Industry Committee on Aug. 7th, 2009

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

Right now?

[Mark Henderson]

Yes.

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

Okay.

[Richard Corley]

We know it was not a condition of the bid we were putting in. And if, as we said previously, it was something that any party felt there was any problem with—the process or conditions—that's why you have a court-monitored process, to go in and raise those concerns with the court and have the court consider and address them.

A number of parties, I would note, during the course of this process, including some of the bidders who participated, did have concerns with the process. They went to court, they raised those concerns, and the court modified the process. So it is very clear that there is a protocol for doing this, and it's not through the media.

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

I understand that there is a protocol. I'm just a bit concerned that maybe there's a different set of instructions associated with the bidding process for the two companies. I'd like to clarify it. Obviously somebody is perhaps wrong on this, and I'm just curious about that.

On the issue of national security—that's been raised—your take on it is that it is not an issue. Could you elaborate a little bit on it?

[Mark Henderson]

That has been out in the press a lot. We've tried hard to look at this from a number of different points of view. I think we struggle with the comment. First, we talk about our history, our years in Canada, what we've done, the innovation, the amount of investment, the fact that we were suppliers both to the government and to the Department of National Defence. This sale is a sale of solutions-based products. This is not a services-based deal. We provide software in boxes, and the operators operate. Our interaction with these networks is very tightly controlled, and our involvement with these networks is very tightly controlled.

The fact that we've talked of just recently, that the telecom market in itself is very much based on open standards, that this intellectual property is heavily cross-licensed around the world, and I guess the fact that these LTE assets we have on a non-exclusive basis—they're open to everybody else.... So we struggle to find where that comment is from. But having said all that, we are certainly willing to sit down with any member and go through that discussion, because we should put this to bed.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Henderson. Thank you very much, Mr. Garneau.

Before we suspend for 15 minutes, I want to note that a lot of our discussion today has focused on the sale of Nortel's licences for these patents.

Go ahead, Mr. Galipeau.

[Royal Galipeau, Conservative, Ottawa—Orléans, ON]

Mr. Chairman, I just want to assure Mr. Henderson that I don't plan to give away my cellphone, but to be clear, I wrote on the home page that it is the property of the taxpayers of Canada. I'm sure all my colleagues at this table also wrote that on their home page.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Galipeau.

I want to close by noting that a lot of discussions focused on the sale of these licences for these patents from Nortel. I note that Research In Motion paid Visto Corporation, a U.S.-based company, $270 million to use its patents, and paid NTP Inc., also a U.S.-based company, $612 million for licences for technology patents such as Wi-LAN that allow the BlackBerry to function. I note that if a third party in the United States had made representations to the U.S. government to prevent that sale on the basis of national security or other national interest concerns, it would have precluded these BlackBerrys from actually working, both in the U.S. and possibly elsewhere as well.

I just wanted to put that on the record.

I want to thank the four witnesses from Ericsson for appearing today.

We will suspend for 15 minutes.

[The Chair, Conservative, Michael Chong]

Bon après-midi à tous. Good afternoon to everyone.

We are here pursuant to Standing Order 108(2) and the motion adopted by the committee on Friday, August 7, 2009 to study the proposed sales of certain Nortel Networks assets.

We're here today pursuant to Standing Order 108(2) and the motion adopted by this committee on Friday, August 7, 2009, to study the proposed sale of certain Nortel Networks assets.

We have in front of us three representatives from Industry Canada: Mr. Richard Dicerni, the deputy minister; Madame Marie-Josée Thivierge, assistant deputy minister of small business and marketplace services; and Madam Helen McDonald, assistant deputy minister of spectrum, information technologies and telecommunications. Welcome to all three.

We will begin with a 10-minute opening statement and then go to 50 minutes of questions and comments on the part of members, so that we can go in camera at 2:45 for a discussion of where this committee will go.

Without further ado, Mr. Dicerni.

[Richard Dicerni, Deputy Minister, Department of Industry]

Thank you, Mr. Chair.

Further to your remarks that you would have us for only 60 minutes, I think my opening remarks will be 60 seconds, so there will be more time.

I would like to thank the committee for the opportunity to appear today in my capacity as deputy minister of Industry Canada and also as director of investment under the Investment Canada Act. I am here with my colleague Helen McDonald, who is the ADM of the spectrum, information technologies and telecommunications sector; and Marie-Josée Thivierge, the ADM of small business and marketplace services, but more importantly, the ADM responsible for the administration of the Investment Canada Act.

I would note we are constrained, including Madame Thivierge, in regard to what we can say about any particular case under the Investment Canada Act.

This confidentiality issue was previously addressed last year, when Mr. Prentice appeared before the committee to discuss another transaction. Despite the minister's interest in addressing the issue in detail, he unfortunately could not do so. Those same rules apply today to the case you discussed earlier this morning.

With that caveat about confidentiality pertaining to the Investment Canada Act, my colleagues and I are open to your questions.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Dicerni.

Before we begin with Mr. Garneau, I want to point out to members of the committee that a letter has been distributed to you, dated March 13, 2008, from the senior associate deputy minister and director of investments at the time, Mr. Paul Boothe, to the then industry minister, Jim Prentice, outlining the restrictions on the minister and department in commenting about any specific case.

I asked Mr. Dicerni to provide that to our committee so we would all understand that while he comes here in the interests of transparency, he is under statutory restrictions when it comes to what he can and cannot comment on, as per the advice provided to the minister and deputy minister by the department.

Without further ado, we will begin with Mr. Garneau.

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

Thank you, Mr. Chair.

Good afternoon, Mr. Dicerni, Ms. McDonald, and Madame Thivierge. Thank you very much for coming here this afternoon to answer our questions.

Prior to beginning I spoke to the chair, and I'd like to raise one issue, the different interpretation of the rules associated with the auction process, whereby a representative from RIM said they were told clearly they would not be allowed to bid within a year on any future Nortel assets that might be put up for sale, whilst that is not the interpretation Ericsson had. I would like to ask for a way to clarify these two different opinions.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Garneau. I think that's helpful, and I'll ask the analyst and researchers from the Library of Parliament to do the research on that and to clarify that seeming discrepancy.

Thank you.

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

Thank you, Mr. Chair.

This morning we heard from a Nortel representative that there had been a series of meetings between Nortel and the Government of Canada--13 was the number that was mentioned to us--between October 2008 and June 2009. I'm not sure at whose instigation they were. My first question is whether or not members of Industry Canada were involved in any of those discussions.

[Richard Dicerni]

Very much so. We maintained a fairly ongoing dialogue with Nortel, as did other agencies of government, particularly EDC.

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

Thank you.

You may have heard the testimony this morning in which the representative from Nortel essentially summarized the reaction of the government to these discussions. They suggested that they had come forward with a plan that might have helped resolve the situation that Nortel was in, but that firstly, the plan was viewed not to be credible, not to be sustainable; secondly, that Nortel was viewed to be--to use the term used by the Nortel representative--a tarnished company; and thirdly, Nortel was not viewed to be a company under threat in the same sense as GM and Chrysler were.

I was wondering what your comments would be with respect to those comments.

[Richard Dicerni]

Those are comments that Nortel made. They are not my comments or comments of any of my staff, I think. I know Nortel had many meetings with a number of people within the federal government. Along the line, people may have made some comments; they may have interpreted some comments. I don't want to spend my time on characterizing those comments one way or the other.

To the substance of your point, over the course of that period of time, there were a number of plans. There was a base plan, which involved selling one of the business units. There were also other elements. As markets changed, in the context of discussions with us and with EDC, when they were putting up one particular business line and they weren't getting the response from markets that they thought they would get, the plan evolved. At a certain point, for example, they were discussing a strategic merger with another company. At another point in time they would have discussed selling another business. During these various meetings, we constantly sought, as did EDC, to get more information so that there could be some due diligence. Some of the questions we were raising were the same as the ones that surfaced this morning, such as the sustainability of the business or whether the customers were willing to buy into their strategy.

I would add that at that point in time markets were extremely turbulent, and I can understand why their strategy was evolving. So I would hesitate to say we had one plan that was tabled in October and that stayed the same throughout that period of time.

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

Thank you.

The Liberal Party is working on a specific strategy for the high-tech sector because we recognize how important it is to the future of Canada. Certainly, we would all agree that Nortel had some very strong capabilities with respect to its accomplishments, its intellectual property, its personnel, and its commitment to R and D. Within the government, how was Nortel viewed in terms of a high-tech strategy, from your point of view?

[Richard Dicerni]

There are a few points.

One, we did maintain ongoing dialogue with Nortel. The executive vice-president of the company at the time, David Drinkwater, was a former colleague of mine at OPG. We had regular ongoing dialogue. We had this discussion, in part, because Nortel is and was at the time an important contributor. If we did not believe so, we would not have sustained that many numbers of meetings. We would not have sought to engage in further analysis to do further drill-down to understand what the business case was for the company going forward, who their customers were going to be, when they were going to bring these LTE patents on line. Those were all matters that we cared about, and that was the basis on which we sustained our discussions with them.

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

Thank you.

From that, am I to conclude that ultimately the government did not feel it was worthwhile trying to find a solution that would prevent the breakup of the company?

[Richard Dicerni]

There are two points.

I believe the minister is on the record as saying that in his view there was not a sustainable business case at that point that had been brought to the government's attention. Secondly, when Nortel did file in mid-January, it's important to note that at that point the company was not envisaging a breakup. The company was not saying it was going to break itself into little pieces. I think the CEO is on the record as saying he was hopeful that the company would emerge from this process a leaner, stronger, more focused company. Throughout this process in, I think, a number of months, that model of a restructured company was the operative model, so the auction that took place in the latter part of July was not necessarily the model that was on the table in mid-January.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Dicerni.

Thank you, Mr. Garneau.

Monsieur Bouchard.

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

Thank you, Mr. Chairman.

Deputy minister, thank you and the two persons with you for being with us here today.

Is it customary, in the acquisition process, sir, that businesses contact the Department of Industry to transmit information? Nortel had its value appraised at one point—I don't remember the exact amount—no doubt in order to exempt itself from the application of the Investment Canada Act. Ultimately, the purchase price amounts to more than $1 billion. Consequently, in my view, the Canada Investment Act should apply.

Who decides whether the act applies? Is that determined on the basis of the book value or the price offered or submitted?

[Richard Dicerni]

I'm going to ask my associate Ms. Thivierge to provide you with additional information, but the final decision is made by the minister. It is the minister who must decide whether a transaction is subject to the act.