USMCA’s Stronger IP Rights Protection Pros Outweigh Cons for Canada

Canada’s know-how better protected should it pursue free trade with China

Canadian Foreign Affairs minister Chrystia Freeland speaks as US Trade Representative Robert Lighthizer looks on at the closing of the NAFTA meetings in Montreal on January 29, 2018. Canada assumed stronger intellectual property protection in the new USMCA thanks to American asks. Peter McCabe/AFP/Getty Images

The intellectual property (IP) provisions in the new United States–Mexico–Canada Agreement (USMCA) push Canada to adopt stronger standards. While some decry the concessions made to the United States, they are a big win for innovators and the economy. They should also provide insulation should Canada enter into a free-trade agreement with China.

Stronger IP rights protections provide greater legal assurance that innovators can reap the rewards of taking risks in creating content, cutting-edge technologies, and medicines.

The so-called “China clause” in the USMCA prompted a storm of criticism, as it purports to prevent Canada from entering into a free-trade agreement with a “non-market economy”—China. But another take on the clause is that it makes Canada think more carefully about free trade with China and aligns it closer to the United States.

China’s acquisition of foreign IP has been called the greatest transfer of wealth in the history of humankind. Increasingly, IP is at the core of international trade as it is the lifeblood or currency of today’s knowledge economy.

“To win the commanding heights of the 21st-century economy, Beijing has directed its bureaucrats and businesses to obtain American intellectual property—the foundation of our economic leadership—by any means necessary,” said U.S. Vice President Mike Pence in a speech at the Hudson Institute on Oct. 4. He reiterated that the United States will take whatever measures necessary to stop the Chinese theft of IP.

“China has so little respect for intellectual property, and that is a lot of what this clause about entering into new agreements is about,” Richard Owens, University of Toronto adjunct law professor and Munk Senior Fellow at the Macdonald-Laurier Institute, said in an interview.

“The stronger one’s IP rights, the more likely one is to receive foreign direct investment [FDI] and technology transfer from another trading partner,” said Owens. “As we enter into new agreements, we will benefit proportionately to the strength of our IP rights.”

Owens, one of Canada’s leading authorities on IP, has long advocated for stronger IP rights protections so that the country can realize its potential as an innovation economy.

The two biggest changes from the USMCA that strengthen Canada’s IP framework are extending the term of patents for biologic drugs from 8 years to 10 and extending the term of copyright by 20 years to the author’s life plus 70 years.

Those arguing against the USMCA’s IP provisions, such as University of Ottawa law professor Michael Geist, say copyright term extensions add hundreds of millions of dollars to education costs and reduce public access to Canadian cultural heritage.

“If Innovation, Science and Economic Development Minister Navdeep Bains is to retain a made-in-Canada approach to copyright, it is time to take back the pen and restore the balance lost in the fine print of the USMCA,” Geist wrote in a blog post.

As for patent-term extension for biologics, BMO chief economist Doug Porter called it “a clear negative for Canada, since it will add to drug costs with little upside in return.”

However, Owens contends that the money to pay for higher drug costs comes out of the greater wealth creation gained from innovation and not by reducing prices.

He adds that the extension of the copyright term is of benefit to Canadian creators who would now be able to get the same level of protection in Europe, calling it a “clear win.”

As for IP protection for biologic drugs, this is primarily of benefit to the small companies that tend to create them, as opposed to “big pharma.”

“Canada, of course, is primarily a small-company economy, so what benefits small companies disproportionately benefits Canada,” Owens said.

Change Rolls Through

Perhaps the biggest impact of the government’s new IP strategy, launched in April, has been to increase IP literacy for Canada’s businesses. However, Owens says it has done little to strengthen IP, which would help small business compete. He adds that the USMCA takes IP rights protection in Canada closer to what the government’s strategy should aim for.

As the Canadian government subsidizes health care, it faces a conflict of interest in that it would like to keep drug prices low while at the same time encourage innovation.

Canada will have to depart slightly from its national strategy to accommodate the USMCA. But that is a good thing, said Owens, as Canada needs to realize its potential as a global innovator. Stronger IP rights help Canada get there because better protections promote greater economic activity.

More broadly, IP is a component of property rights in general. According to the 2018 International Property Rights Index (IPRI) report, countries in the top 20 percent of IPRI scores have a per capita income almost 20 times that of countries in the bottom 20 percent.

Canada’s IPRI score ranks 10th out of 125 countries, but focusing specifically on IP, it ranks 18th out of 50 countries in the Global Intellectual Property Center’s ranking. It has climbed in the latest GIPC ranking due to stronger copyright and patentability enforcement, and upgrades from the Comprehensive Economic and Trade Agreement (CETA).

“The USMCA will do good things for Canada’s rankings because the rankings are all about strength of IP,” Owens said.

Attracting Investors

One of the objectives of the federal government is to attract FDI through hubs like Invest in Canada. Finance minister Bill Morneau just met with Japanese business leaders in Tokyo on Oct. 9 to promote Canada.

In 2015, Laura Dawson, director of the Canada Institute at the Wilson Center in Washington, D.C., argued that one of the reasons Canada fails to attract FDI is because it is perceived as being weak on IP rights protection. Canada adopting U.S. standards is one way to remedy the situation.

And should Canada enter into a closer trading relationship with China, Canada would begin from a more robust position in the quest for the most sought-after commodity in today’s world.

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