Subcommittee on Canadian Industrial Sectors Committee on May 14th, 2009

[Terry Ansari]

I would just add that one of the considerations, and an observation I've made that we see around the world, is that when we talk about this idea—and it really is an idea—of recovery through innovation, it's being tangibly addressed by certain countries in much more meaningful ways. One of the starting points to that is saying and really believing that technology is the enabling infrastructure for that recovery and therefore for innovation. Quite often we find ourselves looking at infrastructure in that traditional sense of the word. I'm sure you've heard it before. We're not at all suggesting that those infrastructures are not wanting. They are, and they're very worthwhile. They're hugely important to us as a society. To raise the discussion of technology as the enabling infrastructure of our time, and a huge opportunity for us going forward, has immeasurable impact across all of Canada. That was my point earlier about economic resilience and agility. It's so fundamental.

In Australia, as you may have heard, they're rolling out a very advanced technology network to their citizenry over the next number of years. This was a promise made by the Prime Minister when he was in opposition some ten or eleven years ago. It took him a long time, but when they got there, they went ahead, and they're working on making it happen. The view of the government there is to say that we are going to change the way Australia actually functions by virtue of doing this.

So they've tipped that discussion. When you tip the discussion, you obviously tip the public perception, and I think that's the opportunity we all have in terms of leadership.

[Bernard Courtois]

If you look at things like the environment, obviously because of our climate and our widely dispersed population, we have challenges in terms of energy consumption and so on. We know technology is the way to do that. It's not to cut back our standard of living. It's not to cut back the strength of our economy. It's to do it through technology. There are so many things in our society that if we set out to do it that way, we're going to have the win-win. We'll have the environmental advantages, but we will be building our knowledge economy, because we have the capacity to build a knowledge economy other countries would envy.

[The Chair, Conservative, Dave Van Kesteren]

Mr. Garneau.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

My question is for Mr. Courtois.

One of your members is a big player. I am talking about Nortel which, as we know, is breaking up. In your opinion, will there be much of a fallout from this in your sector? As you mentioned, Nortel is a major investor in research and development. In your opinion , will what happens to this company have a negative impact on your industry?

[Bernard Courtois]

There will clearly be a fallout. However, do I know what might be done to resolve the problem? That is another matter, but the large companies in our sector create a whole ecosystem of smaller businesses around themselves. As Terry stated, they operate in a collaborative mode. We can talk about collaboration between governments, the education system and the business sector, but in the area of innovation, the big corporations now recognize that they are unable to do everything. They surround themselves with an ecosystem of small companies and these companies, in turn, grow in size. We have Nortel, we have RIM and a few other such corporations. The impact in a given region is extraordinary. When a company such as Nortel is in difficulty, this obviously worries us. These businesses also train people who have experience building and managing large companies operating in other countries. Therefore, through their management and their capabilities, they serve an entire region.

In the past, our industry was perfectly capable of withstanding repercussions, of enduring ups and downs and of redeploying its talent and its people in order for new companies to start up, etc. At present, there is a lack of venture capital. Usually, these people, when there are lay-offs or projects that are abandoned by a company, can leave, strike it out on their own and be very successful. However, that possibility does not exist when there is no venture capital. The negative impact can be very serious.

This is important for us, but our association would be ill-advised to say that help must be provided to one business rather than to another or that a specific solution should be adopted for a given member. The fact is that once a company reaches a certain size, its importance extends way beyond the direct jobs it creates.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Merci.

For Mr. Brenders, with your three-point plan, has there been a government response to what you presented?

[Peter Brenders]

We've had discussions with the government. Certainly on the R and D tax credit, we've been talking to the government for over a year now. We saw some improvements to the R and D program in the 2008 budget. We're continuing to work in trying to eliminate the CCP restriction on that.

On the monetization of the tax losses, we have had some very positive discussions with BDC, industry, and finance in terms of early signals, but nothing has been implemented yet. We're hoping those discussions will accelerate and we can get some cash to keep some companies going.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Nobody has mentioned intellectual property. Is everything okay with intellectual property in this country?

[Bernard Courtois]

In our industry, we're a bit of two minds about that. We have some issues with the patent regime in the U.S. Our whole ICT industry down there is suffering, so in that sense the Canadian regime is better.

On the copyright side, we have a copyright act that predates the Internet era. That's obviously a gap. In today's economy, non-tangible property is displacing bricks and mortar and physical things as the driver of economic growth and wealth, and we need to update our copyright laws to reflect that.

I'm acutely aware of the fact that the issue has been quite controversial and that at some point there seem to be views that are too extreme, but as Canadians, we're reasonable people. We actually believe that work can be done. We actually believe that we can put something through a committee and come out with something that will put us into the Internet age, address many of the issues, and resolve a lot of the differences, and frankly, you have to reach a point where the views of people who want to be unreasonable simply have to be put aside. That's one area.

We know there's a different situation in the biotech area. Regulatory regimes are quite different, and so is intellectual property. In our case, we live in a world in which things change very fast. We live in a world in which a particular apparatus, like the BlackBerry, probably has a hundred patents on it. In systems like the U.S. patent regime, if you have a challenge on one one-hundredth of the apparatus, you can capture all the revenue made from a whole system, so we have issues there.

That being said, BIOTEC may have some separate issues.

[Dr. Rainer Engelhardt]

From a patent perspective, the situation is that there is not a critical immediate issue. There are problems with inconsistency of approach and so forth, but I'm told, at least, that our legal system in Canada is aware of that and is working on it with government. A lot of it relates to congruity of filing, particularly in Canada, the U.S., Europe, and Japan.

It's not the critical issue of the moment. It is being worked on. That would be a general comment.

[Peter Brenders]

Maybe it's not the patent so much as it is the data protection that comes underneath it, because there are technologies that come out of biotech that aren't patentable or protected. It is the investment you make in terms of proving that the technology is of value and the data that's generated. How is that protected? Canada is a bit of a laggard in that space. There are always things we can do if we really want to lead and improve on that one.

The other piece I would raise on IP is the opportunity or challenge we have in dealing with IP tech transfer. We invest tremendously in universities in research and development. We have good IP that's being developed. How does that come out to be commercialized? Some universities do it better than others.

[The Chair, Conservative, Dave Van Kesteren]

Go ahead, Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I'd like to go back to my original line of questioning.

We've heard lots of good ideas. There have been lots of good ideas put on the table throughout our entire study here, and in other areas in the broader economy, in facing some of the challenges we have. Of course there are always things governments can do better, but governments can't do everything asked of them.

We've literally had probably hundreds of billions of ideas put on the table, and with every one of them came the promise that it would bring us out of the global situation we're facing. There are a lot of asks on the EI front, for example, or conversations happening around EI, that would lead to much higher payroll taxes that successful companies, of course, would bear the burden of. If we were to implement a lot of the things that have been talked about, the potential result would be higher taxes being paid by corporations, and successful, growing corporations would bear the brunt.

My understanding of the biotech field, and probably of both industries, is that in your industry, unlike other industries, the bigger, more successful companies tend to plow a lot of the profits they make back into R and D.

I would think that the investments those types of companies make are probably among the most secure investments, in a sense. They would be the most profitable investments from the standpoint of successes that would benefit Canadians as a whole in the long term, the very types of investments we're trying to see made under our science and technology strategy under Advantage Canada.

Perhaps you could comment on that a little bit. Could you comment on the types of investments being made by the bigger, more successful, growing companies, the companies that are actually paying taxes?

[Peter Brenders]

You're very right. The large companies are still investing heavily in research and development expenditures. It's a great investment, a great multiplier for Canada's economy. Finance Canada came out with a very conservative return: for every dollar the government spends or supports in R and D through its credits, it gets $1.10 back to the government, because that money is not just spent directly within the company. The companies themselves spend it on other companies, they outsource it, they spend it on universities and research institutes. It has a multiplier effect, creating a broader economy.

It's a multiplier that we've seen out there. There are other multipliers. Government's is 1.1, but we've seen that the University of Manitoba's is about 1.6 to 1.9. You're seeing, with a lot of other companies, that it's core to them. They're based on an R and D infrastructure; they innovate. They don't just achieve one product and say they're done. As Hicham was saying, it's a race without a finish. Companies are always innovating and investing.

That's the type of economy in companies that we're looking for, and that's the success we're seeing within our larger companies.

[Bernard Courtois]

In our case, our sector invests more than $6 billion every year in R and D. That's very significant. The sector is growing faster than the national economy. The pay rates in our industry are about 50% higher than in the rest of the economy. We're the demonstration that an R and D and innovation-based path is the path to success.

That being said, we have a very good program with the SR and ED program; it compares well, in international comparisons. Some of the international comparisons in the Science, Technology and Innovation Council report and others that are being collected by the OECD show that some other countries may not have as good a tax credit program, and others are improving their programs and making them more refundable. Many countries provide direct help to R and D.

In the U.S., for example, their national tax credit program is not that great, but as a country it provides more direct assistance to R and D than any other. As a result, when people make decisions, which they can nowadays, to put an important lab anywhere in the world, we face a couple of challenges that cause us to say, let's look at our SR and ED program, to either improve it or complete it with something else.

Some companies are not allowed to factor in the SR and ED tax credits in trying to get a decision to locate something in Canada, because the credits may reduce the tax you pay in Canada, and, because of tax treaties, increase the tax you pay at headquarters. Some companies are reaching mid-size of a fantastic growth phase and hit up against the ceiling at which they're no longer qualified for the refundable 35% tax credit and go down to 20% non-refundable. It's causing them to question whether they should pause their growth, or things like that.

So there are things that we can and should do to look at improving this program.

[Hicham Adra]

Let me add that there's an opportunity here. I don't think anybody is suggesting wasteful spending, or handouts, or any of those things; that's really not what this is about. The question at the end of the day is this: if you're going to spend a dollar anyway, how do you spend it in the most effective, wise fashion?

[Bernard Courtois]

I agree.

[Hicham Adra]

If we as governments are buying inputs, not outcomes--speaking to the earlier point about IP, which I think my colleague discussed--there's a softer side to IP. We can talk about IP as patents, but when you do projects or undertake initiatives, you build capabilities, you build a knowledge base, you build methodologies, you build practices. You build things that people can then export and can leverage to bring back more economic value.

The idea of investing to come out of a crisis stronger is really about how you leverage technology to deal with the increasing demands. Yes, there are increasing demands—the demographics, people who are going to retire, the health pressures on the country. The question is how we then leverage this technology and innovation to deal with these increasing demands, both nationally and in terms of the global responsibilities we have.

[The Chair, Conservative, Dave Van Kesteren]

Thank you, Mr. Adra.

Colleagues, we're at a point now where we have to make a decision, if we can have some consensus. We have approached the next set of witnesses. They have graciously allowed us to move the time just a little bit.

If you've exhausted your questions, fine, but I seem to sense that there are still some good questions being asked. If it's the will of the committee, we can maybe continue this for another 15 or 20 minutes.

The analyst needs instructions from us. We've allotted an hour's time for the next bit, but I think half an hour will be sufficient. We can move some of that time.

Is it the will of the committee to do so? Do you still have some questions?

You have one, and Mr. Bouchard has one.

We can finish this round, but we'll have to stick to the five minutes.

Is that okay?

[Some hon. members]

Agreed.

[The Chair, Conservative, Dave Van Kesteren]

Monsieur Bouchard, go ahead.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

My question is for Mr. Brenders, here representing BIOTECanada. You said that the crisis was hitting biotechnology firms very hard and that foreign competition is a reality. You even said, in one of your comments—that were very good, by the way—, that the patent situation in Canada was lagging behind.

You seemed to be inferring that in the sector that you represent, your companies are losing ground or will lose ground if the government does not adopt measures or assistance programs.

Is that correct?

[Peter Brenders]

With respect to patents or intellectual property, your risk is that you're going to see the technology be delayed in being introduced into Canada. You run the risk of companies not spending a lot of investment in jobs on doing their research and development in Canada, if their IP can't be equally protected.

Does that run the risk of the company...? Probably not as much, because the company will relocate to a favourable environment. The company may survive; it may just not be the Canadian jobs. Or certainly, if the IP is not there—and it's not the patents as much as it is data protection that comes with the development side—what you are going to see is that the introduction of new products and technologies are probably not going to come to Canada as quickly, if at all, and we've seen that.

Canada has made improvements. We're just not world-leading and we're a little bit behind some of our developing nations. We've been talking with the government on this, within the public service, trying to improve it, but it's clearly a longer-term process.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Very well.

Mr. Courtois, you stated that a means has to be found in order to get money flowing. Does this mean relying on refundable tax credits and loan guarantees? I would like to know if those two mechanisms are necessary?

[Bernard Courtois]

They could be some of the means used to deal with the situation. With tax credits, money flows, because people are able to immediately change their process. Access to venture capital is also a tool.

In its most recent budget, Quebec set aside $1.7 billion to deal with the lack of capital. There exist different types, and a large portion will go to the technology sector. Ontario has created a fund of several million dollars. In my view, there is pressure as well as a desire to try to do more in Ontario. British Columbia has a tax credit program for retail investors. Quebec has just revived a tax credit program for investors.

The federal government announced additional funds for BDC in November 2008, and in this year's February budget, it provided additional funding for EDC and BDC. However, it is not yet clear how much of this money will be devoted to venture capital and it would seem, from what we are seeing on the ground, that this is insufficient. This should be clarified and that element of the package should perhaps be strengthened.

The various governments are creating funds, but investment is generally not the affair of a single company. Venture capital investments are often done by a group. If the federal government has a role to play, it would be that of catalyst, working with other funds in order to resolve the problem.

What is happening right now, particularly with BDC, is for the time being rather vague. How much money will be used for venture capital and will this be sufficient?