Inflicting pain with patents

Since the U.S. government's trade battle with Canada started making headlines in January, the focus has been on tariffs. This week, President Donald Trump followed through with his threat and imposed 25 per cent across-the-board tariffs on Canadian goods and a 10 per cent levy on Canadian energy.

The same day, Ottawa responded with retaliatory tariffs of its own.

Following talks with Prime Minister Justin Trudeau, a day later, Trump agreed to a one-month exemption for autos imported into the U.S. from Canada and Mexico under the Canada-United States-Mexico Agreement (CUSMA). However, he didn’t back down from his overall tariff policy, stating that his ultimate goal is to move auto production from both countries to the U.S.

As the trade war intensifies, with the Trump administration targeting everything from Canada’s supply management for the dairy sector to its digital tax regime and even the country’s very sovereignty, there are calls for Canada to deepen its arsenal of retaliatory measures and move beyond tariffs.

That’s why Richard Gold thinks the time has come to use Canada’s Patent Act to hit back at the U.S. administration while also giving a boost to Canadian companies, particularly those in the pharmaceutical and technology sectors.

It’s a provocative idea and one that’s already getting pushback.

Gold, director of McGill University’s Centre for Intellectual Property Policy, proposes that Canada take steps that could effectively suspend patent rights in this country held by U.S.-controlled companies using Section 19 of the Act.

The section was incorporated into the legislation in 1993 to coincide with Canada’s decision to join the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights to extend patent protections. It allows the patent commissioner to authorize governmental use of patented inventions in extraordinary circumstances.

As a result, Gold says the federal government can declare an emergency and seek a non-exclusive, limited licence for the use of a patent without any negotiation and with the patent commissioner fixing the royalty.

He admits using Section 19 is an “aggressive” move, but it’s also “completely legal” and could be easily implemented without any special legislation.

“What Trump is doing now is illegal,” Gold says of the tariffs. “He’s big and strong. And what are we going to do about it?”

Canada has a fraught history with patents. In the late 1980s, under pressure from the U.S., the Canadian government extended patent rights for the multinational pharmaceutical industry in return for promises to increase their research and development activity here. After an initial spurt of investment, much of this R&D, along with other spending, has been slashed as the industry retrenched.

Technology is another sector where patents are important. Canadian artificial intelligence (AI) institutes have been creating patented products, but three-quarters of these patents leave the country, despite the fact they may have been invented thanks to research financed by Canadian taxpayers.

Under Gold’s plan, a Canadian company bothered by a U.S.-owned patent could apply for its emergency use, which the commissioner of patents would grant and set a nominal fee for. That way, Canada could “curtail extraction of Canadian wealth” and enhance its sovereignty when it comes to the intangible economy.

He says that simply threatening the action would incentivize U.S. companies to complain to the Trump administration to stop Canada from acting.

“You’re ratcheting up pressure on these companies to strongly lobby the U.S. government.”

The proposal has prompted skepticism from other patent experts. James Hinton, a patent lawyer and owner of Own Innovation, a Kitchener firm that provides IP advice and legal services, says that while he likes the idea of “hit ‘em where it hurts” in principle when it comes to countering U.S. trade measures, he insists it “just won’t work.”

For one thing, its scope is very limited. He says you need more than a patent license if you want to commercialize a form of AI.

“You also need the data. You need the algorithms. And the same thing on the pharma side.”

Further, Canada is such a tiny part of the world market that most U.S. firms don’t even bother to file for patent protection here in the first place. Section 19 won’t change that situation because if a Canadian company wants to commercialize a product, it still needs a U.S. patent.

“There’s no market just in Canada for a technology. If you want to make it work, you want to make it work globally,” Hinton says.

“This (section) is not the tool that will get you there. It just won’t work because companies won’t need it.”

Andrew Shaughnessy, head of the IP litigation group at Torys LLP in Toronto, also doesn’t think Gold’s retaliation proposal will be effective. For one thing, Section 19 has never been used, and the way the legislation is written, the federal government has to seek authorization for the patent, not a private company.

The section is really intended for use in an emergency, for example, for a defence product like night goggles or a pharmaceutical during a health emergency.

He also questions Gold’s assertion that the use could be permitted in return for a nominal payment.

“I don’t know that to be the case.”

Shaughnessy, who chairs the CBA’s intellectual property section, says that when it comes to tariffs, Canada should “fight kind with kind,” using tariffs of our own to fend off what the U.S. imposes rather than looking to a tool like the Patent Act, which wasn’t set up for that purpose.

He worries about what would happen if Canada decided to break its word on providing intellectual protections to its trade partners.

“If this is a tool we’re going to use, he (Trump) is going to throw this back at us. And I dare say that an American patent held by a Canadian for use in the U.S. is far more valuable.”

Hinton agrees. Even if Gold’s proposal could work, it wouldn’t give Canadian companies any advantage. What’s important is to strengthen the position of its companies on this side of the border rather than try to weaken companies south of it.

“We need to be in their market, getting into their kitchen and eating their lunch instead of trying to prevent them from taking a piece of a French fry off our plate,” Hinton says.

However, as the trade war deepens, these kinds of measures will likely come into the mix.

“If this continues to escalate, I think it’s inevitable that this goes beyond tariffs,” says Michael Geist, the Canada Research Chair in Internet and E-Commerce Law at the University of Ottawa, noting that “once the gloves are off, many aspects of the interwoven economic relationship” will start to unravel.

“If you’re in this kind of fight, you have to anticipate that the other side will look for your vulnerabilities, and you need to identify theirs.”