Industry Committee on June 7th, 2012

[Chris Tortorice]

That's tough. The way in which international agreements are negotiated is sort of beyond my comprehension most of the time, so I think I would have to defer to Professor Gold's view, which is that it would be great to have information made available as soon as possible so that people could have an opportunity to review and comment on it, but I don't know how much further than that I could go.

[Dan Harris, NDP, Scarborough Southwest, ON]

That's great. Thank you.

In your opening statements, I think all of you made some very important remarks about IP, and I think it was pretty unanimous that we do have to protect our intellectual property. Certainly there are different approaches and views as to how to do that, and where we should be headed. Mr. Tortorice brought up Japan, which of course has a different IP regime, which is more focused on receiving those internal strategic benefits of holding IP so that it benefits their local businesses in a significant way. Michigan is perhaps also moving in that kind of direction.

On that front, of course, we've had some large cases in Canada--for instance, if you look at Nortel, in which huge volumes of IP were sold off, and we just most recently had changes to the Investment Canada Act that are raising the threshold. In any case, if just intellectual property is sold off, that's not subject to review under the act. We've been trying for a while to get this committee to start a study on the Investment Canada Act, and as yet we've been unsuccessful.

Perhaps across the board in the remaining time each of you could perhaps offer an opinion as to whether you think it would be valuable to look at including intellectual property in the Investment Canada Act, so that we don't sell it all off.

[Harry Page]

To start, to go back to your Nortel example, when Nortel was broken up, the operating companies with Nortel—with all the patents related to the people, the equipment, and all the contracts installed—sold for a total of $3 billion to four foreign companies. The residual patents that were left—around 6,000 patents—sold for $4.5 billion, or 50% more than the entire operating units of Nortel. That was without any review whatsoever.

The core of the value of Nortel was in their patents, and that went on to a consortium, obviously, of six foreign organizations, without review. That was the value of that company.

We are in a knowledge-based economy, and the fact is that intellectual property can be sold without review. Intellectual property that has been significantly funded by the government through IRAP, SR and ED, and various funding organizations and programs like that can be sold literally without review and significantly monetized against Canadian companies moving forward. So there's a double jeopardy to the country in a situation like that.

[Richard Gold]

I don't claim to have any expertise on the Investment Canada Act, but I will just follow up on Mr. Page's comment that 1992 or 1993 was the big year when most of the assets went from being physical to most of them being intellectual. In some industries it's upwards of 95%. So to not consider the value of intellectual property is to miss out on what is very important to many industries.

[Chris Tortorice]

It would be very tough to know. Nortel is an easy example. You can say that there were thousands of patents and they had a huge value to other companies, but sometimes the most valuable patents are the ones where you haven't quite figured out what you have yet, and I don't know how the government would get involved in reviewing that.

There's probably a place where there can be a line drawn as to where the significance of the assets becomes so great that you say it should be looked at, but it's very difficult to know, because sometimes you find out ten years later; you dust off that patent and finally realize what you have. It's a challenge to know how.... You can't be involved in reviewing every deal that involves intellectual property, because those are assets that companies cross-license and sell back and forth fairly freely.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Tortorice and Mr. Harris.

Now we'll go to Mr. Braid for five minutes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

I have a quick clarification, Mr. Page. The Nortel patents were sold to a consortium. Not all the companies were foreign. Last I checked, Research in Motion is a Canadian company, and they were part of the consortium.

[Harry Page]

Yes, that's right.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you.

Professor Gold, you suggested earlier that one of the things we need to consider would be greater powers for CIPO, the Canadian Intellectual Property Office. Could you elaborate on the sorts of powers you think that office needs and that they don't have now?

[Richard Gold]

I'll give the example of the Amazon.com patent. I'm not commenting on whether their decision was right or not, but what the Commissioner of Patents did was to set up an expert panel to advise her on whether business methods ought to be patented in Canada and what the implications were for Canada and Canadian industry. She followed that recommendation and did not issue the patent. The court said sorry, you're not allowed to do that.

It's that type of decision over patentable subject matter, especially in new areas to see what is happening internationally, etc.... The United States is having difficulty with business method patents, and the Supreme Court of the United States has been pulling back.

But instead of waiting for this to go through the court system, which can take 10 or 20 years, CIPO is better empowered to make those decisions. Other micro-decisions I think are better made by the court, but that sort of big policy about what kind of thing should be patented is the type of thing that CIPO should be doing.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Great.

You also talked about the importance of training judges. There's currently only one Federal Court judge with some expertise in this area, who will be retiring in two years. How do we support...? How do we assist that training? Is that a federal responsibility or a provincial one? Who does it?

[Richard Gold]

A lot of judges learn on the job, so I don't want to undermine my colleagues on the bench who try, but they don't have the bigger picture. A lot of it's done through the National Judicial Institute. They've done some. I've worked with something called EINSHAC, which is based in the United States.

But this is a federal responsibility. These are federal judges, at the Federal Court especially, but also at the superior courts, so it does not fall within provincial.... The province has responsibility over the administration of justice, but not on the judges themselves. So I'd say it's a federal responsibility to support the NJI and other types of organizations by putting money specifically into this.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Okay.

Mr. Tortorice, you've made a strong case for the importance, with respect to anti-counterfeiting, of stronger laws and stronger enforcement in Canada. Can you point to any other jurisdictions we could look to as models of stronger laws and stronger enforcement powers?

[Chris Tortorice]

Certainly.

I mentioned Japan a little while ago. I'd also point you in the direction of some of the initiatives in the United States, where the national intellectual property centre brings together people from the FBI and from CBP, the customs and border protection group. They work much more closely to bring enforcement resources together, to bring expertise together.

We have a problem in Canada, in that how well the RCMP and the CBSA talk depends on what area of the country you're in. The relationship isn't formalized, and information sharing isn't required.

So there are examples of places where there is a centralized IP crime task force and a centralized IP centre where enforcement bodies can work together. It's a key thing that we should be doing.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Great.

Mr. Pytcia, you gave the example of the counterfeit jerseys that were seized in Vancouver as part of the Olympics. They were seized by the RCMP. Is the issue here a lack of powers or a lack of resources? Clearly the RCMP had whatever powers to seize those jerseys. Can you help us with this?

[Dale Ptycia]

I can try. Maybe I can be corrected by some of my colleagues about the legislation.

They intercepted and detained the jerseys through the Canada Post act, I believe. They notified the intended recipient that they were holding the package because of suspicious circumstances. They were asked to present themselves to make a claim to the package and to explain why the jerseys should be released. Those individuals never showed up. We held the package for the allotted time, as per the act, and then had those jerseys destroyed.

So through the steps in the Canada Post act, we were able to detain, if you will, the jerseys. We had to go through the process of notifying those folks, add extra manpower to write the letters and do the follow-ups, etc., and then do the monitoring if they actually did show up.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

So if these things had arrived—

[The Chair, Conservative, David Sweet]

I'm sorry, Mr. Braid, that's all the time we have.

I would like to have been a fly on the wall, had they shown up, and heard the kind of conversation they would have had.

[A voice]

It would like be an episode of The Simpsons.

[The Chair, Conservative, David Sweet]

I think so, yes.

Mr. Stewart, for five minutes.

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

Thank you very much.

My questions are mostly directed to Mr. Gold.

I'm interested in hearing how the work you've done in collaboration and innovation links ultimately to productivity. Productivity in Canada is not in a very good state at the moment. Maybe I can start with the first link, that between innovation and productivity, and you can give us a sense of how those two concepts are tied together.

[Richard Gold]

This is an emerging literature that's really taken off in the last 20 years. Increasingly, statistical evidence shows that when you have greater levels of innovation, you get economic growth, because it enables the industry locally to use that innovation to bring down its costs or increase standards.

So innovation goes to sometimes just cost reduction, which passes through the system, or it makes the materials better, and therefore we're able to get for every dollar of investment a better product or cheaper product. That's the basic link.

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

Then there's the link between working in collaboration and increasing innovation. I think that's the really interesting part. You're saying that's what is emerging here globally.

[Richard Gold]

Right.

Innovation is not coming up with an idea. Universities come up with a lot of ideas. Canada is one of the best in the world at inventing, at coming up with ideas. What we're terrible at is turning those inventions into something you can put on the market. That's because we lack many of the skills around it, such as financing, and so on. Part of it is because we are a resource-based economy and we never developed it. Now we need to develop it. One of the ways is through collaborations, by getting people to talk to each other.

We know that university researchers publish more in higher-quality journals if they work with industry. We have to figure out how to structure that deal. It used to be let's just get more patents and licensing. That doesn't work. That has not been shown to do anything.

If you're looking for models of countries in the world, then Israel, for example, has been one of the world leaders.

I'd really focus on how we build these collaborations of different sizes. Some of them are very small and some of them are bigger. What a collaboration does is it locally creates the knowledge of how to get into distribution channels. It develops the local marketing skills. That then spills over to the companies that aren't in the consortium, because it's there.

David Teece did a study in 1986 showing that a country that just invents is not going to get anywhere. Often the innovator doesn't make the money; it's the second or third, because they have the skills to get into the distribution channels and so on.

Our Canadian companies are selling to foreign companies because they already have those complementary assets. Collaborations provide a setting where those can be developed and nurtured. Then they have to go on their own and expand.

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

Since this is an emerging area, can you suggest how we might track these relationships, what data we could collect, what we should be collecting, what we might ask StatsCan to collect? Maybe, if there's not enough time to elaborate fully, you could submit that to the committee.