As federal spending surges, intellectual property strategy is a key risk for Canadian companies
Canada’s “Defence Industrial Strategy” includes a commitment to an estimated $180 billion total direct investment in defence procurement and $290 billion total investment in defence-related infrastructure by 2035, according to the federal government.
However, the Carney government says 92 percent of Canada’s defence sector companies are small and medium businesses, and most of these companies are “not familiar with IP to the extent that is necessary for them to conduct business in the five years to come,” says David Turgeon, an intellectual property and patent lawyer at Fasken Martineau DuMoulin LLP in Montreal. That knowledge gap sits at the centre of two of the most consequential shifts in Canadian federal policy in recent memory: a coordinated drive to keep Canadian innovation owned, controlled, and commercialized domestically and a massive increase in defence spending.
A pattern Canada has lived before
Concerns about Canada’s innovation predated the current government’s spending plans, but the scale of the response has changed. Kevin Shipley, a patent and IP lawyer at Marks & Clerk in Ottawa, outlines a familiar cycle: Canadian companies develop technology here only to lose ownership when they seek capital. Scientific Research and Experimental Development (SR&ED) tax credits historically covered only R&D costs, excluding IP-related expenses such as patents and legal advice, and companies grew to the point where foreign capital was their only realistic option. “Once that investment starts coming in, it comes with strings, often including control, ownership or simply an acquisition of the company,” Shipley says, with patent value flowing to foreign owners.
There is also a cultural dimension. US founders tend to prioritize patent filings early, having seen the value that sophisticated investors put on IP-heavy portfolios. Canadian founders, Shipley observes, are more often building companies to run rather than to exit – a legitimate choice, but one that deprioritizes IP protection precisely when it matters most.
Funding programs change the equation
The government’s response has been to create dedicated IP funding programs, something Shipley describes as genuinely without precedent: “This is the first time where they’ve then created these funding programs specifically ... allowed to be used for things like IP strategy, planning and building that vision for a company.” ElevateIP at the federal level, IP Ontario at the provincial level, and IP Assist through the Natural Sciences and Engineering Research Council of Canada (NSERC) now provide non-dilutive funding – no equity surrendered, no control lost. “It does not require the company to advance all the money and then wait 10 months and cross their fingers…,” Shipley says of the payment structure, which runs directly to service providers. Approvals take weeks rather than the 12–18 months that characterized previous initiatives, and he describes the current landscape as “a cautiously optimistic win.”
Sector-specific incentives go further. Mitacs has launched a new Accelerate funding call with Canada’s Department of National Defence to support defence and security companies collaborating with academia. Critical minerals funding targets domestic processing operations, backing companies that will convert raw ore into battery-grade materials in Canada rather than shipping it offshore. Defence and space initiatives push dual-use development – innovations serving both civilian and defence markets – because no company can sustain itself on defence procurement revenue alone: “On the civilian side, you’re trying to grow a commercial market that will prop up the economics of your defence side…,” Shipley says. Dual-use status also broadens the investor pool, since large institutional funds often cannot invest in purely defence companies but face no such restriction on dual-use businesses, making a civilian-facing patent portfolio a financing strategy as much as a legal one.
Defence procurement: big intentions, undefined terms
Where policy is least clear is in the defence procurement context. Canada’s Defence Industrial Policy and related frameworks contain what Turgeon calls “big intents” around IP ownership and Canadian sovereignty, but key terms like “Canadian-owned IP” and “Canadian-based invention” remain undefined. “We don’t know yet how it will be applied in practice,” he says, “because all of those policies are very, very broad…”
The distinction between background IP – technology that existed before a specific R&D project – and foreground IP – produced through new investment – is central to the risk. Using a drone as his example, Turgeon explains that coupling artificial vision to an existing drone creates foreground IP, while the drone itself is background IP; both will be needed to operate the system, yet the government’s rights to background IP remain unaddressed. Companies must also verify their chain of title: If background IP was developed using grants from another country – the United States, for instance – that government may retain rights in the invention as well.
For now, Turgeon says many companies should focus on retaining trade secrets where possible: “I would say that the default mode right now for small and medium companies should be to keep things secret until an informed decision has been taken to move for a patent or some sort of public disclosure,” he says. Once a technology is disclosed, “the toothpaste is out of the tube” – options narrow irreversibly.
AI, autonomous systems, and a shifting alliance landscape
AI and autonomous systems add another layer of unresolved complexity. Canada’s Commissioner of Patents has indicated that a physical person must invent for a patent to be valid, but that determination has not been challenged in court. For defence clients working with AI tools, Turgeon advises ensuring human intervention at each stage and that the humans involved be located in Canada and under Canadian employment – a precaution intended to preserve Canadian IP ownership as legal frameworks solidify.
Canada’s participation in the Security Action for Europe (SAFE) agreement – which commits member countries to collectively invest in shared defence technology – is also changing who sits at the negotiating table. Defence IP negotiations, historically shaped by US dynamics, are increasingly involving European counterparts who hold broader global patent portfolios and take a more collaborative approach to licensing. US negotiations, Turgeon says, tend to be “a game of power” in which companies must agree to assignment terms to enter a supply chain. The shift toward European partnerships creates space for more balanced IP arrangements – but only for clients who understand what they are signing.
