Provincial and Territorial Ranking
- Six provinces earn “D–” grades, ranking at the bottom of the pack on patents.
- Ontario is the top-ranked province, but achieves only a “D” and is outperformed by 12 of the 16 international peers.
- Between 1998 and 2011, every province had a significant increase in the number of patents per million population, yet relative to international peers, the provinces have remained consistent “D” and “D–” performers.
Why are patents important to innovation?
Patents are a way for firms to protect intellectual property and capture value from their innovations. Because government-granted rights giving inventors a monopoly to make, sell, and use their inventions, patents provide businesses with some confidence that they can invest in creating and developing ideas without having them copied by competitors for a certain duration. As the Council of Canadian Academies’ Expert Panel on the State of Industrial R&D in Canada notes, a patent can be a useful measure of innovation insofar as “an idea that is patented must be valuable or time and money would not have been expended in patenting it” and because it meets a “test of novelty or it would not have passed the scrutiny of examiners at the patent office.”1
To be sure, not all patents are equally valuable. Some have greater commercial value than others, which means that simple counts of patents will miss important qualitative differences. Moreover, not all valuable ideas and inventions will be patented. Some firms involved in food product innovation, for example, tend not to patent their innovations because they find it easy enough to simply keep their recipes and processes secret.2 Additionally, some firms will forgo patenting if they think the costs of defending those patents against challenges and misuse by others might be greater than losses incurred by not patenting. Clearly, patent counts will miss some kinds of innovation.
Still, patents provide a useful measure of some of the innovative activity in an economy—particularly progress made toward the development and commercialization of new products and processes. They serve as an output indicator (albeit a partial and imperfect indicator) of R&D activity and its productivity, as well as of the state of development of particular technologies and industries.3 Moreover, they can incent firms to conduct more research and development—another key element of innovation—as they lower investment risk by providing greater confidence in the ability to capture returns.4
Finally, patents “are also a means of sharing cutting-edge information. Because each patent document describes a new aspect of a technology in clear and specific terms and is available for anyone to read, they are vital resources for businesses, researchers, academics, and others who need to keep up with developments in their field.5” In this way, patenting supports and encourages further research and innovation.
How is patent performance measured?
Patents per population are measured as the number of patents filed under the Patent Cooperation Treaty (PCT) per million population. Although this captures only a fraction of the patents filed by firms across jurisdictions, using PCT patents has two key advantages: First, because PCT patents must be filed outside the inventors’ own jurisdiction, using PCT patents eliminates “home bias” in the data—i.e., the tendency of firms to patent most with the patent offices in their own country.6 If we used data from the U.S. Patent and Trademark Office (USPTO), for example, the U.S. would have inflated numbers relative to international peers because U.S. firms are more likely to patent via the USPTO than non-U.S. firms.7 Second, because the OECD PCT patents database collects patent data at the regional level, it allows for direct comparisons between the provinces and the international peer countries.
How do the provinces rank relative to international peers?
The provinces are very poor performers on the patents indicator relative to international peers. Four provinces earn “D” grades, while six earn “D–” grades for ranking below all of the international peers. With 101 patents per million population, Ontario is the top-ranking province, but places below 12 of the 16 peer countries and gets a “D.” The top three countries—Japan (327 per million population), Switzerland (316), and Sweden (301)—patent at three times the rate of Ontario and nearly four times the rate of Canada as a whole.
Quebec (84), Alberta (83), and B.C. (82) are the other “D” provinces and manage to outrank only Australia (81) among peer countries. The remaining six provinces earn “D–” grades and take up the bottom six positions in the international ranking. The weakest performers—New Brunswick (19) and Newfoundland and Labrador (18)—patent at rates that are nearly 18 times less intensive than Japan and five times less intensive than Canada as a whole.
With 85 patents per million population, Canada as a whole scores a “D” and ranks 15th among the 16 peer countries.
How do the provinces rank relative to each other?
Ontario is the highest-ranking province, followed by Quebec, Alberta, and B.C. All four provinces score “D” grades and find themselves at or above the Canadian average. The remaining six provinces have patenting rates significantly below the Canadian average and earn “D–” grades. Given that Canada’s top-performing province, Ontario, achieves only a “D” grade relative to international peers, there is substantial room for improvement by all provinces.
How has provincial performance on patents changed over time?
Between 1998 and 2011, every province witnessed significant improvement in their number of patents per million population. Ontario led the provinces, growing from 52 patents per million population in 1998 to 101 patents per million population in 2011—a 94 per cent increase. The highest growth rate was in Newfoundland and Labrador (761 per cent), although in absolute numbers the province increased its patents per million population from 2 in 1998 to just 18 by 2011. As a whole, Canada increased its patents per million population from 49 in 1998 to 85 in 2011—or 73 per cent growth in 13 years.
During that same period, however, every international peer also experienced growth in patents. On average, the 16 peers saw patents per million population grow by 74 per cent between 1998 and 2011—slightly greater growth than for Canada as a whole. This ranged from a low of 17 per cent growth in Sweden to a high of 675 per cent growth in Japan.
With the international peers having grown at a strong rate, and given the fact that Canada and the provinces started at the far back of the class, no province was able to improve its grade between 1998 and 2011. Those that earned “D”s in 1998 (Quebec, Ontario, Alberta, and B.C.) remained “D” performers, while the other six provinces got “D–”s in 1998 and again in 2011.
Why do provinces lag on patents?
Canada and the provinces lag international peers on patents for a few reasons. First, across the OECD, there is a very strong relationship between business enterprise R&D (BERD) and patenting. Countries and provinces with higher BERD as a percentage of GDP—and thus whose firms are generating and developing new ideas and innovations—have higher patent rates.8 Simply put, patenting rarely occurs without firms conducting research that would warrant patentable results. For example, the top four peers on BERD—Japan, Finland, Sweden, and Switzerland—are also the top countries on patents, while the weakest regions on BERD—Nova Scotia, New Brunswick, Saskatchewan, and Newfoundland and Labrador—are also at or near the bottom of the patents rankings.
At the same time, Canada and the larger provinces are slightly or substantially weaker than other jurisdictions at converting R&D spending into patents. While international peers produce an average of 0.25 patents per million dollars of BERD spending, Canada as a whole produces 0.22 patents per million dollars of BERD. Moreover, the two provinces with the highest BERD spending have some of the weakest BERD-to-patent-conversion ratios. Ontario produces 0.18 patents per million dollars of BERD, while Quebec produces only 0.14. By contrast, the Netherlands produces 0.43 and Japan produces 0.37. Using triadic patents (patents filed at the U.S., European Union, and Japanese patent offices for the same invention) rather than PCT patents to make the same calculation, the Expert Panel on the State of Industrial R&D in Canada found that Canada ranks last among the 18 countries it examined.9
To be sure, two smaller provinces—PEI (0.48) and Nova Scotia (0.31)—show strong BERD-to-patent-conversion ratios. But as a general rule in Canada as a whole and across most provinces, firms’ record of moving from R&D spending to patents is weak. This reality fits with the often-stated claim that while Canada is strong at producing good ideas, commercialization capacity and performance is particularly weak.
How can the provinces improve?
Although the provinces have seen growth in patents per population, they have not been able to close the very large gap with international peers. To do so, businesses need to increase their R&D spending and activity in order to get more ideas and potential innovations (and thus patents) in the pipeline.
At the same time, Canada’s low BERD-to-patent-conversion ratio confirms that Canadian business capacity to commercialize research continues to lag. As with other areas of innovation performance, Canadian businesses appear to suffer from deficits of management and legal expertise. Too few firms have the management expertise needed to select promising research and innovation projects, make good decisions about resource allocation, attract funding, and shepherd projects from idea to innovation and, ultimately, commercialization.10 Improving managers’ education and skills, and drawing on external management expertise, can help.
Moreover, some firms may need better legal expertise than they get now to help them successfully navigate the process of acquiring and protecting their intellectual property, including patents. Given that this may be especially challenging and costly for smaller firms, policy-makers may want to consider providing legal workshops and clinics, as well as supporting pro bono legal advice for innovating small and medium-sized businesses.11