At a congressional briefing in Washington DC on Tuesday, December 19 sponsored jointly by the Creatives Rights Caucus of Congress and ACTION on Trade, I addressed the question of how a revised NAFTA, particularly intellectual property (IP) and electronic commerce (EC) chapters, might encourage innovation. In those remarks I presented MLI research to the effect that strong IP laws improve trade. Nations that strengthen their IP laws are more likely to trade and are more likely to trade with one another. Another facet of this improved trade is foreign direct investment (FDI) and cross-border technology transfer, which correlate very strongly with strong IP rights in the recipient country. Canada greatly benefits from FDI. It is a powerful force in building national and international innovation networks and in increasing economic productivity.
Canada has relatively strong IP laws but has some way still to go, as evidenced by its continual place on the US Special Trade Representative’s Special 301 report, an annual list of IP malefactors maintained by the US government. As a consequence of its decline in relative strength in IP Canada has seen its rate of R&D investment decline for several years, alone among OECD countries. There is a strong correlation between strong IP and R&D investment.
Canada seems to worry that its trade deficit in IP protected goods means it needs weaker IP rights. But trade deficits reflect consumer preference, as much as sectoral strength. Moreover strong IP rights encourage more production which over a short period of time will overcome any losses from short term cash transfers by trade deficits caused by strengthening IP. Data are clear on these points. And indeed, Canada’s trade deficit in technology goods is modest, at around 20% of a robust trade, and according to Statistics Canada it runs a surplus in trade in Copyright goods and services combined. Strong IP rights are important to allow smaller firms to compete, and Canada’s is an economy of smaller firms. Strong IP rights are to our advantage—but our national insecurity mistrusts that the call for them originates with our strongest trading partner.
There are signs of hope. Canada recently did away with the promise doctrine, a peculiarly Canadian utility requirement for patents that invalidated numerous pharmaceutical patents and resulted in a NAFTA challenge by Eli Lilly. Fair dealing, the Canadian equivalent of fair use under copyright law, had grown far out of hand. A recent Federal Court case reined it in very effectively. And the Supreme Court of Canada protected IP rights by sustaining a worldwide injunction requiring Google to take down listings of infringing sites—an order the enforcement of which, unfortunately, has been delayed by a California court. On the Internet front, in spite of Canada’s weak notice and notice regime, Voltage pictures has been successful in requiring disclosure of the names of illegal downloaders by ISP’s. In fact the weak notice and notice regime encourages such costly and potentially punitive actions by rights holders, since notice and notice does nothing to protect their interests.
It is regrettably hard to figure Canada’s IP trade policies, although they seem to be tending towards a preference for weaker rights. Our participation in the Trans-Pacific Partnership (TPP) was recently called into doubt when Canada rudely backed out of a signing ceremony at the last moment, ostensibly over the IP rules in the text, ones it had long ago agreed to. The TPP’s IP rules are good ones, good for Canada, and Canada should not cavil.
Discussion of IP in Canada is timely. The government of Canada in its recent budget announced its intention to create a new IP policy, and 2018 will be the review of Copyright Act under Standing Committee on Innovation, Science and Economic Development.