Canada at risk from unclear intellectual property rules: experts
OTTAWA — Unclear rules in Canada around intellectual property have given aggressive actors like China backdoor access to sensitive national security assets, two technology experts warned, as concerns run high over the threat of foreign takeovers.
Jim Balsillie, former Blackberry head and chair of the Council of Canadian Innovators, told a House committee this week that current foreign investment rules fail to properly account for new technologies and IP rights, and “profoundly” need a rethink in an increasingly digital economy.
Balsillie said Ottawa has for years scrutinized foreign takeovers based on the value of the deals, or according to vague “strategic interest” outlines, while allowing foreign governments access to critical research and intellectual property — a move he said is “akin to putting an additional bolt lock on the front door, while advertising that our screen door on the side is open.”
The House of Commons industry committee is studying potential changes to the Invest in Canada Act amid heightened concerns around foreign takeovers. Some experts last week warned the committee against a unique threat posed by Chinese stateowned enterprises, which can be used to advance the geopolitical ambitions of the country.
Christopher Balding, associate professor at Fulbright University Vietnam, told the committee on Monday that China often targets Canadian researchers, for example, or partners with venture capital firms to gain access to intellectual property.
“It’s not just direct investment takeovers — there’s many channels through which China seeks to obtain that level of interest,” Balding said.
That approach, experts said, exposes the overly exclusive focus on the value of a proposed foreign takeover, rather than more general concerns like whether a given technology can be easily stolen or replicated elsewhere.
Balsillie suggested Canada could form a list of sensitive technologies that should be scrutinized in the case of foreign takeovers, similar to efforts underway in the U.S. and elsewhere. The renewable energy, artificial intelligence, and fintech industries, among others, could be considered sensitive under new foreign takeover rules, he said.
Some testimony to the committee was more skeptical of proposing changes to the Invest in Canada Act, saying it could slow any post-pandemic recovery.
“Lower thresholds or a moratorium may deter the injection of capital that foreign investment can bring,” Omar Wakil, partner at Torys LLP, told the committee. “That could impede our economic reopening, and harm Canadians.”
He said moves to enforce a moratorium and label certain countries as authoritarian “could exacerbate existing diplomatic tensions or create new ones.”
The absence of intellectual property considerations points to a deeper-lying issue in the Canadian tech space, according to some, as Canada has for years struggled to maintain its own patents and scale up domestic companies.
A study by the Institute for Research on Public Policy (IRPP) found that the share of Canadian-made patents that were later sold to foreign countries has more than doubled in the past 20 years, from 18 to 45 per cent.
At the same time, Ottawa has for years struggled to strike a balance between attracting foreign investment and fending off potentially politically-motivated takeovers by foreign states, who could target strategic assets.
Those concerns reached new highs in 2013 when Ottawa threatened to reject
— but ultimately approved — China’s $15-billion purchase of oilsands giant Nexen. More recently, in 2018, the Liberal government rejected the takeover of Canadian construction firm Aecon by a Chinese SOE, citing national security risks.
In April, Industry Minister Navdeep Bains put forward policy changes allowing Ottawa to more closely scrutinize “investments of any value, controlling or non-controlling” by foreign companies, particularly those involving public health or the supply of critical goods and services. He also removed thresholds for reviewing investments in any sector by state-owned or state-connected entities.
American lawmakers in recent months have taken steps to deepen foreign investment reviews as its relations with China continue to sour.
In September 2019, the U.S. Department of the Treasury proposed changes to national foreign investment laws that would intensify reviews of takeovers involving “technology, infrastructure, and personal data.”
A congressional committee in recent weeks has been studying a list of eight technology types for which the U.S. could be vulnerable, including everything from wastewater treatment technologies to renewable energy to biotechnology, which will receive deeper scrutiny in foreign investment reviews.
Some experts last week warned that defining strategic industries or technologies could prove difficult, as reasons for the justification would be nearly impossible to prescribe.
“Everybody would want their industry to become strategic,” Patrick Leblond, professor of international affairs at University of Ottawa, told the committee last week. “It is difficult to distinguish what constitutes a strategic industry.”