Industry Committee on May 13th, 2008

[Jean-Claude Gavrel]

Certainly. I can tell you about a few successes. Perhaps the best known company is Genome British Columbia. Several years ago, $45 million was invested to launch this company.

Mr. Johnston can surely tell you about a number of his companies. One is Precarn, a company that managed one our networks, the IRIS network which operates in the area of information technologies and intelligence systems. Another is Point Grey Research which is based in Western Canada. I probably should have brought along a list of these companies with me, but we can certainly send it to you.

In a study of all young spin-off companies — I will not get into specifics for now — Denys Cooper of the National Research Council of Canada's IRAP group noted that companies launched under the Networks of Centres of Excellence program were better able to attract investments and to succeed in the long run. The program encourages partnerships. It also sets standards for intellectual property management, something that was mentioned earlier. Standards are set so that the products of collaborative efforts by partners within these networks can be commercialized. These are steps that we have already taken, hence the program's success in terms of the number of companies launched.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Priorities are identified when the decision is made to subsidize research activities. Is the success of these companies proof that we are targeting the right research niches? Does their success prove that Canada is sufficiently forward-looking in the research field?

[Jean-Claude Gavrel]

Without a doubt. In terms of the program priorities first identified in 1989, if we look at what's happening in the rest of the world, Canada's priorities have always been properly aligned. Our priorities have been information technologies, biotechnology and applications in key domestic areas, including natural resources and the environment. We have always pursued these priorities which, fundamentally, we share with all governments and our OECD partners.

So the answer to your question is yes.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

You all talked about commercialization. Obviously, this is the central consideration. Companies conduct research in order to commercialize their findings.

Are there other ways to improve Canada's performance in this area?

[Jean-Claude Gavrel]

There are always ways of improving commercialization activities. The granting councils — in particular, NSERC, CIHR and SSHRC — emphasize this aspect. They work closely to improve the focus of some of the technologies that we develop, and to help the people who are the driving force behind these initiatives. I believe some of my colleagues alluded to this earlier.

No only does technology transfer involve technology, above all it involves people. One of the areas we need to focus on more in Canada is the training of persons in the area of commercialization. As a granting agency, we provide support for the development of innovative scientific skills but quite often, what is lacking in Canada is commercialization and marketing expertise. This is a weakness that we are working hard to overcome. In a recent evaluation of the NCE program, we recommended among other things that an effort be made in this regard and we plan on following through with this.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

This committee has heard about the serious shortage of highly qualified workers in various areas. You are talking to us about a new field.

Are we doing everything we need to do to go out and find people? Are we training enough people? Should we be planning for the future or should we be looking abroad for qualified researchers?

[Jean-Claude Gavrel]

I think that for some time to come, we will need to ramp up training activities and go out and find people wherever they may be. That is the reality of the world in which we live. We are operating in a global economy. People are highly mobile, in particular people with the skills in technology and advanced innovation that we are searching for. We have to expect that these individuals will go where optimum conditions exist. One of the ways that we can retain some of these individuals is to ensure that our companies remain viable entities

The federal and provincial governments have invested in our universities for many years and now we have caught up with the rest of the world. We have nothing to apologize for in that regard. We offer tremendous opportunities to researchers. We are starting to see industrial clusters emerge. For example, we are starting to hear about the Waterloo region. We all know about the Ottawa area and about everything that is happening in Western Canada and in Montreal. This potential needs to be developed further. As we have been told, our companies need to grow from $40 million, $50 million and $60 million operations to companies worth in excess of $100 million. There are still not enough companies of this magnitude in Canada. The challenge we face is indeed a formidable one. Smaller companies are vulnerable to being preyed upon — perhaps that is too strong a word — by other international companies that can easily shift the commercialization centre.

[The Chair, Conservative, James Rajotte]

Merci, Madame Brunelle.

We'll got to Mr. Carrie, please.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I wish we had more time with you today, because I think we could talk to you for hours and hours. The whole idea of this S and T strategy is to get recommendations from witnesses and experts in the field, so when you're answering my questions, I was wondering if you could really focus on what specifically you're recommending to us as the government.

As Mr. Johnston was saying, we've continually heard that Canada is not so good at commercialization. First, what are you doing to get industry into universities and what more could the government do to get industry into universities?

Second, in a comment about strategic procurement, Mr. Dale talked about the Information Technology Association of Canada. When we hear about procurement, quite often we're thinking about the government buying planes, trains, or automobiles, but it seems that there's a great opportunity for buying services, especially in technology.

Could you comment on those two questions?

[Jeffrey Dale]

Do you want me to go first?

[Colin Carrie, Conservative, Oshawa, ON]

Sure, if you'd like.

[Jeffrey Dale]

In terms of what OCRI is doing to help companies get into our university program, we've very fortunate that on our board of directors we have the two local university presidents, one of the colleges, and one of the federal research labs.

This process, though, of bringing companies into academia--we call it a full body contact sport. It doesn't happen naturally. There are cultural differences and skill set differences that need to be worked on. There's no cookie cutter for it. You bring them in and find out what their needs are.

Ten years ago companies were willing to invest in research, co-sponsored research. They're not interested as much any more. If you go to our major companies, RIM and Nortel alone are not doing matching programs anymore, but what they are extremely interested in is access to the people, the students. That's why I was saying our investments in research now are investments not only in intellectual property but also in very skilled people, so our access right now tends to be bringing these companies in and introducing them to the professors and the students for longer-term relationships. Then that turns into an IP transfer that comes out in the form of the students and what they've been working on. That's the number one thing we do.

What can the government do? Our recommendation was on an IP policy that would level the playing field for everyone so that everybody would know how they could deal with IP. You still want to protect the IP and you want to protect the inventors of it, but you need clear rules as to how companies access that IP, pull it out, and then look at commercializing it, because in pulling it out, you actually have to pull the people with it in order to be able to make it work.

In terms of the strategic procurement process itself--

[Colin Carrie, Conservative, Oshawa, ON]

Excuse me, but could you be a little bit more specific about the IP and what the government could do to make sure that they own it? I know Waterloo has a great policy, but that's a university-set policy. What can the government do specifically to help that along?

[Jeffrey Dale]

I think you need to specify standard rules about how intellectual property can be transferred to the private sector and who owns it. There are all kinds of different variations that you can have on it, but there are no set rules now from any of your granting councils as to what happens with the IP that's generated from it. All I'm suggesting is that there could be significant advantages to having a high-level policy. And I'm not talking about overriding other policies that might exist within the university. I think you have to complement them, but you have to make sure that there is equal access for all.

The Bayh-Dole Act actually gave an unfair advantage to commercializing the technology locally. The Ontario government recently, as you know, announced that it's going to give a tax-free holiday to all IP that comes out of any Canadian university, college, or lab or that is commercialized in Ontario. Those companies for ten years will have a tax-free holiday in Ontario. That's a high incentive to try to commercialize the IP. If the federal government would like to piggyback on that, I'm sure it would raise some eyebrows.

[The Chair, Conservative, James Rajotte]

Okay.

I have Mr. Johnston, and then I have Mr. Gavrel, who wants to comment as well.

Mr. Johnston.

[Paul Johnston]

I simply wanted to emphasize the body-contact nature of the sport, as well. Again, to go back to our model, which I referred to earlier, in which we have an end-user at the table in a research project, we also insist that there be a university at the table. Therefore, the actual research and development activity—research, development, commercialization—has all of the players implicated in the research project, so that by the time the research project is over, the company is in a position where it has a working prototype; it has had access to the universities and perhaps community colleges as well, and the process of getting these people to work together can really enhance the body-contact nature of the sport.

[The Chair, Conservative, James Rajotte]

Okay.

Mr. Gavrel, you have about 30 seconds.

[Jean-Claude Gavrel]

I have two quick comments.

First, the granting agencies have a standard policy on IP commercialization, and they are reviewing that policy. So, Jeffrey, we'll certainly go to you on this one. Consultations are starting now.

The second comment is that the granting agencies are also partnering with other organizations. There's, for example, a Business Development Bank of Canada, National Research Council, and Natural Sciences and Engineering Research Council joint program to look at the whole spectrum of supporting discovery transfer to industry as well as funding. This is in the area of nanotechnology, and the results of an initial competition were announced just recently.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

Thank you, Mr. Carrie.

We'll go to Ms. Nash, please.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you.

Hello to all the witnesses.

Mr. Corr, my first question is to you.

We've seen in the whole Cambridge-Kitchener-Waterloo area an absolute explosion of success, and you've described the status of that success. Can you describe for us what the trajectory was to build the success there? You said that the ability to transfer IP rights was fundamental. Can you just tell us how that developed?

[Tom Corr]

Sure I can, and it goes back 50 years.

I think you have to understand that what goes on in Waterloo isn't a program or a policy, it's a culture that's been there since the university started. If you take a snapshot of where we are today, the reason I think we're successful, from a university standpoint, is that we're blessed to have a president, David Johnston, whose attitude is that the research that goes on at the university should be helped to create economic activity. That doesn't mean taking some intellectual property and licensing it to some company in the States. What it means is, where possible, creating jobs by creating spinoff companies and getting behind them. So that's the first thing.

Secondly, the culture at the university is very much that doing start-ups and spinoffs and licensing intellectual property from the researchers is looked at in a very positive way. At some universities--in fact some I've worked at previously--some of that commercialization is viewed negatively. It's not pure research. It's not basic research necessarily, and it's viewed negatively, especially by some of the old-timer academics.

The third thing that we have going for us is that the students going through the co-op program typically spend five years taking what would in another institution be a four-year program, but two of those years, including the summer holidays, they're out working in industry, and many times they're working for other start-ups. So when they graduate from university, doing the start-up is not something that scares them, it's something they expect to do, whereas at other universities it might be viewed as an exception.

Lastly, the culture of the community is very supportive in Waterloo, so we have organizations like Communitech. We have other organizations that give back, that provide mentoring, provide support, and provide a local base of investment capital through angel investors that are there to take these start-up companies through the very early stages, when they're most at risk, in terms of raising funding.

I wish I could say here's the magic solution, what you need to do to kind of replicate Waterloo's success, but it's so much more than just one thing. Without all those things at play, I think that just putting a program somewhere isn't the answer. You need to address all these issues, and without doing that, it simply won't work.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you for that.

If someone asks what you get back if you're allowing this transfer of IP rights, what you're saying is that the quid pro quo has been the requirement that there be jobs and investment in the community, so the spinoffs are visible for that community. It's not simply that it's out of control, out of control meaning that it's transferred elsewhere and you never see the benefit from this technology.

[Tom Corr]

In the technology transfer in the office of research, we promote spinoff companies where other universities tend to frown on them because there's risk involved. It's much easier to license some IP to an existing company and let them run with it, collect a royalty, and that's it. It does nothing for the local community, however. So that's one of the things we tend to focus on.

However, we still have the challenge of this sort of valley-of-death financing after the commercialization funding that's available through organizations like NSERC and through the Ministry of Research and Innovation through the provincial government. There is still a huge gap in funding, and that gap, in Ontario at least, has been created in part because of the demise of the labour-sponsored investment funds. These funds provided, at one point in Ontario, up to half of the venture capital investment, and since that program is being phased out by the provincial government, about $500 million a year has been sucked out of the venture capital community in Ontario. It's a huge amount.

The provincial ministry has done a great job of introducing new programs specifically aimed at that space through the Ministry of Research and Innovation, but it's only a drop in the bucket when you compare it to what has been sucked out of the investment community.

[Peggy Nash, NDP, Parkdale—High Park, ON]

Thank you for that.

Mr. Dale, I'm interested in your comment on strategic procurement. It makes a lot of sense to me that when a fledgling company is starting out, trying to build its credibility and reliability and showing that it can move forward, the government should not abandon it at that point.

What more are you specifically recommending, and what could this committee recommend that would...? I really like the way Mr. Corr has put this, that we see the tangible benefits of these spinoff companies. It's a real boon to economic activity and a boon to our communities. So what's the next step? What should this committee be recommending to the government to help with that next step?

[Jeffrey Dale]

I'm certainly not recommending that you go into the procurement process completely, because that's a very long process. But what I am recommending is that there may be an opportunity to look at a situation where Canadian innovation has come out of federally sponsored research activities and there's either a start-up or an existing company that is commercializing a product and looking for that first customer, that they would have some avenue to go after, similar to an unsolicited proposal type of process.

ITAC modelled their strategic procurement offer around that process. This meant you could make an unsolicited proposal to utilize this technology and find a customer inside the government. The existing program for unsolicited proposals makes it very difficult to get your proposal accepted, but putting some rules around Canadian-based IP, companies are looking for their first customer and how they would access the government, because many of them know what agency within the government they would like to target as that first customer. So giving them the advantage of finding that first reference customer within the government as a paying customer and as a reference customer on feed-back for that trial would be my recommendation.