THE INTELLECTUAL PROPERTY MINDSET
Patents, trademarks and copyrights are a huge part of the tech game
Canada has a rich history of innovation, but in the next few decades, powerful technological forces will transform the global economy. Large multinational companies have jumped out to a headstart in the race to succeed, and Canada runs the risk of falling behind. At stake is nothing less than our prosperity and economic well-being. The FP set out explore what is needed for businesses to flourish and grow. Over the next three months, we’ll talk to some of the innovators, visionaries and scientists on the cutting edge of the new cutthroat economy about a blueprint for Canadian success.
On the main stage at a Toronto technology conference and festival called Elevate this fall, Innovation, Science and Economic Development Minister Navdeep Bains bemoaned the mindset on intellectual property among Canadian entrepreneurs. “IP is so critical. We’re behind the U.S. and China and many European countries as well,” he said. “We need to step up our game in terms of IP strategies, developing IP and embedding IP in small businesses in particular.”
Seated next to him on stage, Shopify Inc. chief executive Tobi Lutke stayed silent, but the company’s 2017 annual report had something to say about intellectual property.
“We hold no issued patents and thus would not be entitled to exclude or prevent our competitors from using our proprietary technology, methods and processes to the extent independently developed by our competitors,” the company said.
That Shopify has zero patents is really quite surprising given that it is a company built entirely on intellectual property and is currently the darling of the Canadian tech sector, with more than 600,000 merchants on its e-commerce platform, hundreds of millions of dollars in quarterly revenue, and staggering growth each quarter.
Depending on who you talk to, Shopify’s lack of patents either reflects a massive strategic error, or it could be an understandable strategic approach to a profoundly dysfunctional system.
Either way, intellectual property is a lot more than just patents. IP is almost a state of mind since it’s entirely possible that a successful software business can have zero physical assets, relying instead on the value of their ideas and protecting them in one way or another.
Nevertheless, cultivating intellectual property is often seen as an increasingly critical facet of business, though it can be a complex, arcane, confusing and ambiguous process. The only thing nearly everybody seems to agree on is that Canadians aren’t particularly good at playing the IP game, and need to get better.
That lack of success was the point Bains was making on stage at Elevate, and it’s implied in the federal government’s Intellectual Property Strategy released last April, which puts a big emphasis on simply educating the business sector about the importance of IP, and how to think about it.
Other IP experts and Jim Balsillie, former CO-CEO of Blackberry Inc., also agree Canadian companies may not understand how important IP can be.
“It is a central, central part of the game,” he said. “It’s not the whole game, but it’s a lot more than you would realize, and it permeates absolutely every industry. Name a sector and I’ll tell you why it’s an intellectual property game.”
Balsillie wouldn’t comment specifically on Shopify, but said, generally speaking, pursuing patents is important. In its most recent annual report, Blackberry said it owned “approximately 37,500 worldwide patents and applications,” compared to Shopify’s zero.
“There’s never been a major tech company that’s been successful without very sophisticated patents and IP strategy,” he said.
But how a company approaches intellectual property will vary widely depending on many factors, including the size of the company, the product it’s selling and where it’s located. Many successful companies in the digital economy can essentially have no assets except their intellectual property.
Of course, intellectual property is more than just patents. Legally, IP is usually distilled down into three categories: patents, trademarks and copyright. Intellectual property can also be protected by the use of trade secrets.
For example, Coca-cola Co. keeps the recipe for its signature beverage a trade secret, but it also invests in strong branding campaigns. Even if somebody were to copy the recipe exactly, the knockoff would have an uphill battle to win over loyal Coke customers.
In technology, the code for each software program is protected by copyright, so somebody can’t plagiarize the code from, say, Adobe Photoshop or Microsoft Word and sell it themselves.
But beyond copyright, companies can patent specific innovations in computer program design, and these patents can cover all manner of design minutia. Apple Inc. has even patented how a smartphone screen bounces instead of stops when you scroll to the bottom of one page or another.
In the software sector, there are layers upon layers of these patents, many of which overlap or are extremely broad.
Several lawyers told the Financial Post that it’s literally impossible to work in the software space without infringing on somebody else’s patents. Even though Shopify politely declined requests for comment about its intellectual property strategy, its reports shed a bit of light on the messy state of affairs.
“The software industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patents and other intellectual property rights,” the company said in its 2017 annual report “Although we do not believe that our proprietary technology, processes and methods have been patented by any third party, it is possible that patents have been issued to third parties that cover all or a portion of our business. As a consequence of any patent or other intellectual property claims, we could be required to pay substantial damages, develop non-infringing technology, enter into royalty-bearing licensing agreements, stop selling or marketing some or all of our solutions or re-brand our solutions.”
In an environment where so many patents overlap, one common strategy is to collect as many as possible so that a company can counter-sue anybody that comes after it — a kind of litigious mutually assured destruction.
“I think there’s elements of (the patent system) that are very dysfunctional,” said Karima Bawa, former chief legal counsel at Blackberry. “Anybody who’s going to become successful will inevitably want to think about having patents because they’re the easiest currency to trade when you’re getting sued.”
Bawa noted that thousands of patents could apply to an electronics product, so if a company wants to go after a competitor, it will find a way to do so.
Earlier this year Blackberry sued Snap Inc., the maker of the Snapchat app, for infringing its patents on various messaging features, including displaying time stamps and “mapping techniques to establish and maintain real-time activity location information,” according to website Gizmodo.
Even more famously, Apple and Samsung Electronics Co. Ltd. went all the way to the U.S. Supreme Court to fight over patents that included the scrolling bounce function mentioned above, the colourful icon grid and the rectangular screen with rounded corners.
Shopify might be coming around to the rough-and-tumble realities of the patent game. Lawyer Robert Guay joined Shopify in April, according to his Linkedin profile. He was previously director of IP operations at Blackberry for more than eight years, and before joining Shopify he was senior patent counsel at Huawei Technologies Co.
But Shopify’s strategy of eschewing patents, at least until recently, isn’t necessarily completely reckless, and it demonstrates why simply counting patents is a massive oversimplification when it comes to quantifying innovation in the economy.
For example, let’s say a company decides to compete with Shopify, knowing full well that it doesn’t have any patents, by reverse engineering its whole platform piece by piece. Shopify’s code is protected by copyright, but it can’t legally stop anybody from rewriting it, thereby effectively stealing its innovations.
The cost of that reverse engineering might be a deterrent, though. Because Shopify is an online service, its whole platform can’t just be downloaded to allow someone to pore through each line of code. Even if a company spends millions to copy the platform perfectly, it’s still going to need to spend millions more on building an established, trusted brand to win over customers.
“Shopify knows that they invented something new. I understand that their platform is the best on the market at the price they’re offering,” said Elisa Henry, a data, privacy and intellectual property lawyer at Borden Ladner Gervais. “If they provide a wonderful service, it beats all the patents in the world, and they have copyright to protect their code.”
Henry said she often has clients who want patents because their investors demand it, or just because they feel like it is a good way to protect their business. She said she has to explain that unless they’re willing to pursue litigation to defend their property, a patent doesn’t necessarily offer much protection.
“It’s just the wrongful assumption by companies that if you do not have a patent, then you’re lost and you have nothing to protect yourself,” she said. “And I tell them, ‘Do you know how much it costs for patent litigation?’ In Canada, it’s at least a couple million. In the U.S. it’s at least $6 to $10 million. Do you have that money? No? Okay.”
Henry said companies need to have a IP strategy and should adopt an IP mindset, but their strategies can include open source software and don’t necessarily have to involve tightly protecting and defending innovations.