Thank you, Mr. Chair and members.
As mentioned, my name is Grant Lynds. I'm the president of the Intellectual Property Institute of Canada, frequently referred to as IPIC.
Thank you for inviting IPIC to present to you our recommendations for budget 2019 and to answer any questions that you may have about our recommendations.
As you may know, IPIC is the Canadian professional association of patent agents, trademarks agents and lawyers practising in the area of intellectual property.
As this government continues to take steps to support Canadian innovation and economic growth, we believe that our membership is uniquely positioned to help support the government’s objectives. Our members help protect investments in innovation that businesses of all sizes make, thereby forming the backbone of this country’s innovative industry.
IPIC was also excited to hear that this committee has chosen to focus the theme for the pre-budget consultations on how to ensure Canada’s competitiveness. I’ve often been asked over the past few months, especially over the summer, for my thoughts and impressions on the national IP strategy. I always start by providing credit to Minister Bains and other members of government for recognizing the importance of IP to every stage in the life cycle of a business’s growth, and therefore its importance to Canada’s economic growth.
Quite frankly, our members are extremely excited that we have a national IP strategy. It's the core of what we do every day, and to have it enshrined in a strategy makes us very excited. They see their ambitions and their clients' work product to be a part of the government's agenda.
I'm also sometimes asked if there's anything I believe is missing from that national IP strategy. In response, I usually say that the strategy is missing what we would call financial policy incentives to encourage Canadian businesses to develop, protect and commercialize their IP.
In last year’s Standing Committee on Finance report in preparation for budget 2018, the committee recommended that the government create an incentive for businesses to protect their IP by creating a first patent program with a design that is similar to that launched by the Government of Quebec provincially. This program would assist with the expenses incurred by small and medium-sized businesses when obtaining their first patent.
The committee also recommended last year that the government establish incentives for IP development and commercialization through a commercialization coupon for researchers receiving federal grants, as well as an innovation box tax incentive for business revenue derived from commercialization of the IP. The expression “innovation box” or “IP box” that you've likely heard comes from a check box on tax forms to identify revenues derived from exploiting or leveraging intellectual property and applying a reduced tax rate to that revenue.
These recommendations last year ultimately were not adopted in budget 2018, but we believe that the need still exists, now more than ever, and certainly aligns with that national IP strategy. In fact, there was one recommendation about the need to modernize the Canadian tax system to ensure it drives investment and innovation that came from this government’s advisory council on economic growth in the third report, I believe, in December of last year. That was titled “Investing in a Resilient Canadian Economy”. The statement there certainly recognized this advancement, stating:
While investing in physical capital such as factories and equipment once was the primary driver of economic growth, today it is intellectual capital that powers the economy. The value of intellectual property licensed in Canada, for example, has risen from $56 million 30 years ago to over $4.5 billion today—an 80-fold increase. Moreover, Canadian companies increasingly must compete with companies based anywhere in the world.
That report continued by recommending that Canada:
...introduce favourable tax treatment of intangible assets and intellectual property; put all sectors of the economy on a level playing field; maintain competitive corporate tax rates in the face of changing global conditions....
IPIC encourages this committee to once again call on the government in your report to create financial incentives for Canadian businesses to generate and protect their IP. Many countries around the world are starting to see success from introducing this type of IP box tax incentive, and Canada’s major trading partners are starting to notice.
As an example, just last year the United States introduced a new tax incentive, often referred to and called “patent box light”, as they lowered the corporate tax rate on foreign-derived income from licensing IP. It's sometimes called “patent box light” because the U.S. did not go as far on the IP box incentive as some jurisdictions, such as the United Kingdom.
We submit that this presents an opportunity for Canada to ensure our competitiveness by adopting an IP box tax regime in Canada that would be comparable to that of the United Kingdom, not focusing just on revenue derived from patents but also on other forms of intellectual property.
Therefore, our recommendation for the creation of an IP box tax incentive through budget 2019 is enshrined in our written submission.
The second recommendation focuses on what we call the “first patent”. This is really a recognition that we're recommending a rebate for small and medium-sized enterprises or businesses that are starting up to take that important first step of attaining patent protection.
Quebec launched its first patent program in 2015. It offers to eligible small and medium-sized businesses a subsidy on expenses related to obtaining their first patent, meaning they had not previously attained a patent. They want to encourage those SMEs to take that step and, if you will, get on the patent regime. The demand for that program was so great that the funds were quickly exhausted in less than a year.
Our submission is that a similar program at the federal level would allow Canadian start-ups and SMEs that are at the critical point of developing an invention but may not yet have the financial resources to do so to seek that patent protection. By protecting their inventions early and allocating their resources to the commercialization of their business, they will be better placed to establish their business and in the future improve their chances of scaling up their business and growing it both in the country and internationally.
In fact, as a patent and trademark agent and a lawyer practising in this area, I often consult with new clients who don't even recognize sometimes that what they're doing may be subject to patent protection and that they have the ability to seek that first patent. It is a real education when dealing with this, and a first patent program would certainly help those SMEs get on the patent program and learn what it takes to commit the resources, financial and otherwise, to get into the patent regime.
We recommend that the federal government create a first patent program through budget 2019.
In conclusion, our members certainly support the government's goals of pushing Canada forward to be leading innovators in today's competitive world economy. A recommendation of an IP box tax incentive would help spark innovation across the country through lower tax rates, with similar programs already offered at home in Quebec and Saskatchewan, as well as internationally—for example, in the United Kingdom.
Our recommendations on the first patent program would help the start-ups and SMEs protect their initial IP and give them the confidence and expertise to build an IP strategy within their core business plan.