Canadian Intellectual Property Office Submission to Competition Policy Review Panel January 11,2008 I. Introduction The Canadian Intellectual Property Office (CIPO) is the agency of Industry Canada responsible for administering Canada's system of intellectual property (IP) rights; namely, patents, trade-marks, copyrights, industrial designs, and integrated circuit topographies. CIPO seeks to accelerate Canada's economic development by: fostering the use of the IP system and the exploitation of IP information; encouraging invention, innovation, and creativity in Canada; and promoting Canada's international IP interests. As such, CIPO shares with the Competition Policy Review Panel a keen interest in ensuring that Canada's policies and regulatory framework supports the global competitiveness of Canadian businesses, and encourages investment in innovative enterprises. II. Responding to Sharpening Canada's Competitive Edge CIPO wishes to thank the Panel for an opportunity to provide input and comments on Sharpening Canada's Competitive Edge. The Panel's mandate is to make recommendations to the Government on ways to establish the domestic conditions that both encourage Canadian firms to be active and aggressive investors at home and abroad, and maximize Canada's attractiveness as a destination for new investment and talent. CIPO will focus its response to the Panel's consultation paper on two of the four broad themes presented: Promoting Canadian Direct Investment Abroad, and Becoming a Destination for Talent, Capital, and Innovation. The submission will address two of the key questions related to each of the aforementioned themes. -1-
d _d- ------ The submission will highlight the link between a strong IP framework, harmonization, competitiveness, and foreign investment in and out of Canada.. The case of trade-marks modernization is presented because improving the framework for trade-mark registration is a current priority for CIPO. It is hoped that the submission will convey the importance of a clear and modernized administrative framework for IP in supporting both global business models for Canadian firms and stronger investment in Canadian businesses. III. Promoting Canadian Direct Investment Abroad (CDIA) What barriers, eitherformal or informal do Canadianfirms face when seeking to make investments and acquisitions abroad? Canada's economic success is predicated on its integration in the global economy. CIPO shares with the Panel an interest in reducing transaction costs for Canadian businesses wanting to trade and invest overseas. Two key approaches to accomplishing these are to align the rules and institutional practices with those of our key trading partners; and to support this work by engaging in international fora to influence policies and international governance systems in favour of Canada's interests. Over the last decade, significant opportunities to move on both of these fronts have materialized in the area of international harmonization of trade-mark registration and the registration of other types of IP. A trade-mark is used to distinguish the goods and services of one organization from those of others in the marketplace. It is both a badge of trade origin, and a marketing tool that allows consumers to recognize the source and quality of the goods and services they purchase. The World Intellectual Property Organization (WIPO) notes the link -2-
_--d_- ------- between trade-marks and international trade, noting that "the system enables people with skill and enterprise to produce and market their goods and services in the fairest possible conditions.") The trade-mark regime also serves to both improve consumer confidence and to provide incentives for investments in quality by rewarding the owners of trade-marks with recognition and by protecting them from unfair business practices, such as counterfeiting. Modernization of Canadian practices to align with our trading partners, and adoption of international protocols for trade-mark registration would facilitate the international registration of trade-marks to reduce transaction costs for both Canadians and businesses abroad, and to allow Canadians to better protect and enforce their IP rights in a way that may encourage Canadian firms to enter into global markets. All of Canada's major trading partners, without exception, have joined as signatories to international protocols and treaties that provide a system for the international registration of trade-marks. Two current opportunities for harmonization and modernization are the Madrid Protocol and the Singapore Treaty. The Madrid system of international registration of trade-marks offers trade-mark owners the opportunity to have their marks protected in multiple member countries by filing one application for registration with their local IP office. The Singapore Treaty on the Law of Trademarks was adopted by WIPO members with the intention of harmonizing and simplifying formal administrative requirements of the national trade-mark offices of signatory countries by setting standards for registration and renewal of trade-marks. Ratification of the treaty would mean more harmonized policies with respect to registration and maintenance of trade-marks, and a somewhat stronger voice for Canada in negotiating ongoing changes to the international trade-mark regime. -3-
Trade-marks modernization provides only one example of the types of framework improvements that can remove barriers to registering and protecting intellectual property and related intangible assets in international markets. Canada has adapted its patent regime following the ratification of the Patent Cooperation Treaty (PCT)1990 which also had as its objective streamlining and simplifying the process of applying for patents in multiple jurisdictions. The PCT system has become broadly used by Canadian and international applicants (75 % of applications filed in Canada arrive via the PCT system) resulting in significant improvements in administrative efficiencies and flexibility for patent holders. Similar benefits could be gained from other IP harmonization initiatives with respect to the registration of other IP rights (i.e. industrial designs). With each of these system changes, Canadian businesses benefit not only from having a single entry point to intellectual property systems internationally but they also gain from reduced transaction costs and greater predictability in administrative systems. Are there policies and approaches that would be useful in addressing the particular challenges faced by small and medium-sized enterprises as they seek to become global competitors and participants in global value chains? Sharpening Canada's Competitive Edge raises questions about how to adjust policies in a way that would be useful in addressing the challenges faced by small and medium-sized enterprises (SMEs) seeking to become global competitors and participants in global value chains. Outreach initiatives and administrative changes to address the needs of SMEs are high priorities for CIPO. The World Intellectual Property Organization (WIPO) also targets SMEs in their information and outreach activities and has identified a number of ways in which IP protection -4-
may enhance the global competitiveness of small enterprises.2 WIPO notes that enterprises which use IP information to search systematically for conflicting IP rights of others prior to seeking IP protection, or to entering new markets, are able to avoid unnecessary litigation and associated costs. Industry Canada has recently commissioned research on the contexts for stimulating collaborative innovation between SMEs and larger firms.3 It recognizes that acquiring IP rights is often the key objective in mergers and acquisitions. SMEs need access to a great deal of information about the IP held by others so that they can establish niche markets, or leverage the IP they hold to the greatest extent possible in mergers or licensing deals. The study found that one of the main barriers to collaboration is the inability to access potential partners willing to act as commercialization partners. In light of this, improving access to relevant IP data and outreach work to improve the use of this information by small firms and researchers can be instrumental to the identification of successful commercialization partnerships both domestically and internationally. The study concludes with recommendations that government provide better support for technology transfer capacity in universities and promote a culture of entrepreneurship and commercialization in these settings. In its outreach work, CIPO targets universities and SMEs to sensitize innovators to the value of both IP rights and information and the importance of good IP management to protect and share the ideas and grow their businesses. International harmonization of IP registration and administration processes makes seeking IP protection in other jurisdictions a more viable option for many smaller companies. Not only are cost savings involved both in registration fees and legal transactions, but both international and Canadian small businesses benefit from the increased certainty of harmonized rules and -5-
processes. Improving single window access to information about registered IP through these harmonization initiatives and framework improvements also has an impact on Canadian and international firms' identification of potential partners and competitors. IV. Becoming a Destination for Talent, Capital and Investment How do Canada's policies impacting direct investment, both inward and outward, affect Canada's competitiveness as a destination/or FDI and aplatform/or global growth? In asking how to position Canada as a destination for investment and opportunity, Sharpening Canada's Competitive Edge frames the discussion question around policies impacting foreign investment rather than focussing narrowly on foreign investment policy. In this context the link between IP and investment should be recognized. For Canadian firms, failure to protect IP rights or establish freedom to operate abroad can significantly reduce the competitive advantage for Canadian firms for the life of their product or brand. The World Trade Organization (WTO) recognized the critical importance of intellectual property on trade in the negotiation of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), which came into effect on January 1,1995. This agreement was the first multilateral legal instrument to combine IP and trade issues, and it makes protection of IP rights an integral part of the trading system. 4 Member states sought this agreement in the belief that it would "lead to more trade, investment, employment and income grown throughout the world." While the TRIPS Agreement sets out minimum standards for the protection of intellectual property rights, a number of other IP-related treaties and protocols have been negotiated in an effort to harmonize rules and processes for IP registration and protection with -6-
objectives related to increasing international trade and investment. For Canada, a modem and responsive IP system that both serves national interests and is aligned with our major trading partners is a key element in establishing the conditions to improve Canada's position as an attractive destination for Canadian and international investment. In a recent address to the House of Commons Standing Committee on International Trade (April 26, 2007), representatives from the Canadian Chamber of Commerce raised IP protection as one of the key areas of government policy that should be addressed to improve Canada - United States Trade and Investment Relations. More generally, they noted that it is the "tyranny of small differences" between regimes that can impose significant costs on Canadian businesses operating in foreign markets. Addressing these "small differences" through initiatives that harmonize the processes of registration and maintenance of IP rights is likely to effect a positive change in both Canada's attractiveness as a place to do business and in the global outlook of Canadian companies. What mix of policy changes would be required to make Canada apreferred point of entry to, and location in the North American market for the high-value activities of non-north- American business entities? The intellectual property framework and the effective administration of the IP system have significant impacts on the ability of Canada's innovative and high-growth firms to embrace global business models. In a knowledge-based economy, continual innovation is both a product of successful integration in competitive global markets, and a source of Canada's global comparative advantage, given a highly educated workforce and strong research capacity. Intangible assets like patents, trade-marks, and copyrights are increasingly recognized as the most valuable assets of the world's largest and most powerful companies. This is particularly -7-
the case for knowledge-intensive firms, where investment is directed at the best ideas and most recognizable brands. Intellectual capital is the foundation for market dominance and profitability of leading corporations in high-growth sectors. As such, the framework for the acquisition and maintenance of IP rights is significant to attracting investment and supporting a global outlook among Canadian firms. Recent research has established a strong link between IP intensity and what Sharpening Canada's Competitive Edge describes as "higher-value elements of the global value chain."s US economists and economic policy advisors Robert Shapiro and Nam D. Pham have recently provided analysis showing that the market valuation of intangible assets (as a proportion of total - assets) ofthe top American companies has risen from roughly 25% in 1984 to about 64% in 2005, and that this trend is even more striking among firms that are high R&D spenders.6 Their study also notes that, from 2000-2004, IP-intensive manufacturing produced much more value per employee than non-ip intensive manufacturing ($181 000 per worker compared to less than $106000); paid much higher annual wages, on average,than non-ip intensive manufacturing ($51 000 per worker compared to just over $35 000); and generated employment growth while traditional manufacturing employment was contracting (science and engineering jobs grew by upwards of 85% in pharmaceuticals and computer manufacturing in the U.S. during this period, while job growth contracted significantly for the economy as a whole). Ensuring that Canada's IP framework is modem and adaptive to business needs, and encouraging effective use of IP will have an impact on our common objective to make Canada the location of choice for these "highvalue elements." Sharpening Canada's Competitive Edge identifies factors such as the knowledge infrastructure, quality of management, and entrepreneurial culture as elements that influence -8-
investment decisions. Greater harmonization of administrative processes also allows foreign enterprises wishing to invest in or partner with Canadian firms to register and protect their intellectual property without adjusting to as many of the particularities of the Canadian IP system. It is hoped that in highlighting the impact of the framework for registration and protection of IP has on international business decisions, and on the ability of small and large entities to identify partners and collaborators, we will increase the recognition of the links between IP and making Canada a destination for talent, capital, and investment. v. Conclusions In responding to some of the discussion questions provided in Sharpening Canada's Competitive Edge, this submission is intended to highlight the link between a strong IP framework, harmonization, competitiveness, and foreign investment in and out of Canada. Efforts to modernize and harmonize IP registration has been raised as one timely example of measures that have the potential to improve Canada's global business outlook and profile. Given that these system improvements would facilitate the registration ofip rights in Canada and internationally, they would support Canadian companies' efforts to develop brand recognition and markets in the international sphere. Likewise, improving IP data systems could have an impact on the ability of Canadian and foreign business to conduct effective searches for competitors, collaborators, information on freedom to operate, and on sectors of high IP intensity. Each of these can be useful elements in assessing the commercial value of innovations held by Canadian businesses, or those of interest to Canadians investing abroad. -9-
l.see WIPO website at: http://www.wipo.int/about-ip/en/about_trademarks.html#function 2. See WIPO website at: http://www.wipo.int/about-ip/en/studies/publications/ip_smes.htm 3. Donald Rumball "Case Studies of Collaborative Innovation in Canadian Small Firms," Prepared for Industry Canada, (May 2007). 4.http://www.wto.org/english/tratop_e/trips_e/tripfCLe.htm#GATTl94 7 5. Shapiro, Robert and Nam. D Pham "Economic Effects ofintellectual Property-Intensive Manufacturingin the UnitedStates"PolicyPaperpublishedby PrincetonUniversity,July 2007 6. ibid. -10-