Do strong IP laws stifle innovation?
- Subtitle: Legal Report: Intellectual Property
|Illustration: Enrico Varrasso|
These changing perceptions are among the views that the government’s standing committee on industry, science, and technology (INDUS) is hearing as it undertakes a study on intellectual property focusing on its role promoting innovation and leading-edge technology.
Professor Ariel Katz, director of the Centre for Innovation Law and Policy at the University of Toronto, has been aware of a growing skepticism for some time. “The basic theory of why IP rights are important for innovation is well-understood and straightforward. Research and development are costly, and once something is created it can be easily reproduced. Everyone can use it without sharing the cost and risk of creating it. Therefore, if people can’t get a return on their investment, they won’t invest. On the other hand, rights that prevent use by the next generation of innovators lead to sub-optimal dissemination of information and monopolies which cause problems of their own.”
For those trying to determine when IP law morphs from being productive to counterproductive, it’s difficult to find a clear answer. To find the line, Katz says that people need to ask how broad and how long protective rights should be, and what it is that they are actually protecting. “That’s a series of questions with no easy answer. At some point there is an inverse relationship between the level of protection and the amount of innovation.”
Many think Canada has already reached that turning point, as evidenced by the multitude of opinions on recent reform efforts, particularly on copyright. “A lot of the current reform is driven by the kind of thinking that stronger is better,” notes Katz, “but it is too crude and sometimes just wrong. Reforms only go in one direction — ratcheting up. Places with more relaxed systems sometimes do better.”
Professor Jeremy de Beer of the University of Ottawa’s Faculty of Law told the committee that it should focus on “better IP, not more IP rights.” He advocates a recognition that not everyone wants to handle IP the same way. He endorses a more creative use of IP rights known as “open innovation,” where you use IP rights to facilitate collaboration rather than as a tool of exclusion.
Katz has seen this in the copyright arena, particularly with respect to open-source software. “If you write some code, you allow everyone by licence to change it for free. The only condition is that what they produce is subject to the same terms. This is a defensive use of copyright to ensure the openness of the system. This is also being used in the patent arena by research organizations. It’s a reverse way of using intellectual property rights.”
Apart from the opinion evidence it is gathering, the committee also has access to a wealth of reports and precedents. The international community has been grappling with the same issue and many countries have gone through a modernization of their IP systems in recent years. Canada is subject to the World Trade Organization’s TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement and can access the World Intellectual Property Organization’s increasing resource of templates and treaties for guidance.
However, it is important that the goal of global harmonization does not obscure the search for a custom-made Canadian solution. “If we simply copy what other countries are doing, we may be repeating the same mistakes, and we won’t know if we have nothing to compare it to. When there are differences that don’t serve any purpose and just increase costs, they can be removed, but otherwise there is a lot of value in competition and experimentation,” says Katz.
At home, there have been five major reports in the last five years addressing changes required to boost innovation. Many cover aspects other than IP, but most at least touch on it. Only five years ago, INDUS undertook an extensive study of IP in Canada and produced a widely endorsed report declaring the need for urgent action. However, of its 19 recommendations, only two or three have been acted on.
While some stakeholders have called for more studies, it is evident most are impatient with the lack of action. Graham Henderson, president of the Canadian Recording Industry Association, describes the issue as having been “studied to death” and says his presence before the committee had a “disconcerting sense of déjà vu.” Adam Herstein, a partner of Pitblado Law in Winnipeg, thinks the government should stop writing reports on innovation and “get out of the way.” He prefers a hands-off approach, leaving the commercial markets to find their own way. “Governments don’t innovate — inventors innovate, creators innovate. I’ve seen a lot of good projects die because of government.”
What lawyers are saying is Canada already has a strong IP framework, and all that is required are statute- and system-specific improvements. The process bringing the Copyright Act into the digital age, and the regulatory review into the Trademarks Act are all seen as extremely valuable reforms. “C-11 has gone a long way towards fixing things,” says Mark Eisen, the president of the Intellectual Property Institute of Canada. “We are hopeful that countries that feel Canada is lagging behind in this area will be satisfied.”
Philip Lapin, a partner of Smart & Biggar in Ottawa, says most trademark reforms deal with procedures, one major substantive change is that trademarking of soundmarks is now allowed. “As in other parts of the world, the Canadian office will now register holograms, motion marks, and sounds.” He also applauds the recent improvement of efficiency at the Trademark Office. “It used to take 18 months to two years, now it’s six months or less.”
The consensus seems to be that patent law and the industrial design regime need this same attention. Witnesses at the committee from the university sector indicated with the high cost of drafting and prosecuting patent applications, as well as the long time to issuance, few patents can be supported by a university without a financial partner. Many applications are abandoned before commercialization is realized. Other witnesses blamed the patenting process for consuming too much of a company’s resources. There has also been talk of emerging problems such as patent “thickets,” where patents are bundled in a way that creates obstacles and uncertainty, and the predatory behaviour of non-practising entities that purchase patents to monetize them through lawsuits.
Eisen believes the problems in the patent area are indicative of ones in the IP system as a whole. “It is very expensive to obtain protection and it is very expensive to litigate. I hope that the committee process will spur a recognition that our statutes have fallen behind markets and technology. This is an opportunity to update them.”
Robert Storey, of Bereskin & Parr LLP in Montreal and a past president of the Fédération Internationale des Conseils en Propriété Intellectuelle Canada, says the biggest controversy that needs to be addressed is what may or may not be patentable. He refers to the recent Federal Court of Appeal decision on Amazon.com Inc.’s “one-click” patent. “One of the decision’s highlights was the importance of establishing with as definite lines as possible what constitutes patentable subject matter.” Storey also cites the deemed abandonment provisions as being badly drafted and in need of correction.
Eisen thinks one of the most important parts of the equation is to have skilled and experienced examiners at the Patent and Trademark Office who hold the same notion of what is patentable or what is registerable as a trademark as IP professionals. He referred the committee to the Amazon case as an example of where the profession and the patent office were working at cross-purposes, saying, “It’s extremely inefficient, resulting in many office actions and spinning wheels.”
The Industrial Design Act is also seen as needing urgent attention. Storey notes it was drafted well over 100 years ago, and was badly done then. “CIPO examiners struggle with it and there is not a lot of jurisprudence to guide them. There is great scope for improving how it could be used.” He cites the fashion industry as one market that could benefit from access to a low-cost form of protection. Lapin points to the problem that applications are reviewed on the basis of previously lodged designs, not on whether there are similar designs that are already out there.
There are also proposals for court reform. Eisen speaks of the need for incorporating new technology and ensuring the court process is cost-effective. Specialist IP courts are becoming something of a global trend and there have been calls for the Federal Court to split off its own patent court. The Federal Court is currently reviewing its rules and one of the issues on which it has requested submissions is whether it should adopt specialized procedures for different types of cases.
Lapin believes most patent lawyers are in favour of a separate court. “It’s such a complicated area and can be intimidating to judges who don’t have a science background. Patent lawyers are always worried that they will get a judge who doesn’t understand the invention.” Storey is one patent lawyer who disagrees, saying there is already harmony between jurisdictions. Katz is also not a fan of a specialized patent court. “You can have a patent dispute where the most important thing is not actually the patent. You need jurisdiction to address all the other issues and look over how the patent problem intersects with other problems. Another advantage of the general court is that parties are not limited in the kind of legal claim they are allowed to bring. They can bring up anything that is relevant.”
For Katz, the message coming through from all sectors is a recognition that there is much more nuance to all these issues. “Our IP laws are the strongest they’ve ever been and strong if you look at international comparisons. If we don’t perform well it’s not because the laws aren’t strong. They may be too strong. The committee should pay attention to that.”
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