Can Canadians innovate?

Quick: name an innovative firm headquartered in Canada.

Maybe you came up with BlackBerry. A decade ago, you might have thought of Corel, which owned WordPerfect. Twenty years ago, Nortel might have come to mind.

And therein lies Canada’s problem. There is often one innovative Canadian firm that captures global attention, but it can seem like the exception that proves the rule that Canadians are not naturally inventive. When the Boston Consulting Group asked CEOs to name the top 50 innovative firms in the world in 2015, not one was headquartered in Canada.

{mosads}The truth is that it can be difficult to bring innovative ideas to market in Canada, certainly more difficult than it is in the United States. Last week, The Hill partnered with the Canadian American Business Council to host a discussion of innovation and public policy in both countries. The keynote speaker was Canada’s minister of innovation for science and economic development, Navdeep Bains.

Bains observed that innovations like the Uber and Lyft ride-sharing services have generated interest from consumers, but have disrupted incumbent players like taxi drivers. In Canada, too often the incumbent businesses succeed in getting politicians to throw up obstacles to innovation. One way that the new Canadian government headed by Prime Minister Justin Trudeau hopes to change this is to champion the idea of “inclusive innovation” to emphasize access to new and better services for consumers across Canada, including in rural and aboriginal communities.

A new paper commissioned by the Canadian American Business Council and written by Thomas R. Howell and Alan Wolff, attorneys at Dentons LLC, identifies additional problems for Canadian innovators that the Trudeau government could tackle next.

Howell and Wolff identify the disconnect between university-based research and the private sector as one such challenge. Unlike the United States, where both the public and private sectors sponsor research and engage directly with the research community, Canada’s universities are more reliant on public funding alone and this hinders commercialization of innovative ideas and discoveries.

A second obstacle to Canadian innovation is an ambiguous legal framework that can undermine an inventor’s intellectual property rights. Howell and Wolff cite two major examples. First, it is not clear who is able to patent and exploit a breakthrough based on publicly funded research. In the United States, a similar confusion was addressed by the Bayh-Dole Act of 1980, but in Canada, individuals, universities and even governments have competing claims. In the case of pharmaceuticals, Canadian courts have contributed to uncertainty by asserting that patent holders whose discoveries do not live up to the “promise” they were said to have when the patent was sought can lose their patent. In both cases, Howell and Wolff argue that the federal Parliament in Canada should pass new legislation to clarify the rules and remove any doubt that might drive research and development activity away from Canada — and quite possibly to the United States.

It isn’t only uncertainty over the patent system that drives researchers to the United States: Many innovations require startup funding to be proven on a commercial scale. Risk capital and venture capital in Canada have tended to focus on large firms in the natural resource sector, and many tech entrepreneurs go to the United States looking for seed funding, which can result in commercialization and profits benefitting the U.S. market rather than Canada. Howell and Wolff argue that the U.S. Small Business Innovation Research (SBIR) and the Small Technology Transfer Research (STTR) programs, established in 1982 with 11 federal agencies participating, are both models that Canada could emulate.

Canada is the leading source of imported energy for the United States, and the energy sector accounted for 10 percent of Canadian gross domestic product (GDP) in 2014. Energy firms and Canada’s provincial governments have invested heavily in clean tech research, and according to a report by Clean Tech Canada at Simon Fraser University in British Columbia, Canada ranks seventh out of 44 countries for basic research on clean tech. Since the Canadian Constitution designates energy as a provincial responsibility, Canada’s federal government has been a marginal player in clean-tech research and development funding to date. Howell and Wolff see federal funding for clean-tech commercialization as an area where the Trudeau government could invest so that researchers don’t have to resort to foreign investors.

Minister Bains came to Washington to learn more about what the United States is doing right when it comes to fostering innovation. The Howell and Wolff report, which the Canadian American Business Council has endorsed, includes a reminder for U.S. policymakers: U.S. firms benefit every day from Canadian innovation, and integrated North American supply chains that connect high-tech industries such as aerospace, automobiles, pharmaceuticals and software.

Canadians can innovate. But if Canadian innovators struggle, it can hold both countries back.

Sands is a senior research professor and director of the Center for Canadian Studies at Johns Hopkins University’s School of Advanced International Studies (SAIS) and the G. Robert Ross Distinguished Visiting Professor in the College of Business and Economics at Western Washington University. He is also a senior associate of the Americas Program at the Center for Strategic and International Studies (CSIS).