Industry Committee on June 7th, 2012

[Richard Gold]

We don't collect a whole bunch of information. One of the things we know is that graduate students, for example, carry a lot of knowledge from university into industry. We don't know where they go unless they become university professors.

We count the number of licences and fees, but we're not tracking the number of collaborations. We don't look at the contents of licensing. Under U.S. law, any time a university licenses to industry, it has to submit an abstract of it to the government. We don't follow that. We have no clue.

The Japanese government, to use that example, is trying to get a hold on what kinds of licences people enter into. We don't need to know the numbers, but we need to know how they structure these things. Does that lead to knowledge flows? Does that lead to jobs?

We have very little idea of the innovation landscape. We don't know where knowledge moves, from whom and to whom, under what conditions. Until we start tracking those two things—and I'll supply you a list after—it's very hard to know what's going on.

[The Chair, Conservative, David Sweet]

You have 30 seconds.

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

Okay.

So if we track it back to productivity, then collaboration, if you do it right, equals or leads you to innovation, and then of course it can increase your productivity.

Is there anything else you can give us, in 30 seconds, that would be critical to improving the links in that chain?

[Richard Gold]

I would move a lot of our subsidies, because they go nowhere, and reinvest them there.

I know this is not Quebec, but Quebec has this 15-year exclusivity rule, which is just giving money away on pharmaceutical products rather than investing it strategically into these types of structures. The money has to come from somewhere. R and D tax credits and general subsidies have kept afloat an awful lot of biotech companies in Canada that frankly shouldn't be around.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Gold and Mr. Stewart.

Now we go to Madam Gallant for five minutes.

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

Thank you, Mr. Chairman.

Mr. Tortorice, I'll go back to the question you wanted time to think about. The question had to do with whether or not the federal government should be taking measures to improve cyber-security over and above what the stakeholders themselves must do.

[Chris Tortorice]

I was struggling with whether or not cyber-security is necessarily an IP law issue. Certainly from Microsoft's perspective, we have a group called the digital crimes unit, which spends all of its time investigating these sorts of international cyber-security breaches and taking down botnets that infect people's computers and turn them into spam-sending machines and those sorts of things. They've had some great successes there.

I believe that most of those successes have been centred on using U.S. law to take action against people who might somehow touch the United States in some ways and on being able to take down these networks by getting orders from the courts.

I can't tell you today whether we have similar laws in place that would permit that to happen, but I know it's a very big problem. As we are increasingly in an online world, it's a big problem for companies like Microsoft, and it's a big problem for governments. It's something we really need to work together on.

Certainly with the digital crimes unit in the U.S., our team's working with the FBI and with other groups to find where these—I don't know what the right word is—“black hats” are, and where their assets are, and where their computers are, and to put a stop to the things they're doing to interfere with the flow of data and that sort of thing.

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

My questions don't necessarily pertain to IP law itself, but what you said previously on the lack of collaboration between Canada Border Services and the RCMP was very constructive criticism.

If we look at the international picture as well, sometimes governments just turn a blind eye to the piracy that's going on. Are there mechanisms in place or do you have suggestions we could implement in order to have countries themselves not just be up to par on where the IP law should be but take measures that can discourage piracy within their own companies, within their own limitations?

[Chris Tortorice]

We have to be persuasive through the channels we have, government to government or through international organizations, by saying, “Hey, you're not living up to your obligations.” They need to protect intellectual property of Canadians in their country, or else how can Canada extend those same protections to people from those places?

One big initiative we have at the moment, which Microsoft and other companies are working on, is cleaning up supply chains that involve stolen IT. So we're looking to pursue companies that have a supply chain that's all built on using other people's intellectual property and to put a stop to it. It's something that's going to take a coordinated effort and a long time, because those other countries that don't provide the same protection for IP rights make it difficult for us to compete. We need to make sure we stay on top of that.

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

Sometimes we see that state actors themselves are at fault in terms of piracy. Are there international mechanisms in place to deter state actors from breaching security?

Just as one example of state-to-state theft of technology and software, we look at the JSF project, the joint strike fighter project. Some of the cost spikes and production delays are attributed to or being investigated as being a result of piracy. So internationally speaking, are there any mechanisms in place to deter that, or are there any mechanisms you would suggest be put in place to better protect our IP?

[Chris Tortorice]

Candidly, I have to say I don't know the answer to that question. I don't know if any of the other panellists could help on that.

[The Chair, Conservative, David Sweet]

We have ten seconds left, if anybody wants to chime in on that.

No? Okay.

Thank you very much, Madam Gallant.

Now we go to Mr. Carmichael for five minutes.

I'll just say quickly that I'll keep these last two tight—Mr. Carmichael and Madame LeBlanc—and then we'll have that two-minute discussion. I have to estimate the time, because we all know there are things going on in the House. So if you just go quickly, then we'll have that good discussion regarding the report.

Mr. Carmichael.

[John Carmichael, Conservative, Don Valley West, ON]

Thank you, Chair.

Mr. Tortorice, how are global trends of increased litigation in patent thickets affecting businesses operating in Canada? I wonder if you could comment on that.

[Chris Tortorice]

That's a good question. Obviously there are lots of good examples of patent litigation being used strategically for companies to sort out rights in complex areas. There is an ongoing battle in the smart-phone industry, just as there is when every technology changes. Think of the railroad or the telephone. With all the different leaps forward in technology, there were battles over patents.

Usually these things are being sorted out through complicated cross-licensing agreements between companies. Those kinds of licensing agreements are something that Microsoft embraces and looks to take part in wherever they can, because we think it's much better to be involved in cross-licensing of technology to enable products to get to market than to be fighting about them endlessly in court. Sometimes you can't get to a resolution and you need to go forward and have a legal proceeding to determine where those boundaries lie.

[John Carmichael, Conservative, Don Valley West, ON]

I understand.

Professor Gold, I see you nodding. Do you have any additional comments on that?

[Richard Gold]

The large enterprises, especially in the IT field, are very sophisticated, and they'll have a licence. It's almost impossible to put a product on the market without violating somebody's patent. So you come up with arrangements about how you're going to do it.

It's really the smaller enterprises that exist mostly in the United States, the so-called trolls, that take advantage of the U.S. jury system to win exceedingly high damage awards that are out of proportion. So as long as we resist those, we can at least lessen the threat of trolls in Canada.

There is very little IP patent litigation in general in Canada. Most of it happens in the United States, and then we follow. So it's hard to get an exact figure on what the cost is to Canada, because most of the litigation happens elsewhere, and we're just the tail.

[Chris Tortorice]

I would agree, because most of the time, if you look at the statistics year over year in Canada, there are about five patent trials. There's a reason for that: it takes too long and it's far too costly to get to a result here.

I've heard some comments that maybe our patent system is somehow better than that in the United States. I would say most people wouldn't agree with that, because it's often not worth pursuing your rights in Canada because it just takes forever and it costs a fortune.

[John Carmichael, Conservative, Don Valley West, ON]

I think our study clearly shows that the goal has to be to find ways to fill the gaps and make improvements to the overall system, and hopefully that's what we're going to achieve with this report.

Professor Gold, could I just take you down a little different path? We had a witness earlier in this study, and I just wonder if maybe you had some input on board-of-director fiduciary responsibility. You talked about Nortel, and we talked briefly about IP value. I wonder if you have any thoughts on what it's going to take to educate members of our boards of directors to better understand the importance of IP value when we talk about it in the context of values of companies today.

[Richard Gold]

I don't have an answer to it. I agree with you that it's a serious issue. The larger companies I think are quite aware and have put a lot of effort into IP management, but the smaller enterprises are often small technical people who come out of universities and have very little knowledge.... It's probably best done by the university—encouraged in the university—or perhaps by giving some money to the university to set up programs to provide better education, not just about how to get a patent but how to think about a patent.

[John Carmichael, Conservative, Don Valley West, ON]

Well, my question is directed more at the value issue. For boards of directors, when you have that overriding fiduciary responsibility of managing a company and establishing and understanding a value, my concern, from earlier testimony, is based on what it's going to take to get that level of management, that level of responsibility, to truly understand the changing value equation in companies today when you have IPs that represent such significant parts of what that value is.

I have experience with the Institute of Corporate Directors, and I know there are other organizations. I'm just curious about whether you had any input into that, but that's fine. Thank you very much. I appreciate it.

[The Chair, Conservative, David Sweet]

Thank you very much.

Now we'll go to Madame LeBlanc.

You have five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

I am going to ask one question and then let Mr. Stewart ask the next one.

Mr. Gold, I am a Montreal member and, as you know, we have recently had a number of research centres shut down, in particular those of Johnson & Johnson, AstraZeneca and Sanofi Canada.

From what I understand, you do not believe that extending the terms of pharmaceutical companies' patents under free trade agreements will encourage pharmaceutical companies to increase their research and development investment in Canada or to keep their research centres in operation.

[Richard Gold]

Again, I'll answer in English.

If you look at the accord that was done in around 1989 with the pharmaceutical industry, they promised to move us up to 10% of the revenues we invested in R and D, which would still be about half of the OECD average. They hit it for a few years, but most of it was in clinical research. Clinical research means basically funding doctors to give it to patients. It's important, but it's not building an innovation system, because there's no knowledge to leave behind. They invested about 20% into actual or what I would call real R and D, and we're now back to the old levels.

If the IP system had been driving the investment decisions, that wouldn't have happened—it was all the other policy. So giving them more is not going to bring them back. They're restructuring anyway. The reason they're pulling out of Canada has nothing to do with Canada; it has to do with them moving out of R and D and going more to biotechnologies and consolidating. We can triple our patent rights and it's not going to have a marked increase, at least on an economic basis. Whether it would on the basis of you scratch my back and I'll scratch yours, I don't know, but in terms of economics, it will not have an impact.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you.

I will now hand the floor over to Mr. Stewart.

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

Just going back again to innovation and protecting property, you've seen the stress and tension between those two things a little bit, and I'd like you to elaborate on it. If we tighten our protections too much, we could actually reduce our innovation in Canada. Is that correct? Could you elaborate on that a little?