Foreign investments in Canada’s interactive digital media sector by entities owned or influenced by foreign states — particularly states engaging in activities that could pose a risk to Canada’s national security — will be subject to enhanced scrutiny from now on, Minister of Innovation, Science and Industry François-Philippe Champagne and Minister of Canadian Heritage Pascale St-Onge announced Friday.
For the purpose of the new policies announced by ISED and Heritage clarifying the application of the Investment Canada Act to investments involving interactive digital media (IDM), IDM is defined as digital content and environments with which users can actively participate or which facilitate collaborative participation among multiple users for the purposes of entertainment, information or education, and are commonly delivered via the Internet, mobile networks, gaming consoles or media storage devices.
Some examples of activities that fall under the IDM category include video gaming (including PC, console, online, cloud and mobile gaming) and technology platforms that can be used for entertaining, education, training and e-commerce (including some mobile apps, and virtual and extended reality devices).
“Interactive digital media are one of the largest forms of entertainment, and they also have important applications in learning and education. These technologies are at the heart of a thriving domestic industry that has gained international recognition and attracted foreign investment,” reads a joint statement by Champagne and St-Onge.
“While Canada continues to welcome foreign direct investments that support the growth of the sector, the Government of Canada recognizes that hostile state-sponsored or state-influenced actors may try to leverage foreign investments in the interactive digital media sector to spread disinformation and manipulate information,” they said.
The federal government “also recognizes the importance of ensuring the presence of distinct Canadian-owned and Canadian-created intellectual property that allows for the creation of Canadian stories and cultural products,” they added.
“All foreign investments are subject to national security review. Starting today, investments in the interactive digital media sector by entities owned or influenced by foreign states, particularly states that engage in activities that may pose a risk to Canada’s national security, will be subject to enhanced scrutiny. Net benefit reviews for foreign investments in the cultural interactive digital media sector, particularly in businesses that create their own original intellectual property, may require stricter undertakings for a longer period of time, particularly with respect to creative independence, corporate governance and transparency.”
Under ISED’s new policy, some of the factors that may be considered when assessing whether a particular foreign investment in the IDM sector would be injurious to Canada’s national security include: the reach and audience of the product’s content; whether the products have online elements, such as in-game chat logs, in-game purchases, and microphone or camera access; the nature and extent of the investor’s ties to a foreign government; whether the Canadian business is likely to be used as a vehicle by a foreign state to propagate disinformation or censor information in a manner inconsistent with Canadian rights and values through the investment; the composition of the board of directors of the Canadian business; and the degree of control or influence the investor would likely exert on the Canadian business, including its products’ content.
Some of the factors that will be examined under Heritage’s new policy to determine whether a proposed foreign investment would be of net benefit include: the extent to which a foreign state is likely to exercise direct or indirect operational and strategic control over the Canadian business as a result of the transaction; whether the Canadian business to be acquired owns or creates its own intellectual property; the degree of competition that exists in the sector, and the potential for significant concentration of foreign ownership in the sector as a result of the transaction; the corporate governance and reporting structure of the foreign enterprise, including whether it adheres to Canadian standards of corporate governance and to Canadian laws and practices, including free market principles, in its Canadian operations; and whether the Canadian business to be acquired is likely to continue to operate on a commercial basis.
“The Government of Canada is determined to work with Canadian businesses, provinces, territories and municipalities to attract foreign direct investments from partners that advance Canada’s long-term economic competitiveness and are consistent with our national security interests,” Champagne and St-Onge said in their joint statement.
“We will continue to encourage and work with Canadian businesses that require investment capital, by helping to identify and find partnerships that will be in the best interest of Canada’s businesses, workers and economy.”
