Industry Committee on June 12th, 2012

[Erica Fraser]

I think there's actually a good and growing climate of innovation. I think there are more and more small and medium-sized enterprises, especially, who are really doing some very interesting and innovative things, such as Ocean Nutrition, as you mentioned, who just had a very successful exit. A number of other companies, including Acadian Seaplants and LED Roadway, are doing very innovative things in Atlantic Canada.

I just mentioned a few Nova Scotia companies because that's what I'm most familiar with.

[Geoff Regan, Liberal, Halifax West, NS]

That's okay with me.

[Erica Fraser]

With regard to what can be done to spur more innovation, the Atlantic Innovation Fund is a great program for doing so. It is quite a large program, so you really have to undertake a big project for doing so.

Otherwise, some of the other national programs that I've mentioned, such as the NSERC Engage, the Interaction, the collaborative research and development grants, are great ways for universities to assist smaller companies that may not have sufficient R and D resources to do some of that PhD-level R and D at a university.

I think those are great things, and I would say they're really helpful.

[Geoff Regan, Liberal, Halifax West, NS]

Some of our other witnesses on this topic have talked about the need for greater incentives for collaboration in partnerships. Over the past 20 years we've seen that some government granting programs, R and D programs, have required collaboration and partnerships, not only between academics and business but also among academics.

Could you comment on the need for stronger interactions between industry, government, and academic leaders? What can government do to improve this, and how important is it? Should that be a focus?

[Erica Fraser]

I absolutely think that is a focus. I would say that there have been some great steps taken over the last couple of years introducing these collaborative granting projects. Anything along those lines is a benefit, anything that, first of all, can raise awareness that collaboration is possible and that there are these resources available to them—because to this day that is still something that many small and medium-sized enterprises are not aware of. And secondly, anything that eases the process for them in doing so is definitely a benefit.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much.

Ms. Ing, aside from a rod and a staff, what do you think our businesses need to cross the valley of death?

[Lianne Ing]

As I mentioned, there are a number of programs and contracts available to small and medium-sized enterprises now that will help to fund or stimulate research and development, typically up to an early prototype stage.

The government has recently introduced the CIC program to try to encourage the commercialization of technologies, but the entry criteria for the technology require that it must be at a certain maturity level and essentially be near commercial technology, meaning that there are really no further engineering requirements for that technology. So what we end up with is a gap, this valley of death, where you can get as far as a prototype and you then have this leap that you need to make to get to something that is really ready for a commercial launch.

So an extension of existing funding programs to allow them to expand their mandate to cover some of the developmental activity further along in terms of technology would certainly assist. There are programs such as the NRC IRAP program or the CIC program at each end of that spectrum that could be extended so that we actually have coverage from one end of the development spectrum all the way through to commercial launch.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Professor Gagnon, I found your comments on drug patent subsidies very interesting. You estimate that the return is around $614 million but that we pay $1.7 billion.

We have heard comments and suggestions related to the negotiations between Canada and the European Union saying that the European Union insists that we extend the lifetime of their drug patents.

What are your comments on the potential impact of such a decision on the Canadian government's behalf?

[The Chair, Conservative, David Sweet]

A very brief response, please.

[Dr. Marc-André Gagnon]

It is possible that, if we agree to the European Union's requests, we will simply end up increasing costs without actually generating more innovation in the sector.

If we compare ourselves to Europe, we need to understand that patents give you a protection period. What is being protected? We are also protecting the price of the product. If our prices are 15% higher and the life of the patent is 10% shorter, at the end of the day, Canada will get better protection than a number of other European countries. If we keep the same prices and we extend the protection period, it will be too expensive and we will not get the benefits that come with that.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Gagnon.

Surely goodness and mercy were abundant in that round.

Madam Gallant, for five minutes.

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

Thank you, Mr. Chairman.

I'd like to zero in on the remarks of Bubble Technology about the current Treasury Board policy on IP arising from crown procurement contracts.

First of all, I want to clarify something. When the exception becomes the default, does that mean it's the department that owns the IP?

[Lianne Ing]

That's right. When the Treasury Board policy exception in invoked, it means that the crown owns the intellectual property that's developed under that contract.

Obviously there are certain cases where, for national security reasons, that might make sense. If it's strategic technology, the government needs to make sure that it has access. But there are many programs that were done under the umbrella of the Department of National Defence where the technology could perhaps be supplied more quickly and at a lower unit cost without sacrificing national security if the IP ownership rested with the contractor. In all cases, because the government has provided funding towards that technology, the government retains a right to utilize that technology. But when the contractor is able to own the IP, it allows them to explore other follow-on activities for that technology, which could include commercializing it or building upon that technology to come up with the next-generation technology.

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

Generally speaking, is the witness aware of any situations whereby once the contract with the government runs out, the government takes that IP and gives it to another company to acquire the product at a lower price?

[Lianne Ing]

We have not had direct experience in that regard. We typically find that in the case where the crown owns the intellectual property, you then need to engage in order to develop a licensing agreement with the government department. It simply becomes an issue of time and resources. It becomes quite a bit of paperwork in many cases. Because the technology is so varied, in many cases when the departments are looking at tech transfer they're often starting with a template for a licensing agreement, and that template may not suit the specific technology that's been developed under that program. So you get into a scenario whereby in order to go through those licensing negotiations you keep adding cost and time to market and it becomes more of a barrier to pursuing that technology. If you have other technology that perhaps is also promising, you might choose to redirect your energy to those areas.

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

How does this Treasury Board IP system differ from that of other allied or NATO countries?

[Lianne Ing]

We do a lot of work with other allied nations, particularly with the United States government. They have a very industry-centric focus when they are contracting. The Treasury Board policy itself, which indicates that the IP should rest with the contractor, is consistent with what we see from the U.S. government in terms of terms and conditions. It's simply that when the exceptions to the Treasury Board policy are invoked, they can create this barrier to commercialization.

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

Then all things being equal, is it more lucrative to deal with the U.S. Department of Defense versus the Canadian Department of Defence with respect to commercialization?

[Lianne Ing]

In the U.S. we often see many of the development contracts are willing to fund the development of the technology further along in technological maturity. We often will have contracts whereby you can get very close to a commercially viable system through a government contract. So that does provide you an easier springboard in terms of the commercial launch of a product.

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

When the government has an exclusive with you and you're not allowed to commercialize, does that protect the pricing for the government?

[Lianne Ing]

We often see in many of the government contracts that they can invoke clauses that say if you're going to take this technology and commercialize it, you have to ensure the government will receive the most favourable pricing. That already provides a price protection for the government in recognition of the contributions they have made to the technological development. By not restricting where the company can sell that technology, if we can increase the volume sale of something, we can drive down the unit cost. We do radiation and explosives detection. The market for specialty technologies within Canada can be relatively small. You're not selling thousands of units here. So if we're able to expand that market, sell to other allied nations, for instance, we can increase that volume of production and then it drops the price for everyone.

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

In dealing with either the Canadian or the U.S. government, have you experienced that they will allow the technology to be shared, that they won't completely invoke this? For example, share it with the NORAD countries, Canada, U.S., the Five Eyes, or NATO--has that been explored?

[Lianne Ing]

In some of the contracts we work on when the Treasury Board exceptions are not invoked, we're able to retain ownership of the intellectual property through Government of Canada contracts. We have then taken that technology and successfully commercialized it and sold it abroad. Of course there are export regulations that already serve to protect what is exported. So if it's sensitive technology, you are assured already that this technology is not going into undesirable countries.

[The Chair, Conservative, David Sweet]

Thank you, Ms. Ing.

Thank you, Madam Gallant.

Now we move on to Mr. Harris for five minutes.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you.

I'm going to start with Madam Ing, but on a different track from Mrs. Gallant. Of course you were talking about the valley of death and it's provided lots of humour, but it is a very serious issue. It's one of those gaps, especially for small and medium enterprises.

The Jenkins report has made recommendations about shifting some of the emphasis from direct tax cuts into more direct funding. Do you think that kind of an approach would help to bridge that valley of death?