Natalie Raffoul is a patent lawyer, registered Canadian and U.S. patent agent and a member of Ontario’s Expert Panel on Intellectual Property.
There’s been a lot of concern, and a lot of misconceptions of late, about protecting intellectual property and helping businesses deal with so-called “patent trolls.” It’s important, first of all, to understand that “intellectual property” (IP) is an umbrella term for creations of the mind, such as inventions, literary and artistic works, designs, and symbols, names and images used in commerce. Intellectual property “rights” refers to the assignment of property rights through patents, copyrights, designs, trademarks etc. These property rights allow the holder to exercise a monopoly on the use of the item for a specified period. When we are discussing national policy around intellectual property “rights,” we need to clarify the type of property right.
Dealing strictly on the issue of patents, the concern is that non-practising entities (NPEs) are corrupting the patent system. An NPE is an entity that holds a patent for a product or process but has no intention to develop it. Under that definition, any Canadian university that holds patents is an NPE, just as Ottawa’s WiLAN – one of the world’s top patent licensing companies that has licensing agreements with more than 320 of the world’s largest technology companies worth more than $900-million – is also considered an NPE.
One recent article in The Globe and Mail suggests that NPEs target the “patents” of practising entities. When an NPE asserts its patent(s) against a practising entity, the NPE is targeting the activity of the practising entity – not its “patents.” Generally, most NPEs, including universities, are seeking fair and reasonable compensation for their patent(s) through a licence. Aggressive NPEs that have been called “patent trolls” typically target larger companies and often assert portfolios of defunct small- and medium-sized enterprises (SMEs) to the benefit of those who initially invested in them. Some NPEs also enable SMEs to leverage their patent assets or keep larger companies from infringing on the technologies of these smaller companies. While NPEs should be regulated to ensure ethical business practices are upheld, they are an important market force.
The concern that patent trolls are targeting Canadian startups is also unfounded. Patent trolls aren’t concerned with prerevenue or low-revenue-generating startups. However, profitable Canadian SMEs (that is, not startups) operating in the United States are being targeted by U.S. patent holders.
All that said, the issue of patent assertion is not as bleak a situation as many paint it to be. Many of our SMEs are successfully fending off these patent assertions by NPEs, and there are mechanisms, such as inter partes review and re-examination at the U.S. Patent and Trademark Office, that are a cheaper alternative to U.S. patent litigation and which enable our SMEs to invalidate weak patents.
Concerns that multiple overlapping IP claims are creating gridlock are also questionable. By definition, each patent covers a unique invention. A patent must have novelty and cannot be obvious. One idea, one patent. That said, ideas are built upon ideas. Company A may have a patent on a new product idea and then Company B develops an improvement on that product. For Company B to sell Company A’s product in combination with its improvement, Company B may need to license a product patent from Company A. Company B could also offer a license to its improvement back to Company A in a cross-licensing arrangement. If Company A refuses to license its patent to Company B, then Company B has three options: (1) if possible, invalidate Company A’s patent; (2) wait until Company A’s patent expires; or (3) develop a workaround to Company A’s patent. Most companies will innovate and choose option (3), and that is the premise of the patent system: to spur innovation.
We cannot develop a “made-in-Canada” solution for patenting Canada’s innovation. The reality is that, for most Canadian companies, a Canadian patent is really of secondary value – many of our companies don’t even bother to seek patents in Canada, and they focus their patent protection in the United States, Europe and China. Our Canadian companies are competing on a global scale and we need to play by the rules of this global patent game.
The discussion around patenting activity in Canada should also move beyond the question of whether to patent (of course they should) to one of helping our Canadian startups and SMEs with the costs associated with global patenting activity. In Quebec, the First Patent Program has been very successful in providing “matching” funds up to $25,000 to Quebec companies seeking their first patent. We should look at a similar program across Canada.
Such incentives are critical because investors are interested in funding Canadian startups that have patents or patents pending. If the startup is not successful, investors may be able to leverage the patent assets to recover some of their investment. If the startup is successful, the patents enable the startup to protect its market share and, if it so chooses, generate additional revenue through licensing the patents to competitors or companies in other fields. Patenting rates of Canadian entities are very low in comparison to other countries, such as the United States, Britain, the Scandinavian countries, Switzerland, Germany, Japan, China, Israel and so on. As such, Canadian SMEs have significant ground to make up in terms of patenting their innovations and the focus needs to be global if Canadian companies and innovation are to flourish.