Here is another study, released in November 2011 by an organization I had never heard of, the Canadian International Council entitled The International Intellectual Property Project.

However, what makes this study unusual – and thus useful, unlike most of its ilk – is its focus on the role of intellectual property in the commercialization of IP.

Here is a quote reproduced in the report which is new to me, but which captures what I believe to be an essential truth of commercialization of innovation

“To put it another way, innovation without protection is philanthropy.”

IP CONSULTANTS MARK BLAXILL AND RALPH ECKHARDT
The Invisible Edge

(my caveat is, of course, that a lot of innovations, especially in services, occur outside the traditioanl notions of ‘protection of IP’, but that is for another post).

There are a host of conclusions of the study that I do not share, or at least believe are the root of the problem or the solution, but it marks a rare and very useful emphasis on the importance of IP and for that it should be celebrated. This is correct and should be celebrated.

Why do I differ with the conclusions of the study? Because I do not believe that the root cause of lack of successful commercialization of innovation in Canada lies with the public sector, nor do I believe that an effective solution will come from changes to public policy.

Commericalization of innovation is a commercial activity. The root driver needs to be a private sector, motivated by private sector motivations.

For instance, the key problem with university technology transfer in Canada is not fundamentally a lack of university desire to push technology out – it is a lack of private sector desire to pull technologies out and to push them hard into the market. There are all sorts of issues about what universities are and are not doing in tech transfer, but the main, fundamental, root, problem is the lack of private sector pull.

Commercializing innovation is extremely difficult and risky. People only undertake this effort – and prosecute it to successful conclusion – when they are motivated by a sufficient mixture of ‘fear and greed’. In Canada, both are in short supply.

Most Canadians, of the sort who might be successful entrepreneurs, are pretty ‘fat and happy’. This is not necessarily a bad thing (indeed it is a reflection of the general affluence and ease of Canadian life), but it is reality. It is far easier to make a ‘nice living’ without risk and with relatively little stress as, for instance, a lawyer, accountant or university professor, than to start a new entrepreneurial venture, and thus that is where most of the ‘best and brightest’ gravitate. Similarly, in an economy utterly dependent on natural resources, for generations the best and easiest way to make a living has been to ‘cut it, dig it, or kill it’. Innovating has simply not required to making a living, and frankly was probably counter-productive.

As a result, the Canadian entrepreneurs, as a general rule, are immigrants and others who did not fit easily within the system. Those who fit in find life rather easier without entrepreneurship. Canada’s economy is not built on entrepreneurs and traders; it was built on large-capital natural resource-extractors, and small, low-capital service providers.

Of course, the environment, including access to capital and public policies, can make a great difference to the likelihood of success for entrepreneurs (and the magnitude of the success for the most successful cases) but these are not the root drivers of commercialization. These are environmental factors which encourage and support commercialization, and make success more likely and more likely to be large. Thus, while there is much that can be done to improve the environment in Canada for entrepreneurship and for commercialization of innovations, the cause of problem is public policy, nor is the problem one that can be solved by changes to public policy.

Access to capital is a case in point. The world is awash in liquidity, much of which has been willing to take considerable risk (probably much greater risk that it realized). Capital flows to perceived returns and perceived low risk. The lack of capital for commercializers of innovation in Canada (and there is a lack) is not caused by a public policy failure that has warped our capital markets nor by an overall lack of capital in Canada; it is caused by a lack of ‘fear and greed’ among the private sector and a lack of perception that investing in innovation offers a good risk/reward trade-off compared to other places to invest.

The number of lawyers, doctors, accountants, and university professors who invest in technology start-ups in Canada is negligible. Compared to the amount that they invest in oil & gas producers, and were willing to invest in income trusts, it is essentially zero. Now, they are in love with real estate and that is where they are pouring their money. They are doing so because ‘fear and greed’ tells them this is where they should invest for retirement. I think that they are wrong, but that is a whole other matter.

Similarly, Canadian pension funds simply do not invest in any material way in venture capital (a sub-class of private equity). These may or may not be rational actions by investors, but they are not market failures easily (or properly) addressed by grand public policies. In fact, venture capital rates of return over the past decade have been abysmal in Canada, which could lead a rational investor to conclude that it is a terrible asset class (or, that the managers were inept) and thus to be avoided.

Even at the level of tax policy, other than perhaps ‘flow through shares’, there are few tax policies in Canada which have pushed investors towards real estate and resources and away from tech. They have pushed themselves, and thus, if they are going to flow towards tech, in large measure the impetus needs to come from investors.

Canadian investors do not perceive themselves as sufficiently motivated by ‘fear and greed’ to invest in start ups. Other investment classes have their attention. Canadian investors are very knowledgeable about how to value and evaluate commodity producers; they are quite lacking in knowledge about how to value and evaluate technology companies. I believe, as a result, that valuations are much more attractive in technology-based companies than they are in ommodity-producers. But if this is correct, the solution must lie in a combination of ‘better risk-adjusted returns’ in technology, and greater investor knowledge of how to assess technology-based investments, not through public policy changes. This is particularly true for ‘technologies at the edge of resource extraction’. If, but only if, the risk/reward trade-off is better investing in the technologies than in the extractors, then capital should flow to the innovators. Again, while the public policy environment can assist and support, until there is a significant and sustained change among investor perceptions and behaviours so that they driven (by fear and greed) away from real estate and resources and towards tech, all public policy efforts to support greater access to capital for innovators are doomed to failure.

In a series of posts, I will try to explore the challenges, opportunities, and uncertainties arising from patent offices setting off on these highways, often without much consultation.

First, some terminology. ‘Patent prosecution highway agreements’ are bi-lateral and multi-lateral agreements between nations (or their respective patent offices), which permit patent examiners in one country to recognize (and perhaps adopt or defer to) the work performed by their peers in another country. Most PPH agreements purport to be reciprocal (although the extent to countries and courts will respect that reciprocity is one of the most open issues arising from PPH agreements.)

On December 6, 2011 Research in Motion (RIM) was temporarily enjoined by US Federal District Court, in Alburqurque, New Mexico from using BBX as the name of their newest operating system at an upcoming trade show in Singapore.  The order was issued on the eve of the Singapore show, which surely must have been a bit of an inconvenience to RIM’s trade show reps.

The decision is found here.

RIM has now re-branded the operating system as BlackBerry 10.

The case touches on some very thorny issues of the extra-territoriality of US court decisions (at least thorny to everyone in the world except Americans), but as it does not appear that RIM alleged that it had no intention of ever using the BBX mark in the US, the thorniest of these issues are skirted and I will address them another time.

Assuming that RIM ultimately intended to use BBX in the US, it looks like RIM tried to pull a classic trademark ‘no-no’.

Basis International Ltd. has a US trademark registration dating from 2006 for the trademark BBX for use in association with:

• Computer programs and associated documentation providing tools and programming language to enable software developers to create and prepare business, internet, and applications software

RIM intended to use BBX in association with the operating system on its well-known smart phones.  The Basis mark is OS-agnostic tools for developers; the RIM mark was to be used for an OS.   Holy alarm bells, Batman !

The Court held that the products intended consumers and channels of trade were the same.  And with all due respect to RIM, whether the intended consumers and channels of trade are identical or not, they are clearly pretty similar.  Thus, this is pure trademarks 101: don’t use the same mark on the same or similar products sold to the same or similar consumers in the same or similar channels of trade.

In fact, considering that the incumbent (Basis International) is overtly OS-agnostic, and the newcomer (RIM) wanted to use the mark on an OS, RIM’s position is almost deliberately inflammatory.  What were they thinking?

Perhaps we have missed something but on its face this case stands as an object lesson in how not to approach branding.

What all brand owners should do, before launching a new brand in a competitive globabl market is:

•  Try to devise a very unique name (acronyms are NOT good brands);
• Search.
• Search again.
• Search some more.

And, if despite all of your clearance searches you confront a problem later on, bite the bullet early, and re-brand.

Wasteful handouts are a frequent result of pressure for ‘an innovation strategy from government’  but this does not need to be the case.  The key problem is that ‘innovation’ is a sexy buzzword, but is usually not defined with adequate rigour.

Innovation is about making something that people want (“need”) “better, faster and/or cheaper”.  Every element of this is important: innovation is about improvemens to a good or service (or the delivery of the good or service) that people want/need, in a manner that makes the good or service delivered better.

Innovation is not invention. Innovation is not research.  Invention may be an important part of innovation, but it need not be.  Innovation is not about simply ‘hi tech’ products, nor should it be restricted to cutting edge activities like bio-tech, nanotechnology, or clean tech. These areas are important, but often the most important innovations are improvements on mature, well-established products and services.

Increasingly, “better” means ‘in a more sustainable manner’.  “Better” can mean using less energy or creating less waste or many similar things. 

However, the most commercially successful innovations are usually ones that make the item cheaper for the payor, as well as better in some other important metric (easier to use, faster …).

The economies of the developed world are overwhelming (over 70%) about the delivery of services (‘doing things’ rather than ‘making things’).  Accordingly, in order to have meaningful economic impact, the most important innovations will be in the service sector.  For example, iTunes and NetFlix are examples of innovative services having profound impact on an entire industry (‘retailing of music’, and ‘retailing of all movies/video’). 

Huge sectors of the developed world are services delivered by government or public sector entities.  For example, in Canada, health (over 10% of the economy), education (also about 10%) are completely dominated by the public sector.  Governments that want to foster meaningful innovation need to avoid the easy, and totally pointless, exercise of handing out money to a few ‘high tech’ businesses.  It is pointless because these industries are a miniscule fraction of the total economy.  It is a waste because it is virtually impossible for government to pick winners.  All that happens is that taxes are taken from those successful enough to generate income to those with grant-writing skills.

The innovation policy of every government in every jurisdiction should be to innovate in the delivery of the services that they deliver.  And, while obviously there is a need for innovation in high profile, large sectors of the economy like education, transportation and health, those are likely to be very politically charged. 

A government that is serious about innovation but wants to avoid being embroiled in high profile controversy should realize that there is enormous opportunity to innovate by tackling the ‘plumbing’ of service delivery by government to make the delivery of  “peace, order and good government” better, faster and cheaper. 

For example, real estate is an enormous chunk of a modern economy (too much in some countries over the past decade), and while in the developed world most real estate development is by the private sector, it is a fundamental task of government to provide a system for registering title to land – and hence for registering charges against title (like mortgages) and transfers of title.   Transaction costs in selling and borrowing against land (mortgages) create enormous waste and delay.   The better the ‘government’, the lower the transaction costs in real estate transactions and the more accurate, fair, and accessible the land registry system (a fundamental problem in many ‘developing nations’ is the lack of proper land titles to land especially in shantytowns, which creates an enormous barrrier to economic development).

In Ontario, the provincial government created an enormously successful on-line land registry system known as Teranet.  It did so in partnership with the private sector (a cash cow of the first rank it has since been sold several times, and now the system is owned by the pension plan for the municipal employees of Ontario !).  Terant was a dramatic innovation resulting in better governance – the entire land registry system in Ontario is now better, faster, cheaper than it was, to the benefit of all Ontarians.

The lessons of Teranet are two-fold:  Ontario should a) try to export Teranet to other jurisdictions, and b) Ontario shouuld take the lesson of Teranet to heart and try to implement similar systems in other areas where it delivers services.  For instance, the equivalent system in Ontario for registering liens against personal property (the “PPSA system”) is not nearly as good as Teranet (although it is vastly superior to CRAC, the system in neighbouring Quebec which is awful).  Or even more acutely, Ontario lacks a proper court registry system: the current state of court registries in Ontario is appalling – paper, paper everywhere as if computers (not to mention the internet) had never been developed.  If the Province of Ontario wants to be serious about useful innovation it should fix this disgrace – not throw money at wind power, and not give handouts to start ups.

However, this week there is yet another article from employees of one of Canada’s largest companies in which the employees bemoan the lack of innovation among ‘Canadian companies’.  Through no fault of the Globe’s, these talking head pieces are strikingly repetitive and useless.   These articles they share a common (and very dated) assumption that competitiveness and innovation are all about manufacturing and selling products.  Today’s (found here), from Deloitte’s captures this spirit entirely. This mis-conception is dated and highly misleading, and if used to direct public policy will cause significant wastes of money and effort.

The Canadian economy is over-whelmingly about services: doing things, not making things.  The trend towards services has long roots, and will continue.  The high CDN $ (driven there by high commodity prices), means that the future for manufacturing in Canada is dim, and Ontario in particular has an urgent need to focus on improving its service industries as a result.

If Canada wants to move the needle on innovation and productivity, it must do so in the large service sectors of the economy: health, education, government, telecommunications, financial services, and professions like law, engineering and accounting.    It is in these sectors where innovation must occur, and where productivity enhancements are sorely lacking.  In fact, in Canada many of these sectors are deliberately protected from competition (eg. health, telecommunications), are overtly hostile to innovation (eg. all facets of education of the education industrial complex), and consciously resist importing talent (engineering, law, medicine, accounting) and shy away from exporting services (health, education, banking …)

Moreover, to make real headway, the efforts need to be a companies that are large by Canadian standards (likely small by world standards) who are pushing to become world class.  Real progress on a national scale on productivity and innovation will not come from start-ups.

[Our firm is committed to innovation and productivity enhancement, and we are a significant exporter of services, but of course only in our small corner of the world - patent and trademark agency].  If Canada is to enhance productivity, its governments, public sector service providers, and service businesses need to step up.

Enough about manufacturing.  Let’s here from Deloittes how Canadian accountants are taking risks and being entrepreneurial to produce more services ‘better, faster, cheaper’.   And let’s here how BMO is innovating to export its expertise in banking.

As a side note, I commend the marketing departments of Deloittes and BMO for getting these puff pieces into the Globe, and distribution far beyond what the content warrants.