economy Archives - IPOsgoode

Thinking Inside the Box is Key to Economic Recovery

ccraig — Fri, 02 Oct 2020 02:50:09 +0000

The Canadian Chamber of Commerce (the Chamber) recently released its , laying out policy areas that it believes will assist in the effective recovery from the triggered by the COVID-19 pandemic. Under the heading of Technology and Innovation, the Chamber specifically recommends the adoption of an “innovation box”.

What is an innovation box?

An innovation box is an that reduces the tax rate for corporate income generated from patented inventions or, in some cases, other intellectual property developed in Canada.

The term “innovation box” that a qualifying corporation can simply check off the box on its tax forms. The rate of tax reduction is country-dependent.

, the innovation box is supposed to boost domestic innovation and encourage multinational organizations to spend research and development dollars in the country offering the innovation box. Ideally, it boosts capital investment within the country and creates employment opportunities.

International use of innovation boxes

have adopted their own versions of the innovation box, including Switzerland, Italy and Belgium, to name a few. This has allowed researchers to study just how effective this IP policy is.

A recent found that in countries with an innovation box, two major policy objectives were achieved. First, there was reduced shifting of income outside the jurisdiction, since “an innovation box regime effectively reduces the applicable tax rate on a portion of reported income”. Therefore, income had to be generated and kept within the country for the tax reduction to be applied. Second, there was increased capital expenditure and employment within the country.

The study looked at values from the period before the Organization for Economic Cooperation and Development (OECD) announced new international guidelines regarding innovation boxes.

The OECD wanted the full benefits of this kind of tax incentive to materialize, as well as to protect against tax fraud. Given this, OECD published the . of the BEPS outlines certain requirements that corporations must meet to qualify.

Among others, Action 5 includes a requirement to show substantial economic presence in the country in which you are filing, as well as a requirement to show proof of IP ownership. These protective standards will only serve to solidify the benefits countries receive in return for implementing innovation box tax reductions.

Is a tax reduction too generous?

One might ask, however, why corporations should get a tax reduction when IP rights themselves are theoretically the incentive to innovate. An article states, “Traditionally, the economic rationale for granting intellectual property rights in innovations has been that the rights provide an incentive or reward for the sizeable investments needed to create the intellectual property disclosed in the patent document”. So, is providing yet another benefit to potential innovators overly generous?

The fact is, IP protection and innovation boxes serve two distinct functions. While it may be that IP protection is sufficient to encourage innovation, the tax incentive would encourage innovation within Canada. With 20 other countries providing an innovation box, Canada risks losing innovative activities to those countries that do ease the tax burden. The tax reduction is not meant to be a fair return on the investment of labour, but a strategic economic play.

Conclusion

If Canada offers an innovation box, Canadian companies will be incentivized to invest domestically and multinational entities may be incentivized to prioritize innovation in Canada as well. In this way, Canada can boost the economy and generate employment opportunities, as we try to recover from the economic impacts of COVID-19.

Written by Rachel Marcus. Rachel is in her third year at Osgoode Hall Law School. She is a regular contributor to the IPilogue, and is currently enrolled in Professors D’Agostino and Vaver 2020/2021 IP & Technology Law Intensive Program at Osgoode Hall Law School.

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What the End of NAFTA Could Mean for Patent Filing Trends in Canada

ccraig — Tue, 03 Apr 2018 20:16:20 +0000

According to the IP Canada Report 2016, the USA is the top patent filer in Canada, with 17,966 applications in 2015, immediately followed by Canada, with 4,277 applications.[1] In 2015, the number of patent applications filed in Canada, by USA residents grew by 10%, while this number grew by only 2% for Canadian residents.[2] From all the patent applications submitted to CIPO, in 2015, only 12% were made by Canadian residents, which is considerably lower than the global average for resident application share, which is 67%.[3]

CIPO has recognized Canada’s “very close economic links to a large neighbor, the United States”[4] and “Canada’s close integration into the global economy”[5], as the two reasons why Canada’s resident application share is lower than most other leading economies. If CIPO is correct, then the current NAFTA negotiations could have a great impact on the patent filing trends in Canada.

NAFTA’s Impact on Canada’s Economy

Since NAFTA came into effect in 1994, the economy of North America has more than doubled in size and Canada-US trade has nearly tripled.[6] Canada is the number one trade partner for more than half of the states in the USA and the second trade partner for the majority of the remaining states.[7]

Therefore, if NAFTA dies, it is very likely that many close economic links between US and Canada will break down. Dissolution of such economic links between the two countries may result in loss of incentives for potential American patent filers to file for patents in Canada. Since the US is the top patent filer in Canada this loss is very concerning. A drop in the number of patents filed by US residents will, considerably, decrease the total number of patent filings in Canada.

Canada as a Gateway to the US Market

Additionally, as a result of NAFTA, Canada is also perceived as a gateway to the US market. A report, prepared by the Government of Canada, which is targeted towards foreign
investors, states that “In North America, Canada enjoys direct access to the NAFTA market, so foreign investors can reach a single market of 480 million consumers, with a combined GDP of over US$20 trillion. Many Canadian production hubs are located closer to US markets than are American production sites.”[8]

If the links that NAFTA has created between the Canadian and American markets are eliminated, there is a chance that other foreign countries such as Germany, Japan, France and Switzerland, that are among the top patent filers in Canada, will have little to no incentive to file for patents in Canada.

Is NAFTA Canada’s Achilles’ Heel?

Killing NAFTA will cut many of the economic channels between Canada and the USA and this may cause hesitancy in foreign patent filers to file for patents in Canada. Since��foreign patent filings account for more than 68% of the total patent filings in Canada [9], such a drop could have dramatic impacts on the total number of patent filings in Canada.

Assuming that the number of patent filings correlates directly with the rate of innovation in a country [10], then a decrease in the former may result in a decrease in the latter. It has been shown that the rate of innovation affects the growth rate of output in manufacturing.[11] The number of patent filings and the GDP from manufacturing in Canada has seen a net increase since 1995, around the time NAFTA came into effect.[12] Therefore, a drop in the number of patent filings could affect the country’s manufacturing industry and the GDP from manufacturing.

Although it has been said that if NAFTA dies, it won’t be the “end of the world” for Canada [13], Canada needs to start thinking about other ways to balance the effects of a possible dissolution or modification of NAFTA. In order to do so, among other things, Canada needs to find ways to attract foreign investors and patent filers and encourage innovation from within.

Being overly-dependent on foreign markets and economies is a risky business, specially in the current unstable political atmosphere.

Nazli Jelveh��is a JD Candidate at Osgoode Hall Law School and was enrolled in Osgoode’s Intellectual Property Law Intensive Program. As part of the program requirements, students were asked to write a blog on a topic of their choice.

[1] Canadian Intellectual Property Office, “IP Canada Report 2016” (25 November 2016), Government of Canada (website), online: .

[2] Ibid.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6]�� NAFTANOW (website), online: .

[7] Judi Bottoni, “NAFTA, Trump and Canada: A guide to the trade file and what it could mean for you” (24 January 2017), The Globe and Mail.

[8] The Canadian Trade Commissioner Service, “Invest in Canada Flagship Report” (2016), Government of Canada (website), online: at 24.

[9] Supra note 1.

[10] for more on this, please visit http://www.wipo.int/patent-law/en/developments/research.html.

[11] Hulya Ulku, “R&D, Innovation, and Growth: Evidence from Four Manufacturing Sectors in OECD Countries” (2005) Institute for Development Policy and Management at University of Manchester Working Paper No. 12, online:.

[12] Supra note 1, figure 4.

[13] Alexander Panetta, “Canada’s original NAFTA negotiator say it’s not ‘end of world’ if deal dies” (18 October 2017), CTV NEWS (website),
online: and please see Jesse Ferreras, “What if NAFTA ended? These would be Canada’s hardest-hit provinces, industries” (18 October 2017), Global News (website), online.

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Diamonds are Forever: New Diamond Patents May Influence Market Development

ccraig — Wed, 19 Sep 2012 20:25:13 +0000

The extremely variable pricing of diamonds has made them a historically difficult and unstable commodity to trade. However, recent advents in diamond technology have been patented, and industry insiders such as have suggested that diamonds will become akin to gold from an economic standpoint.

There is certain market resistance to the notion that diamonds could become an investable resource, largely due to the fact that it would create a more objective pricing scheme.��It has been difficult to establish an investable market for diamonds due, in no small part, to their uniqueness. The price of diamonds is dependent not just on mass (like gold), but , as well. Even slight variations have drastic influences on the price of the gems. Additionally, unlike gold, diamonds decline in value when divided, and are in too short supply to be used as a currency, which has inhibited the creation of a . However, it is important to note that only approximately 30% of mined diamonds are used for jewelry and sold as precious gems, with the .

In addition to the difficulties inherent in standardizing price based on gem quality, resistance from some within the industry has hindered the development of a standardized market. This is because the would increase transparency in pricing, protect against inflation, and open a narrow market to a large number of investors. However, individuals such as Rapaport have fair, efficient, transparent, and free diamond markets, as it would benefit the economy and the surrounding diamond mining. Indeed, Rapaport’s efforts have led to the , an international initiative to “clean up” the diamond market and reduce the trade of conflict diamonds.

Beyond politics, however, how do we get around the issue of variability in the gems to create a more open market for diamond trade? The answer may be within recent patents.

, an investment firm that declares diamonds to be the “last untamed commodity”, that details a process to create fungible diamonds. That is, they seek to create benchmark “baskets” of diamonds based on the quality indices, ultimately creating diamond securities through their patented formula of determining “investment grade” diamonds. Ultimately ten “layers” of quality/value would be created using the GemShares method to create such benchmarks, and it has been projected that these indices by mid-2013.

wants to take the process one step further. A producer of synthetic (lab-grown) diamonds, they have acquired that will allow them to produce single-crystal diamonds with identical chemical composition to those that are naturally occurring. Beyond this ability to create near perfect diamonds, Scio can mass-produce batches of identical, made-to-order diamonds through their use of plasma reactors for growth, and new throughputs for productivity. Indeed, earlier this month, Scio indicated that their first three months of production . It would seem that Scio’s patents have already begun to shape the budding diamond markets, and perhaps not in the way that economists may hope. By having one company hold patents for high-throughput production of museum-quality gems, it creates a different sort of monopoly. Moreover, if their production is as high as they indicate, it could reduce the value of existing diamond markets through oversaturation before a competitive market is even established. It is quite likely that both GemShares and Scio stand to make large profits as a result of their patents, but the sustainability of their prospective market remains to be seen.

Whether the standardization of diamonds is socially beneficial is more of an ideological debate, but one with economic implications. Of course, diamonds have long been coveted for their uniqueness, but that very uniqueness may be hindering an openly investable market. However, if such a market is developed based on the creation of uniform stones, will the allure of the stones still be as strong? Only time will tell…

Ryan Heighton is a JD Candidate at Osgoode Hall Law School.

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