Here’s how Canada can go ‘elbows up’ and start winning the intellectual property war

Earlier this month, Finance Minister François-Philippe Champagne announced $181.9 million in

intellectual property “support programs” as part of the federal budget , including educational workshops, advisory services and patent collectives. All worthy ideas — but all utterly insufficient to address the systematic hemorrhaging of

Canadian innovation to foreign ownership. Let me be blunt: Canada just brought advice pamphlets to a gunfight.

Fifty-eight per cent of patents with Canadian inventors end up owned by foreign companies. Two-thirds of software engineering graduates leave for the United States. Remember Nortel — 35 per cent of the TSX at its peak? When it collapsed, $4.5 billion in patents were auctioned off to Apple Inc., Microsoft Corp. and others. Decades of taxpayer-funded innovation, now powering foreign products. BlackBerry Ltd. followed the same path. These weren’t just company failures — they were wholesale transfers of Canadian innovation infrastructure to foreign competitors. And we never replaced them.

This isn’t a market failure. It’s a policy failure. The Carney government’s response : funding for startup IP strategies, advice and patent pooling. These are nice-to-haves, not need-to-haves, the equivalent of teaching swimmers better technique while they’re swept out to sea.

What the budget didn’t include: a patent-box tax regime, IP transfer restrictions, penalties for moving government-funded IP offshore, manufacturing requirements, royalty obligations, foreign investment screening expansion, or conditions on public R&D support.

How Israel solved this problem

In other words, it was all carrots, zero sticks. From 1984-2005, Israel had a simple rule: If you took government RD funding, you couldn’t transfer IP abroad without approval, and you had to manufacture in Israel. Violations were criminal offenses with up to three years imprisonment.

As a result, high-tech exports grew from 14 per cent to 54 per cent of total exports. High-tech employment hit 335,000 — 10 per cent of Israel’s workforce, highest in the OECD. Companies scaled locally instead of selling early. When Given Imaging received $5 million-plus for its pill camera and wanted to manufacture in Asia, Israel said no. The company built a facility employing 1,000 workers — jobs that would have gone to China under voluntary rules.

Then in 2005, under VC lobby pressure, Israel weakened the system. Companies could transfer IP by paying 3x to 6x the grant plus interest. A 2013 Knesset Report documented the predictable result: “failure of small companies to scale up” and “absence of large firms.” Israel became “Exit Nation,” with earlier sales to the likes of Apple, Google, Facebook and Microsoft before startups reached manufacturing scale.

Israel’s mistake demonstrates both the power of strong retention policies and the danger of weakening them. Canada should learn both lessons.

While Canada offers advice, competitors have implemented real restrictions:

United Kingdom (2021): National Security and Investment Act covers 17 sensitive sectors including AI and quantum tech. Explicitly includes “ideas, information or techniques” — IP itself, not just equity. Penalties include five years imprisonment and £10 million or five per cent of global turnover. Government can unwind deals up to five years retroactively.

France, Germany, Japan, Australia: Similar regimes, all expanded recently, all with criminal penalties. Australia now requires disclosure of IP transfer agreements in foreign investment applications.

United States: The Bayh-Dole Act (1980) requires exclusive licensees to substantially manufacture in the United States for federally-funded inventions. The result is a US$591 billion GDP contribution (1996-2015), 4.2 million jobs and the creation of 4,500+ companies. Even free-market America understood taxpayer-funded research should create taxpayer benefits.

Thirteen EU countries plus U.K., Switzerland, and Israel also offer tax breaks known as patent boxes: 0-15 per cent tax rates on IP income versus the standard 20-35 per cent. Canada offers nothing, putting us at a systemic disadvantage.

The root cause Canada won’t address

The fundamental issue in Canada is insufficient late-stage capital. Canadian VCs invested $1.9 billion across 379 startups in 2014; American VCs invested $48.3 billion. Only 8.4 per cent of

Canadian companies reached Series B — lowest among peer countries. When Canadian companies hit Series A and show traction, domestic VCs can’t write $10 million to $50 million checks for Series B. Well-capitalized foreign acquirers offer $50 million to $200 million buyouts.

Companies don’t want to sell — they want to scale. But only one option provides the capital they need.

This market failure requires structural intervention: late-stage growth funds, pension fund allocations to domestic private equity, expanded BDC/EDC mandates. Budget 2025 didn’t touch any of this.

Seven urgent reforms Canada needs

1. Bayh-Dole for Canada Every federal research dollar should come with conditions: universities retain IP, but exclusive licensees must substantially manufacture in Canada. Grant government “march-in rights” to compel licensing if recipients don’t commercialize. The Americans proved this works for 44 years.

2. Expanding the Investment Canada Act for IP assets Explicit coverage of IP asset transfers, mandatory notification, real penalties — five years imprisonment and $10 million or five per cent of global turnover. When companies receiving government support get acquired, they pay 3-6x the original grant (Israel’s model) to buy out public interest. Five-year retrospective review to prevent “ask forgiveness later” evasion.

3. Patent box with manufacturing teeth Ten per cent preferential rate on IP income (versus 26.5 per cent standard), but require products be substantially manufactured in Canada for full benefits. No brass plates, no pure licensing. Scale benefits to employment levels. This turns tax policy into industrial policy.

4. Condition every government grant on IP retention Every program over $100,000: government approval before IP transfers abroad (with 3-6x grant repayment), commercialization milestones, employment commitments, three-five per cent royalties on revenues, first right for Canadian investors. This can be done administratively, immediately.

5. Strategic technology export control: Update Export Control List for AI, quantum, advanced semiconductors, synthetic biology. “Deemed export” rules: releasing controlled technology to foreign nationals in Canada requires authorization. Most sensitive projects require Canadian citizens/permanent residents.

6. Fix the late-stage capital desert: Create $5-10 billion Growth Fund 2.0 for Series B/C/D. Mandate five per cent pension fund allocation to domestic private equity—with $2 trillion in assets, that’s $100 billion available. Expand BDC/EDC for late-stage equity. Address root cause, not symptoms.

7. Culture shift Celebrate Scale-Ups, Not Exits: High-profile campaigns celebrating companies that scale domestically. Secondary liquidity without company sale. Expedited immigration for senior talent at Canadian scale-ups. Government procurement prioritizing Canadian IP-owners. Ten-year project, but culture matters.

Why ‘support’ isn’t enough

The government’s theory: make Canada competitive through support and education, companies will choose to stay. Market mechanisms, not intervention. Decades of evidence prove it’s wrong. Companies want to stay — founders love Canada. But when they need $25 million for Series B and every Canadian VC says “we can only do $5 million” while Silicon Valley offers $25 million plus strategic support, what choice exists? We cannot out-compete the U.S. on capital, market size or compensation. What we can do is impose conditions on public support. Canadian taxpayers fund your research? Manufacture here. Take grants and sell within five years? Pay the back three times over. Transfer government-funded IP abroad? Need approval and redemption fee.

Our IP retention crisis isn’t a market failure we can educate our way out of — it’s a policy failure requiring structural solutions. Time to put the elbows up. Time to implement policies with teeth. Time to stop watching our innovations walk out the door. The evidence is clear. The tools are proven. The question is whether Canada has the will to use them.

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