report to the Government of Ontario, no other intangible is more important than intellectual property (IP). Patents, trademarks, trade secrets and copyrights will drive growth and prosperity in the 21st century.
Too many today, however, are often unaware of how to capitalize on their IP and navigate global markets, where IP is king.
Statistics Canada’s recently published Intellectual Property Awareness and Use Survey, 2019 underscores the importance of intellectual property. Firms holding IP are growing fast and spending more on R&D. More than a quarter (28.4 per cent) of IP holders grew at an annual average of more than 21 per cent between 2017 and 2019, whereas only 14 per cent of those with no growth (or negative growth) had IP. Furthermore, half of R&D spenders have IP (50.3 per cent), while only 14.6 per cent of enterprises not spending on R&D do. We do not know whether these firms would have grown or spent on R&D without holding IP, but the association is noteworthy nonetheless.
Canadian entrepreneurs, research shows, are not well informed about protecting and maximizing the potential value of their IP as they scale. As documented by Nancy Gallini and Aidan Hollis, rather than use their IP to support the scaling of new businesses in Canada, entrepreneurs “sell their intellectual property (IP) to foreign entities, forgoing the opportunity to control the exploitation of the patented technologies that they pioneered.” The authors find that between 1998 and 2017, the share of patents transferred to foreign entities increased from 18 per cent to 45 per cent. Canadian entrepreneurs see a choice between scaling globally and selling their IP, rather than seeing IP as central to their growth.
As established, entrepreneurs in Canada do not suffer from adverse startup conditions. The problem lies with firms at the cusp of going global. They are Canada’s cohort of scale-up firms – businesses that have achieved high-growth status. They are market-proven, having run the gauntlet of the early growth stage, and are poised for international expansion – conditional upon securing growth capital without losing control and possibly ownership of the company.
But what kind of support do scale-up entrepreneurs need?
Our research on Canadian scale-ups indicates that while most entrepreneurs are aware that IP is something to take seriously, they are not sure how it can bring value to their firm or otherwise be used to support further growth. Patents are an obvious way to establish property rights and signal to potential investors, financiers and other businesses what a company is about and what it plans to do. But as IP expert Jim Hinton argues, even the most successful technology companies do not seem to appreciate the importance of their IP.
There is a clear need for IP education, tailored for fast-growing firms with commercialized technologies in Canada. These are companies on the cusp of expanding to global markets. Such firms may have protected their trademarks, but many still need to secure their freedom to operate (FTO) to ensure their growth will not be disrupted or totally derailed by patent infringements or, worse, patent trolls.
Properly executed, an FTO strategy will elevate a company’s “IP literacy” so it can protect its business as it expands internationally. The company will also become better informed about the potential for turning its innovations into standards – the holy grail of IP. But this is not an easy feat. It requires firms to adapt their internal processes, such that an IP strategy becomes an embedded part of the firm’s innovation and R&D activities and, eventually, the company’s culture.
The federal government is not unaware of the challenges facing Canadian companies. In 2018, Innovation, Science and Economic Development Canada (ISED) launched the Intellectual Property Strategy to “help Canadian entrepreneurs better understand and protect intellectual property.” Such efforts have been matched by university-based solutions, such as the University of Toronto’s IP Education Program. Building on the government’s IP Strategy, the 2021 budget devotes additional resources for services and education. Through the Industrial Research Assistance Program, $75-million has been committed over three years to help high-growth firms get the IP advice they need. Innovation Minister François-Philippe Champagne backed the funding with a pledge to focus on retaining Canadian IP.
That the government and industry actors acknowledge IP’s importance is an encouraging development. This is an IP awakening. But it remains unclear how these newly funded services and additional government programs will help those who need it most. We need to ensure that scale-up entrepreneurs are better educated and supported. If we cannot reverse the trend of promising firms selling off their IP-rich companies to foreign buyers just as they reach scale, no amount of IP education or advisory programs is going to save us.
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