Expiry of U.S. patent held by Vanguard threatens to upend growth of Canada’s ETF industry

The recent expiry of a U.S. patent that was held for decades by investment giant Vanguard Group is threatening to upend the growth of Canada’s $650-billion exchange-traded funds industry.

More than 20 years ago, Vanguard received a game-changing patent that allowed the fund company to easily launch ETF versions of its existing mutual funds. Known as ETF share classes, the funds were able to provide investors greater tax efficiency and cost savings.

The patent prohibited other U.S mutual fund companies from creating their own ETFs based on their existing mutual fund. The ability to launch ETF versions of mutual funds is much less expensive and onerous than launching a new fund altogether and gifted Vanguard a long advantage of easily launching both funds at the same time.

But since t