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Posted Thursday July 30, 2020


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Build Back Better



If it’s a negative, don’t do the deal,” or at least recognize that you’re going to do the deal for reasons of a political nature - by Jonathan Rohr

The organization is relatively new, and with $30 million in federal funding, received last August, it’s laser-focused on significantly increasing the number of patents Canada has in its roster.

To do this, there needs to be political will and extraordinary changes from the political elite. Because currently, Canada is destined to be a working elephant, with powerful countries like China and the United States feeding it mere peanuts, when they’re enjoying banquets.

“It’s as much of a supply chain issue, as it is an educate-for-innovation issue,” says Jim Hinton, founder of the Innovation Asset Collective. Hinton is a passionate patent agent and Intellectual Property lawyer, who also teaches a course on commercialization of innovation in the masters degree program at Western University.

He says Canada is a selling intangible assets “for bargain basement prices”.


“Huawei has locked up all the key researchers in many of the key universities – like, 13 universities – across Canada ... to make sure that no other Canadian company is going to be able to work with those universities”.


During the last few months Covid-19 has highlighted a systemic problem in Canada – that we lack freedom and control of our essential products that could and will save lives. The issue is patent ownership – or more specifically, lack thereof – and if we continue down this road, the science fiction era that we are still going through could one day lead to Canada being a working colony, with other countries living of the fruits of our labour.

On scale, Canadian IP can be acquired for cheap, taken out of the country and commercialized to another country’s benefit. “It’s a problem,” says Hinton.

Canadians are great generators of ideas – the telephone, the indexing of the Oxford dictionary that led to search engines like Google and Safari, the digital smart phone, sonar and even rubber boats, for instance. Those are just a few local examples created by once great companies.

But we’re not the country that is around when ideas are being commercialized and when money is been made off those ideas.

As Hinton puts it, we’re “missing out on the hockey stick growth… and then the huge returns that come with being a global leader in the technology space and what that market opportunity and positioning will afford for you,” and your country.

93-95% of the value of a company is in the intangible assets, “so you look at the balance sheet, and that’s what you own.” In Canada, that’s what a tech company is: “99% of the biggest tech companies, their software, their code, their patent, their brand, that’s it.”


Hinton’s background is in engineering. From there he got into the IP profession, but what really started exciting Hinton was in 2014, when he started working for the Centre for Innovation and Governance Institute (CIGI) where he ran a “pro bono” IP Law clinic out of Communitech. The goal was to basically “help students with their IP stuff”.

Hinton quickly recognized a systemic issue, that “nobody knows about IP – and it’s the most important part of a technology company.” Ideas are intellectual property, and can be owned, and can be the source of financial gain. But “you can’t commercialize what you don’t own”. And so, IP is how you own your technology.

“It was kind of eye opening” he says, “to see the big gap” in the process, because education and government don’t look “at IP as a business asset”.

Most people believe that IP is just a legal construct, but Hinton disagrees. “It’s just like real property … you have to have proper title… The asset is a business asset,” creating the ability “to make money from your ideas”.

Hinton says that 93-95% of the value of a company is in the intangible assets, “so you look at the balance sheet, and that’s what you own.” In Canada, that’s what a tech company is: “99% of the biggest tech companies, their software, their code, their patent, their brand, that’s it.”

And Canada largely fails at keeping the great innovative ideas as Canadian owned, allowing for a made-in-Canada tag, and all the benefits that come with that, including fulfilling a job strategy.

“It’s been a transition period over the last five years” says Hinton, “trying to communicate the value of where the innovation economy is.” He also states that it’s challenging to have “policy makers react to that”.

Past governments of Canada have fumbled the IP prosperity ball, unlike countries like China, the US and South Korea. These countries all recognized what the linch pin of the global economy would be – and that would be “to own IP”.


Hinton believes there is a better option for our policy makers to consider, taking proactive steps instead of spending time and energy setting up branch plants that are owned by foreign companies, in many cases conglomerates – which by the way is a focus of both all three parties’ political agenda. They see that as an easy route to job creation.

But there is a underlying problem, says Hinton. “When things get tough, then the branch plants disappear, what do we have left? Google is happy to retreat on their SideWalk Labs project back to Mountain View, but when we have Canadian companies [owning and operating on a global scale], they’re not going to retreat, they’re not going to disappear.”

Past governments of Canada have fumbled the IP prosperity ball, unlike countries like China, the US and South Korea. These countries all recognized what the linch pin of the global economy would be – and that would be “to own IP”.

Referring to smart city development, Hinton says, “we own less than 1% of the IP in the Smart City space … [and] because we don’t own that already, we’re subject to have to pay the guys that already existed.”

This should be a red flag to any city embarking on a partnership with the likes of Google and Facebook.

If you’re getting into “the smart city space”, Hinton believes that most companies, including start-ups, “likely” don’t have the freedom to operate in that space, “because you’re building on the shoulders of somebody else.” When you enter that space, and you’re successful, be prepared to lose a lot.

Hinton calls the problem of “freedom to operate”, Canada’s biggest challenge. “We’re coming into a world where if you’re a new entrant to a market … banking future innovation on the start-ups we are creating now, most of the landscape, we don’t already own.”

Because we don’t have this freedom to operate, Hinton says we “sort of have this glass ceiling”, where the owners of the space dictate that you can get to a certain size, but “then other people … the people that own the land that we built our house on … come knocking and say it’s time to pay up.” Think back to RIM.

We’ve all heard of it, and by that time it happens it is a legal issue. This lack of “freedom to operate”, is reinforced by government policy “that is still doing innovation in industry like it was 30 years ago”.

Thirty years ago tech companies were few in number, and manufacturers who made tangible products made up 85% of Canada’s business; intangibles, or tech, totalled 15%. Fast forward to 2020 and the whole thing has flipped, but “the government has not caught up … they’ve come a long way … but they’re not caught up”. Hinton believes that even as recently as 2015, “the Canadian government didn’t get the importance of IP.”

In their haste to attract jobs, our governments set up the IP rules without understanding the game. So 90% of the patents that are filed in Canada are from foreign companies … “so it’s predominately building a revenue stream for them [foreign companies].”

Future opportunity is not lost – we simply need to find some new space and own it. “At the same time, we [Canada] need to be sure that our section of [a new space] is growing, not only in our own domestic market, but globally… there’s a need to reinforce our patents with policy, and thus increase Canada’s freedom to operate for its companies”.

Hinton says China started to realize the game was changing 15 years ago when they “didn’t recognize that they had a lot of IP at the time, it was sort of a new concept for them.” Hinton adds that China decided to take action, and establish ownership of significant IP. So they targeted Canada, as well as other countries, establishing ownership of IP developed here. The strategy moved China from being a nation that realistically was “a non-existent IP owner,” to one of the “biggest filers globally”.

China adapted to the new global reality very quickly. If they were forced to play by IP rules, “then they sure as anything are going to be IP owners,” and “sure as hell, were going to be the one to own the space.” China’s filings and IP generation “have gone through the roof,” says Hinton.

“They’ve recognized that if there going to play the IP game they’re going to play it very well”. Canada has never done that, “and now there is a cold war of IP that is going back and forth between the US and China, not only ratcheting up what types of protections are available but ratcheting up of filings, and who is going to blink on this”.

He adds that then there’s the “incentive for domestic companies to rapidly generate swell”, and so in China’s case, patents are paid for by the government. “They’re subsidizing those [costs], same thing for in the US, IBM filed 9000 patents last year and didn’t pay any taxes.” Hinton says, “there are all sorts of ways these countries are pushing to be these generators. Clearly they are in the game, but where’s Canada? We have our patent rules and have the head of the patent office, who came in from the passport office, so we’re not playing the same game.” In comparison, the last patent director in the US was once a Google employee.

So how to fix the problem?

Canada’s tax rules and funding policies don’t ensure that more patents will be filed by domestic companies – so they need to change. Innovative research projects in Canada are significantly funded by government, up to 50%. Hinton notes that “these are public funds”. Then with “a click of a mouse, [funded researchers] can transfer the IP … then someone else in another jurisdiction can commercialize it”. From a tax perspective, “we’ll never tax the gains on that commercialization … the policy makers don’t even know the value of the IP.” To sum up: the Canadian government funds the creation of IP, and then watches as the IP creators transfer the rights – and thus the profits and potential tax revenues – to an entity in another country. Canada pays; someone else profits.

Hinton is lead on the Innovation Asset Collective, a $30 million federal government patent collective pilot project. “I’ve studied the best practices of comparable global systems, but the ambition is different,” Hinton says. Priorities are not aligned, “we can give $49 million to MasterCard, ‘like on a moments notice’ and then it takes years to do $30 million dollars to do a patent collective for all of clean tech … it’s out of proportion. With the $13 billion dollars of government funding that goes to research institutions … it’s a little bit to validate what we could be doing … and it’s taken two years to even get to this point … It’s something … but there is still a huge realignment that needs to continue to happen.”

Hinton focuses on things like developing a data strategy. Right now, he says, “There is nothing there,” but Hinton believes things can change, “To me it’s a win in that we’re recognizing the value of it. There is such a long way to go. Reorienting is one thing, but then accelerating to be productive is the second thing.”

Last year’s funding of the patent collective is a start. “We have to recognize where our strengths are, from a technology perspective, and where we are investing – clean tech and AI, and data-driven aspects of places where we can focus. Making sure we are looking in areas where we have some capability”.

“There’s a need to reinforce our patents with policy, and thus increase Canada’s freedom to operate for its companies”.


The whole principle behind the patent collective, is to work collectively. “It’s something we’ve been talking about for the past four to five years, around this patent fund, patent collective. That’s sort of the first step. And then we need to have data. IP and data are our most valuable assets, data acquisition and generation and data collectives’ strategy as well for getting access to data so Canadian companies can innovate and grow.”

And we’re up against behemoths, battling the data sets that are held by these big, predominately US private firms. “How can we complete against them, the Amazons and Googles of the world, when we don’t have anything comparable in our areas of strength?”

Hinton believes we could “be far more productive with what we’re doing”, but there are two entities that are not well positioned to deal with IP. The first is “the inventor”, the second is “the university”. Neither of them is commercially-focused.

The problem is deep, especially in a community like the Region of Waterloo, and the current policy and practice are hurting the Canadian economy. “There is nothing that says universities don’t create the best and brightest students globally, that’s what they do well, and basic research, yes, but when it comes to applied research and innovation, there is a net negative. They’re causing more problems than they are good”.

Hinton looks to three places for change. The first, is the provincial Government, the second is the Federal government and the third is from the innovative institutions themselves. Hinton cites a deal made between University of Toronto and LG as an example of the systemic failure. U of T AI helped LG balance their load in washing machines. The deal was done a couple years ago, and U of T received a couple million bucks for it. Instead, U of T could have looked at what the commercial success of holding that patent would entail, and said “no, we’re going to help our domestic companies become champions” of the balanced washing machine, and let our own economy grow. Hinton says, “Right now that they can do these deals and sort of get away with it. And nobody is calling them out and saying, ‘Don’t do that because it’s not helping, ... it’s hurting us’.”

Hinton works with some great Canadian companies who finance great research projects. But to have the skills and ability to make it big is not enough. Hinton states that, “in some sectors, they’re all locked up, like Huawei has locked up all the key researchers in many of the key universities – like, 13 universities – across Canada.” The strategy is very clever: “to make sure that no other Canadian company is going to be able to work with those universities.” Hinton adds, they “put in a little bit of money and [they] basically have made sure that there will be no competitors, coming out of Canada … forever.” Even the students are locked up. It’s an intentional strategy, says Hinton. “It’s a valuable thing – you not only get the outputs, but you also never have to compete with anybody again in that space. These are the best and brightest we are creating, and they’re being locked up – effectively forever”.

Canada is a selling intangible assets “for bargain basement prices”.


Hinton stresses that Canadian innovators have to recognize the space “where we don’t own anything” and then “clear the land and create some freedom to operate, collectively.”

Canada needs to follow through and make sure that Canadian companies own the IP. “We’ll dump the money into it, create it, but where is the global ambition to be the next one that can have it... If we don’t do it, somebody else is, or has already done it. It’s competitive”.

Hinton believes that when properly aligned, seen through the “freedom to operate” lens, each innovation player could ask their team, “How does this increase our freedom to operate in Canada? How does it affect our freedom to operate globally?”

He adds, “if it’s a negative, don’t do the deal,” or at least recognize that you’re going to do the deal for reasons of a political nature. And that, he believes, is not the road to innovative independence, or profitability.


Jonathan Rohr is Publisher of Exchange Magazine Quarterly Edition and exchangemagazine.com This article originally ran in the Exchange Magazine Quarterly Q3 2020 Edition

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