Building Canada’s Capacity to Use Intellectual Property for Innovation

Canada’s poor productivity and innovation record has been repeatedly documented, with intellectual property mentioned in expert studies, but rarely analyzed in depth. In the current context, the need to understand and address deep structural weaknesses is urgent.

Canada’s problem is not skilled labour or world-class research, but failure to translate these strengths into innovation outcomes. As others point out, intellectual property (IP) is more a symptom than cause of this country’s persistent inability to scale up and sustain global businesses. This is mainly because Canadian firms lack absorptive capacity: the ability to recognize the value of new knowledge, assimilate it, and apply it. As a result, IP generated in Canada is sold abroad, particularly to the United States.

According to the latest Statistics Canada data, Canada earns billions of dollars from exporting R&D services, yet earnings are offset by a roughly equivalent deficit—$11.36-billion annually—in charges for the use of foreign IP. The underlying dynamics are more complex than trade imbalances suggest.

These figures do not capture the premiums Canadians pay or earn on the IP-value-added to traded goods and services. And they ignore capital inflows that occur when IP rights or entire businesses are sold abroad. The apparent deficit also conceals a web of tax-motivated international ownership structures, intracompany transfers, and cross-border licensing. Technology transfers both to and from Canada can offer benefits, but better data are needed to understand how value from knowledge trades globally. Collecting and analysing these data must be among policymakers’ top priorities.

Proposals for stopping “IP leakage” include owning more IP, expanding tax breaks, creating patent pools, improving IP literacy, and shifting university priorities. These initiatives may have merit, but if implemented in isolation they risk reinforcing a misunderstanding of the problem. Subsidizing IP accumulation can be self-defeating when Canadian companies sell to foreign investors, transferring IP abroad. Policymakers could attach conditions like repayment of public funding, local IP retention, or formal approval requirements but such measures may also deter private capital and weaken companies’ market position.

To yield lasting benefits, IP retention must be part of a broader strategy to enhance absorptive capacity with policies that enable businesses to finance, manage, and apply knowledge. Statistics Canada’s business innovation surveys show only 1.6 per cent of domestic businesses report difficulties obtaining or enforcing IP, last on the list of obstacles to innovation. Far larger proportions cite market size, access to financing, lack of skills, and risk and uncertainty.

Expanding IP holdings without addressing these gaps risks widening the divide between research institutions and businesses. For post-secondary institutions, prioritizing IP acquisition and licensing over other strategic options could erode Canada’s strongest advantage: an open and collaborative research environment.

Evidence on harnessing public research for innovation shows that formal IP licensing plays only a limited part in transferring knowledge from universities to businesses, and licensing revenue accounts for a very small share of research funding. To make IP acquisition useful, flexible contracting, skilled negotiation, and active engagement with potential partners are identified as best practices. Efforts to close the IP gap must not weaken the collaborative public research foundations that foster innovation.

Beating the U.S. at its own IP game is an unrealistic aim. Its domestic market and concentration of global companies are reinforced by financial systems that mobilize far more risk-tolerant and patient investment, from venture financing to business R&D. In Canada, smaller and more risk-averse capital markets, combined with lower private investment and limited industrial depth, shape different patterns of IP ownership and use.

Canada’s strength lies in the openness and interconnectedness of its research and innovation ecosystems. Turning that strength into outcomes requires a deliberate focus on building absorptive capacity across the innovation system. This means supporting intermediary and translational institutions such as industry–academic consortia and applied research centres. It also means improving data systems to track how knowledge, IP, and investment flow between sectors.

Procurement and strategic investment can grow markets for Canadian innovations, but greater coherence is needed between IP, industrial, and competition policies. Canada’s innovation dilemma reflects deep structural features of its economy. Addressing it requires improving how knowledge and IP are used, not merely expanding the volume of rights or the strength of protection.