Strategic innovation for BC technology companies

In May 2020, the Government of British Columbia published two reports emphasizing the importance of innovation and intellectual property to the future prosperity of BC: the Final Report of the Emerging Economy Task Force (the "Task Force Report"), and the final report of outgoing BC Innovation Commissioner Alan Winter (the "Innovation Commissioner Report"). While the Reports focus on providing concrete policy recommendations for the BC Government, those recommendations have implications for BC technology companies' innovation strategies.

First, it is important for BC companies to increase investment in innovation. The Reports emphasize the importance of R&D spending in a time when first world economies are increasingly dominated by intangible assets such as intellectual property. Historically, BC has relied on natural resources harvested through its forestry or mining industries, for example, to fund prosperity. However, as British Columbians are periodically reminded, trade disputes, even with our closest allies, and fluctuations in commodity prices mean that British Columbians can't safely rely on those resources to fund their standard of living. The Innovation Commissioner Report flags how BC spends relatively little on R&D compared to its OECD peers, and how much BC would have to invest in R&D to maintain its GDP per capita absent natural resources revenues:

Today B.C.'s [Gross Expenditures on R&D] is 1.4 per cent in comparison with the current OECD average of 2.4 per cent. In order to maintain or grow our current prosperity as measured by GDP per capital if we had no "rent" revenues from natural resources, B.C. would have to carry out 1% of GDP more R&D in the Province, or approximately $2.5B per year.[1]

            Second, BC companies need to capture and protect the fruits of innovation spending by leveraging intellectual property rights. As the Innovation Commissioner Report puts it,

Most successful firms have taken significant steps to protect their Intellectual Property (IP), considering it central to growing their business.

Statistics Canada data shows that small and medium enterprises in Canada which have formal IP are two to four times more likely to export, and 60 per cent more likely to be high growth. While a European study on small and medium enterprises, undertaken by research centre Paristech Mines, suggested start-ups were three times more likely to be successful if they had one patent, and five times more if they had multiple patents .[2]

            The Innovation Commissioner Report highlights "IP leakage" as one problem BC organizations face. For example, non-Canadian companies or governments will fund innovation in BC universities, where culturally the focus may be on research and publication as opposed to ownership and commercialization, and in exchange obtain ownership or exclusive rights to the resulting IP. As another example, a BC company requiring funds to scale its business may need to accept non-Canadian capital. While there is no simple solution to this problem, BC companies and universities need to be careful not to shortchange the value of their IP and the underlying innovation infrastructure that created it, and should realize that they may be in a stronger bargaining position than they may have otherwise thought when seeking funding. BC companies should also know that ceding control of IP rights to non-Canadian entities may disqualify them from or make it more difficult to obtain future government funding, such as from NRC-IRAP.

            The Innovation Commissioner Report highlights the cost of patenting as an impediment to securing IP rights.[3] While lifetime patent costs are significant, they can be deferred and managed by leveraging tools such as provisional and PCT applications and by relying on grace periods if necessary, and value for dollar spent can be maximized by carefully weighing technological and commercial value for each innovation prior to filing, by considering trade secret protection as an alternative to patents, and by periodically reviewing and culling deadweight from a patent portfolio.

            Third, BC companies need to commercialize internationally by securing IP rights in non-Canadian markets and by exporting or licensing rights to those markets. The Task Force Report notes, "As a relatively small jurisdiction representing less than 1% of North America's population and GDP, British Columbia exported $104 billion worth of goods and services in 2018 to other countries and provinces combined (equal to 39% of B.C.'s GDP)."[4] Securing IP rights in non-Canadian markets gives BC companies the flexibility to exploit those markets themselves and to license the right to exploit those markets to third parties, both of which can result in direct revenue and increase corporate valuation.

            While the BC government certainly has work to do to implement the recommendations in both Reports, ultimately in a free-market economy BC companies will be primarily responsible for generating the innovation and revenue that will keep BC prosperous. It is a daunting task, but one that will richly reward those companies that are successful and that, collectively, British Columbians must embark on:

In these changing times, British Columbia cannot continue to lean on sectors reliant on tangible assets for prosperity and at the same time support the quality of life we've become known for. We must recognize that the world is being transformed by intangible assets, such as data, software, intellectual property (IP) and product development all leading to increased competitive edge for those jurisdictions that invest. By building on our strengths, and investing in ideas and people, we can manoeuvre through current economic headwinds and ride global trends to a resilient, sustainable and prosperous future.[5]