Canadian Intellectual Property Office Submission to Competition Policy Review PanelJanuary 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.

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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

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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 IPoffice. 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.

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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

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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 commercializationpartnerships 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

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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, affectCanada'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 aroundpolicies

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

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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

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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 "high-

value elements."

Sharpening Canada's Competitive Edge identifies factors such as the knowledge

infrastructure, quality of management, and entrepreneurial culture as elements that influence

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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.

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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-IntensiveManufacturingin the UnitedStates"PolicyPaperpublishedbyPrincetonUniversity,July2007

6. ibid.

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