Industry Committee on June 19th, 2012
A recording is available from Parliament.
On the agenda
- Avvey Peters Vice-President, External Relations, Communitech
- Clément Fortin President and Chief Executive Officer, Consortium for Research and Innovation in Aerospace in Québec
- David Harris Kolada Vice-President, Corporate and Market Development, Sustainable Development Technology Canada
- Rob Annan Director, Policy, Research and Evaluation, MITACS
June 19th, 2012 / 8:55 a.m.
The Chair David Sweet
Ladies and gentlemen, bonjour à tous. Welcome to the 37th meeting of the Standing Committee on Industry, Science and Technology.
Of course it won't be on this record, but I think it's appropriate to say to the members here.... I wanted to say it, but I thought the standing ovation was probably more apt, and then your personal words, Mr. Dicerni.... But certainly, his capability, his competence, his wide range of knowledge and wisdom, and his diplomatic ability at the committee—which he referred to a bit—and his limited vocabulary—
The Chair David Sweet
—will be sorely missed. I know as well that, with his capabilities, he will be sorely missed by the minister.
That said, we'll turn to our witnesses.
Thank you very much for your flexibility in how we worked this morning. I'll just follow the orders of the day, and we'll follow this order for the witnesses as well.
We have before us, from Communitech, Avvey Peters, vice-president of external relations; from the Consortium for Research and Innovation in Aerospace in Quebec, we have Clément Fortin, president and chief executive officer; from Sustainable Development Technology Canada, an organization that I know very well, it's good to see David Harris Kolada here with us, who is the vice-president of corporate and market development; and from Mitacs, we have Rob Annan, director of policy, research, and evaluation.
I'll give all of you—I believe the clerk has warned you—about five to six minutes for your opening remarks. I'll start with Ms. Peters
Would you like to go ahead right now?
Avvey Peters Vice-President, External Relations, Communitech
Thank you, Mr. Chair.
Good morning, everyone. Thank you very much for the invitation to join you today.
I'm Avvey Peters, and I'm with Communitech. We're the technology organization in Waterloo region, Ontario. I also have the pleasure of working with Communitech's national initiative, the Canadian Digital Media Network—our effort to connect Canada's digital media industry clusters together.
At Communitech we work at the front lines of Canada's tech industry, serving a network of close to a thousand tech companies. It generates more than $25 billion in revenue. Our work connects us to companies at all stages of growth, from more than 400 active start-ups that employ fewer than five people, through to Canada's largest software company, OpenText, and Canada's largest tech company, Research in Motion. The Waterloo region tech sector employs more than 33,000 Canadians.
I'm sharing this background because it's the vantage point that gives us insight into how jobs are created and also into what tech companies need to be successful.
I want to begin by telling you how pleased we are that you're choosing to explore the relationship between intellectual property and innovation in Canada. To us, IP is more than patents and copyrights and protections against counterfeiting; IP is a Canadian asset that drives productivity. Our goal should be to help companies do a better job of strategically managing their intellectual property as a business asset.
The OECD's recent report on Canada's economic performance highlights several barriers to Canadian productivity. Specifically, it references some original research that was conducted by the Canadian International Council for its report entitled Rights and Rents: Why Canada must harness its intellectual property resources.
There's one item from that report that I'd like to highlight for you. The CIC found that of 137 venture-capital-backed Canadian firms whose ownership changed hands between 2006 and 2010, nearly 60% of those companies were sold to foreign buyers, mainly for their valuable intellectual property, which meant they were taking Canadian-educated talent out of the country.
In other words, what we're seeing is that Canadian start-ups generate a great deal of intellectual property that's attractive to investors, but rather than exploit that IP to the fullest extent in Canada, a lot of these start-ups are acquired before they have the opportunity to grow. That makes Canada a great source of cheap IP that can be exploited by the acquiring entity, and any resulting job creation from the commercialization of that IP happens in countries other than Canada. This is the lost opportunity of our current intellectual property regime.
Today I want to focus on just two things that I think are ways in which Canada could reap the benefits of intellectual property for the purposes of fostering Canadian productivity. The first is to help small and medium-sized enterprises do a more effective job of leveraging IP as a key business asset. The second is to help companies and universities collaborate more effectively to commercialize intellectual property.
Small and medium-sized enterprises are widely acknowledged as engines of job creation in Canada. In Waterloo region we're blessed with a strong start-up ecosystem, more than 400 early-stage companies. But as innovative as these companies are, they generally do a really poor job of strategically managing their intellectual property assets.
The reason is twofold: Canadian SMEs typically don't understand the full range of the strategic advantage of their IP, and they don't understand the enormous risk of IP management done badly. In the latter case, that often means they become targets of patent litigation and aren't aware of how it can damage or destroy their company and its prospects.
Better education can play a big part in overcoming this barrier. Organizations like mine can help companies understand the importance of IP strategy and how to maximize the value it brings, as well as highlight the potential for the possibility of crippling litigation if IP is not effectively managed. Universities in Canada can offer more in the way of education about IP management. Companies need education to understand their risk management tools and strategies.
From an industry-academic collaboration perspective, Canada continues to view university research as a leading producer of intellectual property and the commercialization of university research as a leading source of innovation. In our experience, this is not really the case. While our universities and colleges are an important producer of IP in Canada, they're by far the minority source of commercial opportunity.
At Communitech, we work with more than one new start-up a day. They come through the door and they ask us for help. In our experience, fewer than 12% of them are university spinoffs. It's more likely that a start-up is being led by a current industry professional with a deep understanding of the market they're trying to serve.
Now, industry-academic collaboration is a good thing. It leads to new ventures and new partnerships and more research and more commercialization. But a lot of our companies are struggling to find the best way to work with academic partners. There are complex ownership agreements to negotiate, often with a multitude of partners.
I think there are better ways that Canada could be doing this. Consider the approach of Israel, where research institutes take a simplified approach to IP licensing. Any joint project with industry that receives government financing has to sign a standard agreement. There is no negotiation. This speeds up the time to execution on collaborative projects and provides clarity to the partners involved.
While there's a divide in the understanding between universities and industry around IP, I think it's one of communications and culture; it's not one of productivity. Both parties need to learn how to work more effectively with one another.
In conclusion, I think Canada can produce IP-rich tech companies with the potential for driving tremendous productivity gains, but we need to support companies and their efforts to better leverage their IP and maximize it as a business asset, and we need to focus on industry as the key producers of intellectual property for Canada's benefit and help them to be more effective.
Thank you for your time this morning. I look forward to your questions.
The Chair David Sweet
Thank you, Ms. Peters.
Clément Fortin President and Chief Executive Officer, Consortium for Research and Innovation in Aerospace in Québec
Good morning. I am pleased to be here today.
CRIAQ has been around for 10 years and carries out collaborative research projects with businesses, universities, research centres and so on. We have done over 100 of them. I have prepared a document in French and English to help you understand the generic intellectual property agreement.
I fully agree with Ms. Peters. As is the case in Israel, we have a single agreement that covers large and small businesses, as well as universities and research centres. For us, this agreement is a strategic tool for developing the aerospace industry.
If you look at the document, you'll see the fundamental principles of the intellectual property agreement, which is a generic document signed by everybody. It's been in place for 10 years. Our mission at CRIAQ is to increase the competitiveness of the aerospace industry and enhance a collective knowledge base through a better training of students. We have a double mission of competitiveness and training, and the two are closely related, of course.
We do this through a number of collaborative projects. We have more than 100 in our portfolio, and the value is estimated at about $110 million. We have full IP coverage for all projects, and we have training of students—graduate students and research. We do the promotion, and we have national and international collaboration. We have about 15 international projects, a number of them with India, as an example, and some with Europe.
The principles are easy to understand. The principle is that the background IP belongs to the original owner. It will always be that way, should it be an SME or a large company.
The background IP has to be declared up front. What we recommend...and we have more than 50 industrial members, of which 32 are SMEs, and we have 30 university institutions participating in our projects.
On the background IP, if it's required for the project it's put forward, but it still belongs to the owner at the end. These are the principles.
The foreground IP is owned by the project partners. The key item now is that the universities have agreed to give the industrial partners—you see it there—an exclusive worldwide royalty-free licence for aerospace applications, or, more accurately, applications in the field of interest of the industrial members, which are mainly aerospace.
This is a key item. We don't negotiate a new IP agreement. SMEs and everybody else is agreeable to this; NRC is part of it. The universities keep the intellectual property for teaching, for internal research. There are rights for publications, but they have to be agreed by industry. Publications have to circulate before they are published.
The principles are fairly simple. This 29-page agreement is relatively complex and is the result of a significant compromise between industry and universities, but that is productive. We have projects that are patentable and others that are leading to applications on products that are currently on the market.
I think this is entirely possible. We are realizing this more and more, at CRIAQ. We are working closely with NSERC and MITACS, which is currently one of our main partners in most, if not all, of our projects. One of the important aspects of our approach is that it is possible for the same project to have both excellent science and results that are applied widely in the industry. So it involves both stressing marketing and finding this combination of both factors to make Canadian industry more competitive and at the forefront of everything being done globally, especially since the global market is stronger and stronger.
Thank you very much.
The Chair David Sweet
Now on to Mr. Kolada for six minutes, please.
David Harris Kolada Vice-President, Corporate and Market Development, Sustainable Development Technology Canada
Good morning, Chair, members of the committee, and thank you for the opportunity to represent Sustainable Development Technology Canada, or SDTC, an independent, arm's-length foundation founded and funded by the Government of Canada to help commercialize innovative clean technologies through financial and non-financial support. Our mission is to act as the primary catalyst in building a sustainable development technology or clean tech infrastructure in Canada, with a funding allocation from the government to date of just over a billion dollars, which we operate through two funds. They are complementary, operate close to the market, and address gaps in the innovation chain, most notably the pre-commercial funding gap otherwise known as the valley of death, which I understand the committee discussed at some length last week.
When we talk about clean technology, we mean innovative products or services that simultaneously reduce financial and environmental costs while driving better performance. They have a beneficial impact on the economy, on the environment, and society as a whole. They translate into economic opportunities, both rural and urban. They drive exports, job creation, health, and quality of life for all Canadians.
The clean tech industry is global. It's an export-driven industry. In fact, if you looked at clean tech SMEs, you would find that they are nine times more likely to export than SMEs, generally speaking. It is a large market that's growing quickly, from $100 billion in 2006 to $1 trillion in 2010, and it's expected to triple to $3 trillion by 2020. The Canadian share of that market, currently at about $9 billion, is expected to increase more than sixfold to $60 billion by 2020, at which point our market share would have increased from just under 1% to 2% and direct Canadian employment would go from 44,000 jobs to 126,000 by 2020. In 2020, the clean technology sector would be the third largest global industrial sector. It's a large market, growing fast, and a very lucrative opportunity for Canada.
As the market has grown over this period of time, the amount of intellectual property that's been developed has similarly been increasing, which is reflected in the chart on slide 5. You can see the number of patents that have been filed in key clean technology sectors, which from 2001 to 2009 have tripled. That's a 14% compound average growth rate during that period, which is double the growth rate of patents, generally speaking, throughout the world during the same period of time.
Intellectual property and clean tech are very important issues, and as a result we're very encouraged to see the Canadian Intellectual Property Office introducing a program to foster investment and expedite commercialization in clean tech, joining countries such as Australia, the U.K., the U.S., and other countries with similar programs. As export-based companies, Canadian clean tech companies generally patent their technologies abroad first, usually in the U.S., sometimes Europe, and then in Canada. The patent prosecution highway, which was introduced in Canada, has been very helpful in terms of expediting applications that have begun elsewhere, in other countries. Similarly, the Patent Cooperation Treaty, or PCT, of which Canada is a signatory, has also been very helpful for clean tech companies in terms of filing international patents.
Lastly on this topic, all SDTC companies must have their IP secured before we fund them. It's a very important issue for us in our due diligence, and it's also something we help them with through our funding of their projects.
In preparation for the committee, we went to a number of our portfolio companies, which now number over 220. I asked their views on this topic, which we wanted to reflect to the committee. I wanted to highlight six points. The first is that clean tech companies are indeed taking advantage of the patent prosecution highway. Second, the new CIPO clean tech program has limited awareness, but it is growing in the clean tech community. Third, the strong IP protection that is in place here in Canada has helped companies compete abroad. Fourth, most companies register their patents in the U.S. first and Canada second. Fifth, universities have inconsistent IP licensing rules, which are quite difficult to navigate, and that has inhibited the commercialization of clean technologies out of those environments. Lastly, the cost to patent and defend the IP, regardless of its origin, is high and the timelines are lengthy.
That brings us to our recommendations, sourced from the SMEs we have funded—over 90% of the companies we funded are SMEs. The first recommendation is to make it easier and cheaper for these SMEs to enforce their patents and to efficiently deal with infringement issues.
A couple of mechanisms that could be helpful are non-judicial administrative procedures, rather than having to go to litigation. Secondly, if litigation is necessary, have litigation caps to reduce the cost. This could include expanded financial support and advice for SMEs as they obtain their patents in a provincial program. One model to consider is the Alberta vouchers program. Thirdly, increase awareness of the CIPO clean tech program. Four, work to simplify university and government lab IP rules. And lastly, reduce delays in the prosecution and granting the patents, and if there are delays, implement a version of the USPTO's patent term adjustment calculation.
Thank you very much for the opportunity. I look forward to your questions.
The Chair David Sweet
Thank you very much, Mr. Kolada.
Now we go to Mr. Annan, for six minutes, please.
Rob Annan Director, Policy, Research and Evaluation, MITACS
Thank you, Mr. Chair.
Good morning, honourable members. Thank you for giving me the opportunity to present to the committee today.
My name is Rob Annan, and I am the director of policy, reporting and evaluation at Mitacs.
Mitacs is a national research organization that supports Canadian innovation through collaborative research projects linking Canadian businesses with leading experts at Canadian universities.
Our flagship program, Mitacs-Accelerate, supports two-way knowledge transfer through industrial research internships that place graduate students and post-doctoral fellows in industrial research settings where they apply the skills and expertise they have gained through their studies to industry-focused research needs.
This program supports increased R and D at Canadian companies and represents an effective research model that leverages the strengths of the industrial and academic sectors to the mutual benefit of each, with the effect of building long-term innovation into the Canadian economy.
Accelerate has grown from 18 internships in 2007 to roughly 2,000 internships this year, delivered from coast to coast in every sector and academic discipline. The program is supported in part through Industry Canada's industrial research and development internship program, but also through the support of nine of our ten provinces. P.E.I. is just about to join, I think. Nearly 2,000 Canadian companies have collaborated with our universities through the program, and roughly 60% of those are SMEs.
Mitacs has several other innovation programs, but they're all built on the same general model of bringing together industry and academia in research projects to the mutual benefit of each.
The challenge, of course, and the reason there's so much discussion around this area, is that Canada suffers from a lack of productivity related to poor innovation. We have below average BERD spending, we're in the bottom third of PhD graduates per capita, and we're 14th out of 17 OECD countries in terms of patents produced per population.
But we do have exceptional output from our research universities. We're 10th in the world in per capita academic publications. We're even higher in some areas; we're world leaders in things like life sciences. Our universities are among the highest ranked in the world.
Canada's education landscape is shifting increasingly towards sponsored research, from around 13% of university research budgets in the early 1990s to over 25% by the mid 2000s. This process is continuing, including the reallocation of some tri-council funds towards sponsored research in the most recent budget, yet we have not witnessed a commensurate increase in the output of innovation or commercial products.
Nevertheless, last week's OECD economic report about Canada recommends greater integration of our universities and colleges with industry and says this is a key opportunity for boosting Canadian innovation. The challenge, of course, is how to do it effectively.
Currently the model for collaboration largely focuses on the commercialization of university discoveries through licensing or other IP transfer agreements. This generally occurs through tech transfer offices marketing university-produced IP to businesses. This research push approach creates challenges, especially where inventors and businesses may disagree over the value of early-stage research discoveries.
Mitacs' programs employ a demand-driven industry pull approach to research, where companies with a specific research need can seek to access academic expertise, which may involve some university IP. But the application of IP in this case is more clear and its value to both parties is easier to determine, posing less potential for disagreement.
Commercialization of university IP from the research push side can be supported through skills training for graduate students, post-docs, providing them business and entrepreneurship skills so that inventors are better positioned to commercialize their own discoveries.
From Mitacs' perspective, Mitacs takes no stake in IP. We leave it to the parties to navigate, often through agreements like CRIAQ's, but we also have some boilerplate agreements where we're able to facilitate where there are challenges. Generally, commercial rights that are directly related to the project are retained by the company, and academic rights and commercial rights not directly related are retained by universities.
Of over 4,000 projects Mitacs has supported to date, only a handful have had IP issues. We find in many cases it's not even worthwhile to have an IP allocation. For instance, in IT the shelf life of some of these inventions is so short the technology is outdated before the patent is actually granted. In these cases we suggest that companies will put in a small delay of publication and incorporate the invention into the products within that timeframe.
The Mitacs model also involves the highest industry contribution among collaborative research programs. For this reason the company is actually paying for something, and it often makes IP negotiations easier to handle.
Finally, the demand-driven industry pull model Mitacs employs means definitions are generally clear. Our projects often involve either one of two cases: either companies are applying pre-existing university-generated IP to a specific company problem or a company is applying university expertise to pre-existing industry IP. It is relatively rare for our projects to involve the creation of novel IP. This is because we tend to initiate collaboration a little further down the innovation pipeline, after that invention and discovery phase but before the strict commercialization phase.
In conclusion, we believe that collaborative research between industry and universities and colleges represents a valuable opportunity to boost innovation. Intellectual property is clearly an important component of this collaboration. But focusing on a demand-driven approach to research collaboration will help mitigate the challenges and will provide ample opportunity for all to benefit.
The Chair David Sweet
Thank you very much, Mr. Annan.
Now we'll move to the government side. We'll go to Mr. Braid, for seven minutes.
Peter Braid Kitchener—Waterloo, ON
Thank you very much, Mr. Chair. Thank you to all of our witnesses for your presentations this morning and for contributing to our important study on IP.
Ms. Peters, I'll start with you. Thank you for your excellent presentation. We've had a number of meetings now on this study, and themes are now starting to emerge. One of them, I think, is this important aspect of ensuring that SMEs are properly supported, that they have the resources they need to navigate through the IP process, and that they are assisted with respect to education.
Could you elaborate on this particular priority and how government might play a role in assisting with these important objectives?
Vice-President, External Relations, Communitech
Thank you for the question. I think the reason we and others suggest a focus on SMEs is that we know they are a driver of job growth. They grow more quickly than their start-up counterparts or their multinational counterparts. In our context, we think of them as the gazelles, those that are on a large growth trajectory.
The challenge they often have is the lack of a sophisticated understanding of their IP as an asset and of how to manage it creatively. Often, as soon as they cross the border and try to start doing business in the U.S., they're surprised, shocked even, by patent litigation. They are caught flat-footed often.
I think organizations like ours can certainly play a role in helping educate the SMEs and the individual entrepreneurs. I think there's not a lot of education in place at the university level to help companies understand what happens when their IP strategy goes awry. I think there's an opportunity for us to act as partners as we try to seek a solution to help small-sized and medium-sized enterprises.
Two of the largest issues that companies say they have in patent protection—my colleague from Mitacs referred to them—are the cost and also the speed with which they can obtain these things. If there are measures we can take to alleviate those two items, I think that would go a long way toward helping mid-sized companies really protect their IP.
Peter Braid Kitchener—Waterloo, ON
Great. You also drew a correlation between more effective IP management and less frequency of litigation. Could you speak to that correlation?
Vice-President, External Relations, Communitech
Again, it goes to an overall strategy our companies need to find. I'll give you a local example. John Baker is a Waterloo region entrepreneur who founded a company called Desire2Learn while still a student at the University of Waterloo. When John started to do business in the U.S., he found himself in a Texas courtroom defending his intellectual property.
John learned the hard way how to do this. He did not have a strategy in place in advance. He was able to get advice from other Canadian entrepreneurs who'd had similar experiences, but it was a long and painful process for him.
Now John is one of Canada's leading experts in how to manage your IP creatively and how to license pieces of it to generate revenue that you can then flow back into the business for other things. He now has a very sophisticated understanding of all the different ways his IP can be leveraged. But it would have been a whole lot better had we collectively, as a tech community, been able to teach him how to do that in advance rather than after the fact.