Is Blackberry’s patent hoard a ‘strategic national asset’?

[An adapted version of this piece is now published in Policy Options, the policy magazine published by the Ottawa-based Institute for Research on Public Policy. You can find it at : www.irpp.org/en/po/in-the-national-interest/ ]

News that Blackberry is preparing to lobby the Canadian government over a potential foreign-takeover of the Waterloo-based company shouldn’t surprise anyone. The Investment Canada Act (ICA) requires review of any foreign-takeover of a Canadian company valued over $344 million. In theory the ICA facilitates a determination of whether such transactions would constitute a “net benefit to Canada”. In this case, the analysis will focus on “the effect of the (transaction) on productivity, industrial efficiency, technological development, product innovation and product variety in Canada,” and, by extension, “the contribution of the investment to Canada’s ability to compete in world markets.”

In reality, however, this analysis is necessarily spurious as the bureaucrats working on these files know that there’s little concrete means of determining iron-clad what-if scenarios and counterfactuals. For example, when the Federal Government rules against a proposed takeover of Potash Corporation in 2009, those involved certainly didn’t foresee the bottom falling out of the potash market owing to changes in Russia’s potash industry. No matter whether and how that market rebounds highlights, the key insight is that we really have little means of quantifying what a sustained “net benefit” really is. You can read more about the ICA and my thoughts on it here: http://tinyurl.com/o4k7kev 

This semantic debate aside, the potential sale of Blackberry requires special attention. For the company’s most valuable asset is its hoard of patents – over 5,000 of them – with a value estimated between $2 and $5-billion. And while there is certainly a buyer for these patents (whether there is for the company is another question), what we should think carefully about is what those patents mean, if anything, for the long-term innovation and technological prowess of the Canadian economy. And thereafter, should the government intervene to keep these patents at home?

Now to be sure, this is a loaded question – ere too strongly on the side of economic nationalism by forbidding foreign acquisitions and we risk causing more harm to the long-term growth of the economy as a result of tit-for-tat protectionism from abroad. Yet when it comes to patents and intellectual property we cannot ignore the fact that other countries are taking an aggressive stance in defence of this aspect of “domestic innovation.” As former RIM CEO Jim Balsillie has noted publicly, “The land of intellectual property rights is manipulative, predatory and vicious. And here is the best part: it’s managed at the state level.” And while governments have always played a role in shaping international and domestic regulation with respect to IP, this role has grown for some to include strategic patent-buying organizations that are explicitly tasked with corralling home-grown IP for domestic use.

Three countries have so far established these so-called patent-buying organizations.

The French government created FranceBrevets (FrenchPatents) in March 2011 with a €100 million investment fund split between the State and the Caisse des Dépôts, the French equivalent of the Canada Pension Plan. Tasked with purchasing patents both at home and abroad, the organization’s objective, as noted on its web site, “is to provide French players in innovation with a higher added-value, based on critical mass on an international level.” Couched as it is in a narrative about a ‘patent drain’ from France, this is all about giving domestic firms a leg up. The FranceBrevets program showcases a “government-as-strategic-partner” approach to IP and industry.

Others in the same field include South Korea’s Intellectual Discovery (ID) organization. As a March 2013 Reuters article notes, Intellectual Discovery presents itself as a defensive alliance: “if a South Korean company finds itself targeted in a lawsuit, for instance, it can access the patents being compiled by Intellectual Discovery to hit back.” The company has so far purchased over 200 U.S. patents. Similarly, the Tokyo-based Innovation Network Corporation of Japan (INCJ), a joint-public-private investment company created in 2009. Over ninety-percent of the INCJ’s funding comes from the Japanese government, with the rest from a group of 19 domestic companies. Self-described as a patent-fund, amongst the organization’s programs is the Life Sciences Intellectual Property Fund, an investment vehicle that seeks to purchase and aggregate patents and IP from both domestic and international sources for both offensive and defensive purposes. The establishment of the INCJ came as a response to the aforementioned moves in France and South Korea to establish domestic patent funds. China and Taiwan are thought to be contemplating similar public funds.

In Canada, the government has previously opted to let the market dictate where the intellectual property of domestic firms lands. Case in point is the 2011 selloff of patents held by Nortel Networks. Despite (certainly self-serving) pleas from within Canada’s technology community, Ottawa did not object to the sale of over 6,000 patents and applications for wireless technology to a consortium of foreign buyers (Apple, EMC, Ericsson, Microsoft, Research In Motion and Sony). And while the $4.5 billion received for the patents certainly pleased Nortel creditors, given how other countries are beginning to strategically protect domestic intellectual property, it begs questioning how Canada should react to this evolving dynamic.

Ultimately, the establishment of  government-sponsored and funded intellectual property organizations highlights that the oft-dreamed-of level playing field is melting away under domestic pressures for economic and employment growth. The acquisition and use of patents and intellectual property, whether by quazi-private or public organizations, has become a key strategic lever in a global race for growth. Whether Canada should join this club of strategic patent users is up for debate. However it’s a debate we shouldn’t shy away from given the implications for Canadian companies and their ability to compete on the global stage. Blackberry’s cache of patents might be our chance to start the discussion.

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An update on my research

Since I’m paid in part by taxpayers (via Ontario Government doctoral funding – the rest comes from a private foundation) I figure I owe them an update on the outcome of research here at the Balsillie School. My research focuses on the intersection of politics and economics, and how this relates to government policy on innovation and industry. Surrounding that is a general focus on how Canada adapts to an evolving global economy.

Lately I’ve focused a good deal of my attention on  Canadian trade policy. Here are excerpts from two papers, soon to be published, that touch on domestic and international factors that influence Canada’s trade strategy. If you’d like to read either let me know. My ongoing research on how Canadian provinces and American states facilitate innovation and new industrial sectors isn’t ready to be published but I’m happy to chat about it.

The first trade paper, “Contemporary Dynamics in Canadian Trade Policy,” will be presented to an academic audience in Guangzhou, China later this month. It focuses on three domestic factors that influence federal trade negotiations. Notably it highlights the growing influence of both Provincial and Municipal levels of government in Canada on trade policy, as well as providing an overview of public opinion on trade, how it is evolving, and how this may influence Canada’s trade strategy.  It argues that increased transparency and engagement on trade negotiations are necessary to gain both sub-national government and public approval.

The second, co-authored with University of Waterloo Professor Andrew F. Cooper, “Between Collective Action and a fragmented Political Economy: the G20 and the Return of Protectionist Impulses,” will be published in a forthcoming edition of Contemporary Politics. In it we argue that protectionist interests have become increasingly visible across G20 countries. These interests have gained power as a response to growing unemployment across mature economies and a generalized global race for employment. We argue that while the G20 has attempted to play a stabilizing force across these economies, it has so far been unable to coalesce real commitment towards ongoing trade liberalization.

Abstract 1: Contemporary Dynamics in Canadian Trade Policy

Since 2006 the Canadian federal government has embarked on an aggressive trade strategy, privileging the completion of bilateral free trade agreements as a means of diversifying the Canadian economy away from its reliance on the United States, as well as facilitating the economy’s rebound in the wake of the post-2007 global financial crisis.This strategy, however, has been complicated by the increasing engagement of provinces and territories in Canada’s trade agenda, as well as the increasingly loud voices of Canadian municipalities regarding how such agreements land at the local level. Provincial opposition to intellectual property provisions in the proposed Comprehensive Economic Trade Agreement with the European Union and the more than 40 municipal requests for exemption from the agreement are part and parcel of the increasingly complex dynamic underway as it relates to Canada’s trade strategy and the broader efforts related to economic policy in a stagnant, post-crisis environment. In addition to these structural factors, an evolving perception and receptiveness to international trade by the Canadian public further complicates Canada’s trade dynamic.

This paper will analyze how these three dynamics both collaborate and contest each other to produce Canada’s contemporary trade policy and thereafter examine how international partners should interpret these internal dynamics. In so doing, it provides a detailed examination of the interplay of three forces in Canadian trade policy and, with their addition to traditional sectoral-based considerations, provides a nuanced understanding of contemporary Canadian trade dynamics that a simple state-to-state approach misses.

Abstract 2: Between Collective Action and a fragmented Political Economy: the G20 and the Return of Protectionist Impulses 

Not unlike the 1930s, the current state of global economic governance is marked by a vacuum of leadership as neither traditional leading states nor emerging economic actors have proven able or willing to coordinate collective action. This interregnum has allowed space for the G20 to emerge as a calibrating force for the maintenance of a liberal economic order. Protectionist impulses, however, are increasingly emerging victorious as unemployment and domestic interests drive political action. The stabilizing presence of the G20 is thus tested in an environment privileging divisive domestic-oriented forces allowed greater space under conditions in a fragmented post-hegemonic global economy. These spaces for domestic concern, and the receptiveness of policy leaders to them, represent a return to the promise of embedded liberalism and away from the era of hyper-liberalization that has marked the past several decades of broadly measured economic growth.

DH