Richard OwensCritics of the new IP rules seem to think Canada is a technology backwater incapable of fully securing its rightful place in the world trading order, writes Richard Owens.

By Richard Owens, October 5, 2018

“Intellectual property experts are fuming as they sift through the details of the new U.S.-Mexico-Canada Agreement, saying that the free trade deal will hamper Canada’s innovation economy in important ways.” So the Financial Post reported this week, quoting a variety of fuming experts on the USMCA intellectual property provisions.

Experts they may be, but it’s a peculiar kind of expert that is wrong as often as the ones complaining to the media this week about what USMCA does to intellectual property. It is past time that this country abandoned the negative, anti-innovation view of itself that the media’s favourite experts peddle and instead asserted the importance of strong intellectual property (IP) rules in Canada’s growth. Anti-IP views may be fashionable in some circles, but they are not supported by research and they are bad for our country.

The USMCA’s IP provisions are good for Canada. Presumably our negotiators were persuaded of this since they accepted them. Stronger IP rules promote trade, foreign direct investment, including pharma investment, and technology transfer. These are all critical factors in national productivity gains.

They argue that because Canada is in a trade imbalance on IP-protected goods, we need weaker rules. When the first NAFTA came into force, experts predicted that because of Canada’s negative balance the stronger copyright protections would be a net loss for our economy to the United States. What they discovered was that the wealth-creation of the new rules more than made up for any short-term transfer of wealth. Moreover protectionist strategies — and that is what a trade-deficit argument promotes — just do not work. Canada should be freed to compete, not hampered by less-than-optimal IP rules. (And as it happens, according to Statistics Canada we actually have a surplus trade position in copyright goods and services, but not in goods alone).

Strong IP rules are good for countries at all stages of development. There is no basis for the parochial tailoring of IP regimes; the only objective should be international harmonization to the highest standard. By adopting a 70-year posthumous copyright term under USMCA, for instance, up from 50 years before, Canada gains for its artists reciprocal protection in Europe which they didn’t have before. That’s a big win for Canadian creators.

Strong IP rules are particularly advantageous for small firms. They give them a solid and predictable basis to deal with bigger firms. The new data and market exclusivity rules for biologics, for instance, will undoubtedly help smaller biotech firms attract capital and build their businesses. Canada more than the U.S. is a country of smaller firms. The USMCA is a big win for them.

One of the fuming experts, law professor Michael Geist, states that the slightly increased data protection for biologics (from eight years to 10, compared to 12 in the U.S., which has always been far more serious about innovation than we have) will raise costs for our public health system. But really, health care is a separate issue. Perhaps there will be higher costs; perhaps the existence of market exclusivity will prompt another cheaper solution to arise. Who knows?

The innovation caused by the better rules will produce wealth to bear the higher costs anyway — and why shouldn’t a health-care system pay fair prices for the goods it consumes? It makes no sense to tell drug makers to subsidize the health-care system; they are the ones who are supposed to be making money off it. Canada should not be the parasite of the trade system, scraping nickels off of the costs of imports. Better we should be bold innovators making this country wealthier. Funding pharma research and development is very much in our interest; new cures greatly improve how well off we are.

Moreover, arguing for lower pharmaceutical prices does no service to our health-care system: Where prices are low, new drugs don’t go. Drug makers are likely to make their products unavailable or to restrict availability where their returns do not justify the costs of registering and importing the drug.

Other provisions likewise benefit Canada, such as the commitment to co-operate on IP and innovation and in particularly on protection for trade secrets.

There are problems, of course, in the USMCA: exclusions from patentability are disappointing and the safe-harbour provisions for internet service providers are very worrying, given the abuse of such safe harbours in the U.S.

It’s not, by all accounts, a bold new NAFTA. The improvements in IP protection are marginal ones, but they help. More important perhaps are the implicit assumptions at work in how these provisions have been met. The critics of the new IP rules seem to think that Canada is a technology backwater that is incapable of fully securing its rightful place in a world trading order based on knowledge and inventiveness and creativity. That view is just wrong. Put the conditions in place for greater creativity — that is, stronger IP rules — and Canadians will do better than ever before.

Richard C. Owens is Munk Senior Fellow at the Macdonald Laurier Institute and adjunct professor at the University of Toronto’s faculty of law.

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