Industry Committee on Oct. 2nd, 2012

[Dan Harris, NDP, Scarborough Southwest, ON]

I'm glad you mentioned the valley of death earlier. Is COM DEV facing any real-world experiences right now? Do you have any projects that are stalled because of a lack of funds?

[Tony Stajcer]

We have just recently spun off a company called exactEarth and we've invested more than $50 million of our own funds into this. The business is starting to take off. It's a satellite data services business, a very exciting new industry that's being built in Canada. It's still in need of funds because as you continue, the competition is starting to catch up. We are developing programs in conjunction with the government to try to support that.

One of the things I alluded to before is that it's taken two years, so from when we started until now, the world's changed, the competition's changed, and our timing has changed. It's been difficult to get the funds at the right time. They're at the point where they have $10 million to $15 million. What's the next step?

[Dan Harris, NDP, Scarborough Southwest, ON]

Of course, there's the intellectual property that's put into patents that companies have and control, but then there's also the intellectual property that's in people's minds. When high-valued individuals working in these companies can't get further development, they go and work somewhere else. That intellectual property, of course, follows them. Often it can create a problem, because they'll go from that Canadian business and move directly over to a competitor in another area. Have you faced any of that?

[Tony Stajcer]

What we try to do is patent the core IP. If a person leaves, yes, there is a drain of IP, because not everything's embodied in the patent, but you can, with that patent, ensure that the company cannot compete in the same area. You have to be diligent about your core IP, and ensure that you protect it and patent it in the markets that you're going to serve. That's the key. If the market is small in Canada, you may choose not to patent in Canada, for example. You have to make sure of the core IP that you build a business on, which is what we did in exactEarth. We're patenting worldwide. We're going into many countries where the markets are, including Canada. That's an important point. Even if my chief scientist leaves—a Canadian scientist who developed the algorithms—we are protecting that business.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Harris.

Now we will go to Mr. McColeman has five minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you.

What you're offering today is providing some much needed information in terms of our study.

I have a couple of brief questions. Ms. Harvey, you mentioned 34,000 new aircraft. Over what period of time is that demand out there?

[Maryse Harvey]

This is a study done by Boeing, and there's one also by Deloitte. They do it annually, and it's on a 20-year timeframe.

[Phil McColeman, Conservative, Brant, ON]

That's over 20 years, projecting 34,000 units?

[Maryse Harvey]

Yes. Those are commercial aircraft.

[Phil McColeman, Conservative, Brant, ON]

That's in the commercial side of the business?

[Maryse Harvey]

It's only the commercial segment of aeronautics, yes.

[Phil McColeman, Conservative, Brant, ON]

I'm interested, Mr. Stajcer, to know who the investors are in that period of the valley of death. What are the groups? Are they angel investors? Who are these people?

[Tony Stajcer]

Actually, it's our company, the industry. We also have a strategic partner that has access to European markets and has co-invested in that company. They put in $15 million to acquire a certain share; this is public knowledge. We want to make sure that we open up the markets when we have a co-investor, because that's an important point. The company now is at a point where it needs to go to the next jump.

There could be potential exits where other larger companies may integrate it in because it's a new service, a new product in the world. We have to be careful that we protect our core IP, because that's what the company was built on. We're trying to create that industry in Canada, but we have a European partner and we're looking potentially at a U.S. partner, because the market is governments and civil services.

[Phil McColeman, Conservative, Brant, ON]

Excellent.

Ms. Mazurkewich, the federal government plays a role in post-secondary education, particularly universities, but a very limited role, frankly, with the devolution of education to the provinces and territories. You understand this subject matter probably better than we do at the table. How do you see rolling out a potential unified IP policy? Would it not be more a function of provincial authorities than of the federal government, or do you see it as the federal government, or as a combination?

I'll give you a bit of background. I've travelled to a lot of universities across the country as part of our post-secondary education caucus. I see that wide variance in IP. Some universities don't have any idea of where to start; others, like the University of Waterloo, are advanced to a whole other level, and there is everything in between. They're struggling with it, and you know that, I'm sure. Obviously Mr. Stajcer, in terms of his negotiation with these institutions, knows that.

If we are to make an effort to standardize and to set policy in place for universities, how would you see doing that as the federal government?

[Karen Mazurkewich]

Let's be clear. Today we're talking a lot about what we call technology transfer from universities to industry. That's only one piece of the IP puzzle.

As a short answer I would say yes, the federal government has a great role to play, whether it's creating patent investment funds, whether it's having a single IP czar, for lack of a better word, who speaks for IP, whether it's different agreements dealing with the NSERC and other FedDev programs, etc.

There are an enormous number of things that the federal government could do to help unify policy, to make CIPO stronger, in terms of how they manage and administer the patents there. Tech transfer is one particular issue of the IP puzzle. Yes, it rests more with the provinces, absolutely, and so there needs to be coordination, but I think through some of the government funding—through NSERC, NRC, and other programs—there are lots of levers that the federal government can use to help change the culture of the universities to better understand—because I do not think they do—that a patent today does not necessarily equal a product, except maybe in the pharma world, but is an incremental developmental stage, and that all of these legal agreements and relationships need to change.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you, Ms. Mazurkewich. Thank you, Mr. Coleman.

Now we'll go on to Mr. Stewart, who was with me early this morning checking out commercialization of research as well.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

That's right. It's pretty topical today, isn't it?

Thank you very much for the presentations. I'll start by saying there are a number of intriguing ideas on how to fix our IP deficit and other problems. Most seem to call for increased government investment in particular areas, very strategic investment, and it seems that if we're going to fix this IP deficit and other problems, it's going to cost more money, essentially, and that seems to be what we're talking about here.

This does seem to be against the trend, though. The Jenkins report showed that our R and D expenditure in Canada overall has been dropping. Government investment in R and D has declined to about 0.2% of our GDP with business development, especially with the collapse of Nortel, so I'm wondering if you can give us some idea of how much more we should be investing in this area in order to make us a global competitor and get us back onto the plus side of the OECD equation.

[Tony Stajcer]

How much we invest is a tough question. I think the issue is that if we have a mechanism that brings industry to the forefront with matching funds from the government, it will create more commercialization and you'll have money flowing back in. Innovation is a cycle. You need to start with research and go through the development and demonstration phase to commercialization, but that has to feed back.

How much more is an interesting question. You can look at different industries and say that we need this much more, we need that much more, but I think we need to be competitive on a world scale and I think, if I saw the correct numbers, that in terms of what governments invest, some of them are in the 1% of GDP category or in that neighbourhood.

My colleagues can better answer what we need to do to be competitive.

[Karen Mazurkewich]

I think it's really hard to put a number on it. I wouldn't dare try, but I do think, because I know money is always an issue, that some of these problems aren't necessarily financial, and we wouldn't want to just throw more money at the problem, throw more money into R and D.

What we're talking about today is how we go from the page into product and what's missing there, and I think there are some solutions, such as what we've discussed today with regard to universities and with educating small and medium-sized businesses. I work with three start-ups right now; one of them lost his IP because he didn't patent it, so when I got on board, the first thing we did was go and do a patentability project. A lot of small businesses or young entrepreneurs don't even understand that.

There are lots of things we can do that aren't just putting more money into research and development. I would like to emphasize that.

[Tony Stajcer]

I wanted to add that the SADI program or other programs that are like it, if we have the right terms and conditions and we can execute those quickly, are the first step. Then we'll see if there are gaps, but I think some of those programs are not fully utilized because of some of the IP clauses and ownership clauses that are in there.

Repayment, for example, also takes into account the overall company business, as opposed to a new product that's being developed. It is a very hard pill to swallow, if the product fails, that the repayment then has to be on the rest of the IP that was never actually paid for by the government. There are some clauses in some of these programs that have prevented them from being fully utilized. The first step would be to streamline them and get it in process quickly, standardize some of those IP agreements and make sure the industry cannot fall behind.

If it takes me two years to negotiate, I'm two years out of date. I'm behind. I could fail completely.

[Kennedy Stewart, NDP, Burnaby—Douglas, BC]

For example, you mentioned the idea of a patent investment fund. Just as a ballpark figure, what are you looking at, and what would be the best way to recover moneys for the government from such a fund?

[Karen Mazurkewich]

A patent investment fund could be a combination of private and public. There are private equity companies that would be very interested in doing this.

These are not cheap. It would be upwards of $50 million to start a patent investment fund, but look at CPP, the Canada Pension Plan Investment Board. They have a lot of investment, a lot of our pension funds. It could be interesting to explore similar models not unlike the Northleaf model, a private equity model that's working quite well, to try to help venture capital. Again, it was a public-private venture in Ontario in which the Ontario government gave some money to some private sector.... I think some of the pension funds may have been involved. They have gone out to invest in companies.

There are some interesting models, which I have described in my report, that could be explored. They're not cheap, but it wouldn't necessarily require the government itself to put up a lot of money up front; it would be in partnerships.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Stewart. That's all the time we have.

[Maryse Harvey]

Could I add a comment about SADI? We really want to make the point that simple changes to the terms and conditions could result in more IP generation in Canada and more investment in R and D.

There are several examples whereby companies will not subscribe to SADI because of the terms and conditions, which basically cost very little to change. If you want a number, we could provide you with a number, if we really want to increase R and D intensity in Canada and remain competitive with other nations.

I just want to make the point that there are also things that could be done that cost no money to government. We're looking at that through the current aerospace review of policies and programs.

[The Chair, Conservative, David Sweet]

Thank you.

Now we're on to Mr. Carmichael for five minutes.