Industry Committee on Nov. 18th, 2014

[David Schwartz]

It helps by not having rights defeated by formal errors or little slips. Things will be decided on the merits of the value of a technology. You'll go to court debating whether an invention is new and non-obvious, whether a patent is infringed, not whether rights have been lost because you've missed a fee payment. It's a good international system that helps avoid problems and improves the stability of our IP system as a whole. A good, sensible, reasonable system that is focused on substance, not form, is good for Canadians. It avoids red tape and creates a good, certain business climate.

If you're innovating in Canada, the PLT is largely good news.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you.

I'm just curious. I have read a number of things on this, and one of the recurring themes—and perhaps this is also coming from the Canadian Bar Association—is that people want the same form, and this is a common factor when there's change. People tend to resist it. I understand that you're living in a billable-hours world, and I understand that when there's a form you were always able to charge for, it's hard to let go of that. But in terms of the efficiencies, how does that change support our ability to make sure Canadians compete in the global market effectively and efficiently?

[David Schwartz]

You've hit a sensitive point. Of course, anything that simplifies the work that agents and lawyers do means we are focused more on the hard work, the substantial work, which is as it should be. These will simplify procedures and the use of government time. They will cut red tape. You see a reduced need for early translations. You see a simplified, global procedure. You're focusing more quickly and effectively on getting to assessing the rights rather than on doing the upfront paperwork.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

With those changes—

[The Chair, Conservative, David Sweet]

I'm sorry, but you're over time right now.

We have Mr. Chan now for four minutes.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

Thank you, Mr. Chair.

I want to thank the witnesses for summarizing a series of complex issues in such quick time.

My questions are mostly related to the Investment Canada Act, and are particularly for Mr. Wakil.

As you recall, in 2010 the government at the time stopped the takeover of Potash Corporation and committed to making changes to the Investment Canada Act. At that time, the Prime Minister indicated they would provide greater guidance regarding the definition of “net benefit”.

Then in 2012, Minister Paradis announced that Canada would move the threshold from $300 million to $1 billion as the basis for review. The current standard is set at $334 million today.

My question for you, sir, is this. Would it not have been more useful for the investment community if Canada, the Prime Minister, and the Minister of Industry had made these changes through proper study instead of trying to do things on the fly? Do you have any particular comment with respect to this particular instance?

[Omar Wakil]

That is a bit of a loaded question the way you posed it. I'm never going to say that it's inappropriate to carry out a proper study. What I can say to you—our substantive point—is that in practice I think there is sufficient understanding of the net benefit standard to allow us to advise clients on a day-to-day basis. I appreciate that the threshold change from $300 million to $1 billion has not yet been implemented. I think, as a practical matter, that is due to challenges in coming up with some defined terms and regulations that the government and, frankly, the private sector have been struggling with and trying to identify.

Those are certainly issues that need further reflection and consideration, but they're not having a chilling effect in the way that people may believe they could have. What we're saying today is that there ought to be more transparency with respect to national security reviews in the form of aggregated data. We welcome the government's move to increase transparency with respect to the outcome of individual transactions, and we think that's a good and positive step. We think that could be supplemented, however, by more statistical data about the number of national security reviews that have happened to allow us to provide greater guidance to our clients.

We understand that it's early days in the national security review process and that the administrators are going to go through teething issues that have to be worked through, but we do believe that the time has come for that increased transparency and disclosure of data.

[Arnold Chan, Liberal, Scarborough—Agincourt, ON]

As you pivoted and talked about the national security review process, you provided a sort of checklist of issues that would be of concern, I guess, ultimately to your clients. Would there be anything that you would want to add to that list of issues you indicated, such as the number of reviews, countries of origin, types of sectors, an indication of how many were approved or not approved, etc.? Is there anything else that you think would be helpful to your clients, particularly your foreign investment clients, that would assist them in getting clarity on the investment process within Canada?

[Omar Wakil]

I'd be happy with that sort of information, at this stage. I think it could be an incremental process. We have very little information for the time being, so the information I indicated in my opening remarks and which you just summarized would, I think, be a helpful start. If we get information about that, I'd be pleased for the time being, and we could see over time whether more information could be disclosed. That would be a useful first start.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Wakil.

Thank you, Mr. Chan.

Now we go over to Ms. Gallant.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

My question goes to Mr. Wakil.

You made reference to the raising of the threshold from $300 million to $1 billion for assessment of net benefit to Canada. However, we also look at the national security element, and there are transactions that occur that fall well below the $300-million threshold. An example that is in the news is the purchase of rare earth elements mining and properties; those have already been sold to foreign entities.

In your experience, did these smaller transactions, the transactions involving rare earth element mining stakes, which are strategic to Canada and are potentially matters of national defence and security, undergo any national security scrutiny?

[Omar Wakil]

This is part of the problem. I know the national security reviews that I have been involved in, but I don't know the national security reviews that others have been involved in. One can read media reports, one can speculate about reviews, but there's not a great data source about the number of reviews that have happened, what sort of process there was, who the foreign investor was, or what the subject matter of the investment was. That's precisely the sort of information that would be helpful to have.

We're not here today suggesting that it's inappropriate to have a national security review; quite the contrary, it is appropriate to have a review of foreign investments on the basis that they could be injurious to national security. Many other countries around the world have similar tests. What we are suggesting is that it would be helpful to have more disclosure about the types of reviews, the nature of reviews, etc., so that we can advise our clients and be aware of them.

That said, anecdotally—I can speak from my own experience—reviews are happening, and it seems that they're happening more frequently than we believe they are or than the public is aware that they are happening. There is a scrutiny of foreign investment on the basis of national security, including the review of very small transactions.

So we believe that those sorts of reviews are happening, but we would welcome increased transparency to be able to better understand.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

What is the trigger for a review of these smaller transactions that you referred to? Does someone have to complain? How does it come to the attention of the review committee?

[Omar Wakil]

There is a variety of ways. It could come to the attention of the investment review division of Industry Canada. The parties themselves can submit a notification form or an application for review to the government, and that would trigger a review. If, for example, there were a desire to go through a review process in order to have certainty on the outcome, as opposed to having completed an acquisition only to find, after the fact, that there is going to be a review and a potential remedy, buyers who are risk-averse would certainly prefer to go through the review up front to make sure that they know what the outcome of a review is going to be.

Otherwise, it would be the government monitoring the media, receiving complaints, etc. We've had experience of the government proactively contacting us and saying: we read about this transaction in the media and we understand it's happening; can you provide us more information?

But there is no threshold for “review for national security” transactions—the $300 million that you referred to—and so there is no mandatory upfront review process that investors have to go through, as they do for assessing net benefit.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Wakil.

Thank you very much, Madam Gallant.

Now we go on to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

This national security review is bringing up some good memories of the original case, China Minmetals, when we had non-democratic communist governments buying Canadian companies. That is what emerged in terms of the discussion back in 2003 at industry committee, when we reviewed this.

Part of the problem we have right now is that we have six bills with 40 amendments that are being looked at in terms of this omnibus bill. This process has really basically usurped the authority of the industry committee to that of the finance committee. We've become a junior committee. Because we can't pose amendments, we can't really affect the course of legislation. We don't study things. We don't bring in the proper witnesses in the full course of discourse. That's happening.

Some of the language used by witnesses today, in some of the testimony we've heard, I think is important to repeat. None of this is from the United Steelworkers, so I'm not being biased here, but here's what we've heard, and I quote: “full impact” remains to be seen; “appears”; “good faith”; “devil in the details”; “lack of guidance”; real “risk”; “chilling”; “key stuff is left to the regulations”; “putting this in the mix early on is problematic”; courts will have to explain “in detail”; again, “the devil is in the details”; “uncertain” how they might be implemented; “destroy”; “insufficient”; “very difficult...to advise”; “Canadian businesses” are susceptible; “go to court”.

So I ask the witnesses today, and I will start with the United Steelworkers, going right to left, why do you accept that we will basically put these amendments, and these changes to law, to regulations and the courts? That is not an efficient way to deal with business, in my opinion. It is not predictable. It leads to longer delays.

If you disagree with that, please prove to me why regulations and courts would be the best way to change Canadian laws.

[Mark Rowlinson]

Let me just offer the following. I don't disagree, actually, with my colleague from the CBA that clearly there needs to be a balance in the Investment Canada process between preserving, for example, the confidentiality of business information whilst at the same time providing transparency to workers in communities who are affected by Investment Canada Act transactions.

In our view, what's really required in respect of the Investment Canada Act component of Bill C-43 is a much more substantial review of the statute itself and the process by which investments are made in Canada. I don't think that amending the statute in a piecemeal way, as part of omnibus legislation, is actually an effective way of ensuring that there is adequate transparency and that the entire Investment Canada process and the manner in which Canadian interests are protected economically...and also through a national security review. It actually has to be considered more globally, in a study preferably by this committee, and by Parliament more generally, so that we can truly have a better system and a more transparent system that provides for involvement from workers and communities and provinces when these large investments are considered in the Canadian economy by foreign investors.

That's what I would say.

[The Chair, Conservative, David Sweet]

Thank you very much.

Mr. Warawa, four minutes.

[Mark Warawa, Conservative, Langley, BC]

Thank you, Chair.

Thank you to the witnesses for being here today.

Today is November 18, 2014. It was at the beginning of this year that the government tabled five international treaties regarding intellectual property. Then in February, in budget 2014, we proposed to modernize Canada's intellectual property framework to better align with the international practices. That's important, because that harmonization will help Canadian business gain access to the international markets. It will lower costs for Canadian business and attract foreign investment.

Unfortunately, the NDP have a track record of opposing all foreign investment—

[An hon. member]

[Inaudible—Editor]

[Mark Warawa, Conservative, Langley, BC]

—and we've heard that in their questions.

I have a question for Mr. Schwartz.

I listened politely to my colleagues, and I would ask them to listen politely too, please.

You've said that there is a need to advance. We want to harmonize so that we get rid of red tape and help Canadian business. Is it important that we advance? As I pointed out in my opening comments, we've been dealing with this for months and months and months and months. We have opposition trying to oppose it advancing. Is it important that we advance, and what would be the consequences if we did not advance?

[David Schwartz]

The various treaties cover different aspects of IP law and I think, in fairness, how they affect different countries is a difficult and somewhat sensitive issue. The material I talked about, PLT, is generally a very sensible and favourable thing for all countries. I can speak quite positively about that. I think you will never get 100% agreement on a treaty implementation because to a certain extent, when you try to harmonize things and simplify procedures, you take away some of the flexibility and opportunity for states to act independently. That will be the case in every treaty and you will see people hold differences of opinion.

I can tell you today in my area of expertise that the PLT is largely a sensible and appropriate step forward. You may want to hear from one of the others about the design implementation but in terms of your question overall, at least for the treaty we're talking about today, this is generally a sensible step forward in formal harmonization.

[Mark Warawa, Conservative, Langley, BC]

What is the consequence of not proceeding?

[David Schwartz]

The consequence of not proceeding, to be truthful, would not be profound. We could live without the Patent Law Treaty. We could live without these changes. I think some of the changes, though, will help in avoiding simple mistakes where people have lost rights. There have been instances. We could point to specific cases.

DBC Marine was a case where an error was made. No one saw it. The applicant didn't see it. The patent office didn't see it. These people lost their rights in a meritorious invention. You would look at this and have to say, “You've got to be kidding me, you can't lose your rights over this.” PLT would fix that one.

We could live without it, but it's a positive step. That's my answer.

[The Chair, Conservative, David Sweet]

Thank you very much.

Now on to Mr. Côté for a couple of minutes.