Industry Committee on June 12th, 2012

[Prof. Ian Hargreaves]

I mentioned that a feasibility study is under way to determine the feasibility of the idea. At the halfway stage of that exercise, the idea received strong support in a piece of work led by an independent outsider that included people from all the relevant sectors of the economy. I would hope that we are well on the way to establishing this arrangement in the U.K.

As for the earliest that it could be established, I would guess some time next year. Am I absolutely sure it's going to happen? I couldn't say that. Do I think it should happen and would be beneficial to the U.K. economy if it did? I certainly do, and I'm hopeful that will be the case.

[The Chair, Conservative, David Sweet]

Thank you very much, Professor and Mr. Stewart.

Now we go to Mr. Lake for seven minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thank you, Mr. Hargreaves, for taking the time to be with us today.

I'm just going to start with a very broad question. You were tasked with, I think I heard you say, a review of IP law and its effect on innovation and growth. In your recollection of the time you spent on this, what would you say was your most important finding? I'm sure it's tough to pick one thing out of all the things, but where would you say the most substantial opportunity lies?

[Prof. Ian Hargreaves]

I would say that the most important finding was that for a variety of reasons, a number of decisions have been taken in recent years that fly in the face of the economic evidence to hand. One of those sets of issues—the most obvious set of issues of that kind—would be the frequent extension of the duration of copyright to a point where it is certainly not economically rational to take the actions that have been taken.

Of course, politicians have to take into account matters that are not economic. I would say that the general argument about if you want your IP system to do well for the economy and innovation you'd better make sure you gather the evidence and take the evidence fully into account in making political decisions is the single most important argument in the review, because it applies to all aspects of the review.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Okay. Actually, that was where my next question was going to go, because I noticed that you'd said decisions were not based on best evidence. I was going to ask you for examples of the way it is and the way it should be in your world.

[Prof. Ian Hargreaves]

Well, I've given you the example in the previous answer, the best example or most telling example, which is the extension of copyright duration to a point where it now can exceed a hundred years. It takes us into the realm where it's very difficult to understand what economic incentive is being pursued over such distances of time. Any rational economic analysis of that would tell you that it can't be done for sound economic reasons.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You also refer to economic evidence in your second recommendation when you state that the U.K. should resolutely pursue its international interests in IP, particularly with respect to emerging economies such as China and India, based on positions grounded in economic evidence. Could you elaborate on that a little bit?

[Prof. Ian Hargreaves]

Yes, that's an argument, you may think an overly optimistic one, that international negotiation might maximize its chance of succeeding in its objectives if the positions taken are based on evidence on which there might be some agreement around what the evidence points to. That's the simple point that's being made there.

There is certainly an argument that's made, including in the countries you've mentioned in quoting from the review, that in the past diplomacy around intellectual property has been based more upon a kind of power politics than a politics of economic reason. Given the global character of the Internet and the way that reshapes and rebalances forces in intellectual property issues, at the very least, those who are adopting international influencing strategies on these matters will be well to bear all of that in mind.

The terms of trade have changed, of course, not only in IP, but certainly including in IP.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

There are so many areas to go to in the report, but one of the things you mentioned in your opening statement was participation by smaller firms, which is something that's come up from witnesses here in our study and something we've talked about. Maybe you could elaborate on that aspect, on that recommendation of your report.

[Prof. Ian Hargreaves]

Yes, I think there are a number of dimensions to it. One very clear one is that if it is true--and I'm sure the evidence your committee is considering indicates that it is true--that most innovation in an economy like Canada's or the United Kingdom's comes from smaller firms, you're going to want to make sure that the IP system is working well for smaller firms as well as for big firms. What measures can help there? Access-to-justice issues, access-to-the-courts issues can help, as would taking measures to restrain the costs of legal proceedings, and there are various ways you can go about doing that. But I would say that the biggest single thing you can do for smaller firms is to take every step that is practical to take to try to ensure that markets are working in a way that permits, and indeed encourages, competition from smaller firms, rather than blanking them out either through the activities of patent trolls and patent thickateers or the control of markets and copyright content, which in some cases is structured in a way that is unduly skewed in favour of incumbents and old business models.

[The Chair, Conservative, David Sweet]

Thank you very much, Professor and Mr. Lake.

Now the final questioner is Mr. Regan.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

Professor Hargreaves, it's nice to have you with us, even if it's not in person.

One of the recommendations in your report talks about ineffective rights regimes being actually worse than no rights regimes at all. You suggest they seem to offer certainty and support for reliable business models, but in fact in practice they send misleading signals. Would you expand on that? If you can, tell us what you feel the major distinctions are between effective and ineffective regimes. What demarcates them?

[Prof. Ian Hargreaves]

An effective IP regime, including an effective copyright regime, would be one in which the level of abuse or infringement of that regime was relatively stable, relatively manageable, not generating a sense of being out of control. Although my review had quite a lot to say about the quality of evidence that's brought to descriptions of the markets suggests that piracy is on a massive scale and daily becoming more massive, one has to be careful how one interprets that evidence.

I don't think there is any doubt at all that there is a substantial online infringement problem. But my own view is that a substantial online infringement problem will not be satisfactorily addressed until the law makes reasonable sense to reasonable people. Therefore, in the U.K. case, for example, the continued unlawfulness of copying a song from a laptop to an MP3 player is something that has not been tenable for really quite some time. The law needs to be sensible; otherwise, the law is an ass. You need a sensible law around a sensible law or set of laws. You will have a reasonable level of civic consensus, and it will be possible to restabilize the copyright system.

[Geoff Regan, Liberal, Halifax West, NS]

When you speak of restraining the cost of legal proceedings for smaller firms, are you thinking of the small claims track for intellectual property court cases, of which you spoke? Do you see a series of provisions in that kind of a system that would lower costs? Can you give us some examples?

[Prof. Ian Hargreaves]

Yes. I think a small claims track is one of the tracks the U.K.'s going down, and I think that is a sensible thing to do. There are other mechanisms that can be put in place to cap costs. Anything that could be done that makes the system more accessible, quicker, and lower cost is a good thing, but it's in the nature of law that you can only do so much in that regard, which is why you wouldn't want to rely on that as the only mechanism of change. You don't want the system to be tested to the extent that it currently is in legal forums, although certainly here in the U.K. people would say you should see the United States.

[Geoff Regan, Liberal, Halifax West, NS]

I'm going to quote from your report for a moment. You say:

...we should be wary of expecting tougher enforcement alone to solve the problem of copyright infringement. Instead, government should respond in four ways: by modernising copyright law; through education; through enforcement; and by doing all it can to encourage open and competitive markets in licensed digital content, which will result in more legitimate digital content at prices which appeal to consumers.

Can you tell us why you came to the conclusion that tougher enforcement alone will not solve the problem of intellectual property infringement?

[Prof. Ian Hargreaves]

Because I think we now have an abundance of evidence that this approach, tried and tested in numerous locations around the world, has not had the effect frequently claimed at the point at which such measures are instigated.

[Geoff Regan, Liberal, Halifax West, NS]

That brings me to my next question, which has to do with the fact that you have some companies that use very restrictive models for protecting their products. I'm thinking of television networks with television shows they have very strict rules around. Or they'll control how that's put on the Internet, for example, as best they can.

Then you have other examples. I'm thinking of a company we had a story about in the media here not long ago, Getty Images, which has moved from having the regular watermark that you often see on photographs online—where it actually obstructs the photograph—to having a link to their website up in the corner of the photograph so that someone can voluntarily choose to go there and decide whether or not to pay. In fact they've been very successful in getting payment for their images as a result, whereas you see some other companies that have the opposite model and are struggling in terms of trying to get revenues or are losing great quantities of revenues.

Is that a model to pursue in terms of frameworks or legislation? Is it the way of the future?

[Prof. Ian Hargreaves]

Yes. Getty Images are themselves taking part in the exercise I referred to that's active here at the moment, the feasibility study of the digital copyright exchange. Getty Images' business model, which you've just described in its use of metadata as part of a pricing platform, is very much the kind of idea that is needed. But in my view, it's the sort of idea that will probably be more rapidly and successfully accomplished with a bit of guidance, nudging, shoving, or shaping by government than it will be simply by individual players in individual business sectors devising their own mechanism. It's not that one would replace the other; it's that we need this to happen right across the digital economy if we are to have effective safeguards against copyright infringement, and if we are to take full advantage of the economic opportunities of what are, after all, global digital markets, in many cases.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Regan.

Thank you very much, Professor Hargreaves. We appreciate the time you've invested in the committee. I know that the committee members are appreciative of your testimony.

[Prof. Ian Hargreaves]

Thank you.

[The Chair, Conservative, David Sweet]

Now we'll move on to our next witnesses, who are here now.

We have with us Erica Fraser, the manager of technology commercialization in engineering and sciences in industry liaison and innovation at Dalhousie University. We also have with us Bubble Technology Industries, represented by Lianne Ing, vice-president. And Marc-André Gagnon is representing himself and is an assistant professor at the School of Public Policy and Administration at Carleton University.

We'll hear from you in that order.

Ms. Fraser, if you would, please begin with your comments. You have five minutes.

[Erica Fraser, Manager, Technology Commercialization, Engineering/Sciences, Industry Liaison and Innovation, Dalhousie University]

Good morning, Mr. Chairman and honourable members of the committee.

Thank you for the opportunity to appear here on behalf of Dalhousie University. As you mentioned, my name is Erica Fraser, and I have the longest title in the world, manager of technology commercialization in engineering and sciences.

The industry liaison and innovation office is part of the research services office at Dalhousie University in Halifax, Nova Scotia. Our role at Dalhousie is twofold: we do both industry liaison and outreach as well as technology transfer. In technology transfer ILI works with researchers at Dalhousie and our affiliated teaching hospitals to protect, manage, and commercialize intellectual property developed at the university. In its industry liaison role, the office develops and manages research and development collaborations between industry partners and the university, including the negotiation, protection, management, and licensing of any resulting IP.

I believe that in your meeting of May 17 you received a good description of the role of technology transfer offices in Canadian universities. As such, I would like to address three challenges that we face in maximizing the innovative impacts of university research under the current IP regime.

The first challenge is that at Dalhousie, as with most universities, there's an inherent tension between the goals of academia and the culture of publication and the need to patent inventions to maximize the innovative and economic productivity results from our research. This disconnect results in the need to submit patent applications very early and often in a rushed manner. This can result in patents of a lower quality, either due to rushed drafting or the fact that the technology is not sufficiently developed with as much supporting data as would normally be desirable. While U.S. provisional applications offer a method of putting protection in place prior to a publication that is relatively cheaper, although not inexpensive in absolute terms, and sometimes, but not always, more expeditious, there is no such method available for filing in Canada. As a result, our first filings are done almost exclusively in the U.S., and Canadian applications may or may not follow 12 or 30 months later in the case of a PCT national base application. This depends on the potential for commercial partners and their potential markets.

A second challenge faced by our office, as well as the SMEs with whom we work closely, is the limited availability of registered patent agents outside major centres such as Ottawa, Toronto, Montreal, and Vancouver. Further, the legal fees associated with obtaining legal services through lawyers and patent agents from these centres are higher than legal fees in smaller centres. I would submit that if more patent agents are distributed across the country, accessibility would be improved. I believe that this happens in part because of a lack of awareness of both the possibility of becoming a patent agent as well as the process for becoming one, as well as the lack of local support and mentoring available to those attempting to become qualified patent agents. I also believe this can be ameliorated through outreach and education, perhaps by CIPO, the Canadian Intellectual Property Office, to people with a technical background regarding the option of becoming a patent agent as well as the provision of support for those attempting to become qualified across Canada.

I would like to draw this committee's attention to the final challenge, the ability of universities to protect their patent portfolio. As our budgets are very tight and patent litigation is very expensive, it is a challenge to enforce our patent rights. As such, we would welcome alternate enforcement options that would expedite and reduce costs, such as, for example only, a specialty division of the Federal Court, as was referred to in one of your previous proceedings.

I believe all these issues boil down to the larger issue of accessibility to high-quality patent protection and enforcement. With this improved accessibility to the level of protection, universities and our private sector partners can gain the maximum economic benefits from our innovations.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Ms. Fraser.

Now we move on to Ms. Ing for five minutes, please.

[Lianne Ing, Vice-President, Bubble Technology Industries Inc.]

Good morning, Mr. Chairman and members of the committee. Thank you very much for the opportunity to appear here and discuss the experiences of our company with regard to intellectual property protection and exploitation.

I'll begin with a few words about our company. Bubble Technology Industries was founded in 1988 and is located in Chalk River, Ontario, just a couple of hours west of Ottawa. We are an innovative, 50-person company, Canadian-owned, which provides products, services, and contract research primarily in the areas of radiation detection and explosives detection. We have over 400 customers in 25 different countries, and we've conducted over 100 research programs for customers around the world and here at home.

Our technology has been used to protect people and infrastructure at major events, including the U.S. Presidential Inauguration, the Super Bowl, the World Series, and the Olympics. Our technology has flown on over a dozen space missions to support research aimed at protecting astronauts from radiation hazards and is also used to protect nuclear submariners while they are deployed at sea.

We have a creative, highly skilled staff. Our cornerstone of success is the ability to generate innovative ideas and then carry those ideas through all stages of research, development, production, and deployment.

As a small company entrenched in R and D, our approach to protecting intellectual property is a balance between costs and benefits of protecting a good idea. We generate many ideas that could lead to a patentable invention, but we only file patents for a small fraction of them.

This decision to patent or not to patent is a business decision. There are many costs associated with the patent process. We start by preparing an invention disclosure, which includes researching other patents and published literature to ensure that the invention is novel. We then engage with a lawyer to prepare the patent application. There are fees associated with filing the application, and those fees increase as you increase the number of countries in which you seek protection. There are often iterations with the Patent Office to define the scope of the patent. And if the patent is granted, there are annual maintenance fees for the lifetime of the patent, typically 20 years. All of those steps simply get you a patent.

If someone infringes upon your patent, you are then facing significant legal fees to enforce your patent, and those costs are not well bounded. As a result, a small company like ours must be selective about which inventions are protected by a patent. We patent inventions that have a clear and significant potential market and where holding a patent will provide us with a meaningful competitive advantage.

Aside from patents, we employ other approaches to protect our IP. It's worth noting that in the patent process, your application, which includes a detailed description of your invention, is laid open for public review after 18 months. This means that if your application is rejected, the IP continues to reside in the public domain and anyone can then use that knowledge. As a result, in some cases we rely on trade secrets to protect our IP or we choose to proactively publish the information to prevent other entities from filing patents for similar inventions.

Presumably one of the key reasons this committee is studying the intellectual property regime is to determine how best to promote the development and exploitation of intellectual property in order to benefit Canada. It is relevant to recognize that there is a technology development continuum. The continuum must start, of course, with high-quality research at the front end to generate new ideas. These ideas then get transformed into inventions through applied research and development, after which patents and other IP protection can be implemented.

However, at this point in the continuum many organizations encounter what is referred to as the technology valley of death. This is the point where a technology has reached a prototype stage, so it is too mature to qualify for R and D support, but the technology is still too immature to be launched commercially. This is the stage where the technology may need a few engineering refinements, product testing and certifications need to be done, marketing and training materials need to be developed, and production lines need to be set up. All of this must be done before the technology can be successfully commercialized.

When a technology fails to cross the valley of death, the value of the invention dies, and no benefits--economic, societal, or otherwise--are realized.

The government currently promotes research in Canada through a number of important programs, such as the SR&ED tax credit program and through NRC-IRAP. It is important to continue funding these programs in order to generate new inventions. In addition, the government has recently started the Canadian innovation commercialization program, which promotes testing and adoption of near-commercial technologies. This will hopefully help to transition some technologies into the commercial market. However, further focus on supporting small and medium companies to bridge the valley of death will ensure that Canada reaps the benefits of IP developed in this country.

In addition, in our experience there is one other notable area where the government can support the exploitation of IP. The current Treasury Board policy on IP arising under crown procurement contracts stipulates that the title to IP created by the contractor while performing a government contract shall rest with the contractor, in order to promote commercial exploitation. This is a good policy to promote commercialization, but there are exceptions to the policy that are often invoked. For example, a national security exception is often used in defence contracts. While it is critically important to ensure that national security interests are prioritized, the exception, in some cases, has become almost the default policy. This can create a barrier to commercialization.

In Canada, the defence market can be relatively small for certain technologies. However, if the contractor owns the IP and can readily commercialize and sell the technology to other allied nations, it can increase the market size and therefore reduce both the unit cost of the technology and the time to market, which benefits everyone. Thus, a more limited application of these policy exceptions would be beneficial to Canada.

Thank you for the opportunity to speak today. I'm happy to answer any questions you may have.