Industry Committee on June 19th, 2012

[Clément Fortin]

We think open innovation is good only in the initial stages of technology development. More and more, we are seeing that businesses are interested in pushing this further. For example, there are projects with 3M Canada where resins will be developed. So we can get results, even in open innovation, that are very applicable and marketable.

At the same time, we are going to push that thinking more to take the research even further. There are ways to combine things and create a project architecture where the industrial fabric will benefit.

I find that surprising, but the businesses really want us to push the open innovation model further, to the point where we are almost at commercialization.

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

Thank you very much, Mr. Fortin.

I would like to ask Harris Kolada, from Sustainable Development Technology Canada, a question about clean technologies.

One thing surprised me during your presentation. In fact, you said that Canada exports a lot of clean technology. In that case, why are we not using them here, in Canada?

[The Chair, Conservative, David Sweet]

As briefly as possible, please.

[David Harris Kolada]

Yes, that's a very good question. It's hard to answer that quickly.

There's an inherent conservatism, we believe, in Canadian industry in regard to adopting technologies early—to avoid taking the risk. That's number one.

Number two—and this is being addressed by the new government program around this issue—some of the large potential adopters and deployers of technologies are governments, and there hasn't been, until recently, an organized program and funding to bring in these technologies and to be the first adopter of some of them.

But we are seeing some promising signs in that regard, and also in some of the leading companies globally that are headquartered right in Canada. We are seeing some progress there as well, but we are behind—it's true.

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

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Kolada and Madame LeBlanc

Now we'll go on to Mr. Albrecht for seven minutes.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Thank you, Mr. Chair.

First of all, I think it's pretty obvious that the common theme coming through here is collaboration: collaboration among you as partners and also between industry and the post-secondary institutions.

I'm from the Waterloo region as well. With my colleague, Peter Braid, I'm very proud to have worked with maybe all of you, or almost all of you—I haven't met Mr. Fortin.

Communitech has a great record in the Waterloo region, and one of the things I would like Ms. Peters and Mr. Kolada to comment on is the whole issue of IP as it relates to the university. The University of Waterloo has a regime that is a little different as it relates to intellectual property protection. You've given us the example of Desire2Learn. We know about RIM and the fact that these companies were started by students before they graduated.

There's some support for the idea that because of the freedom of intellectual property ownership following the producer, it would create more opportunities for commercialization, yet I noticed that in Mr. Kolada's comments he said that universities have “inconsistent” IP licensing. He went on to say that it creates some challenges.

Ms. Peters, could you just comment on your experience working in an incubator setting with many emerging high-tech companies, a number of them coming from the University of Waterloo and that regime, and how, in your view, that has affected commercialization? Maybe Mr. Kolada could comment from the other perspective. We had witnesses here—I believe last week—who commented on the fact that there are some areas internationally where there is a common IP regime across the university spectrum, and I don't see that happening quickly here.

I just wondered if you could follow up on those points. Thanks.

[Avvey Peters]

Sure, and thank you for the question.

I think you're absolutely right. Every Canadian university has its own method of IP ownership, its own policy. The University of Waterloo's policy is a creator-owned policy, which is quite different from other university IP policies.

The challenge I think goes to the theme that I think we've been exploring. Collaboration is really the key, and finding ways to reduce the hurdles for effective collaboration is the important piece, so organizations like Mitacs that can broker those good, solid partnerships between a business and a university and help make those connections are good ways to advance IP. The collaborative model that Monsieur Fortin has described again is a great way to do that.

I think the challenge that many universities have in thinking about IP and in negotiating agreements with industry partners is that if you're making a complex product—a BlackBerry, for example—the number of individual patents and licensing agreements for all of the parts and all of the software...it's a very complex item. The number of agreements with individual patent owners would be quite complex.

What often happens, especially if you are a smaller company, is that you're faced with this very challenging landscape of how many agreements, how many university partners, how many individual researchers, and what other industry collaborators need to be negotiated with, so is it worth it, how quickly can it be done, and how much is it going to cost? Those are the things that I think are top of mind for companies.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Mr. Kolada, could you comment on the fact that the inconsistent IP rules across the university spectrum are, in your view—at least I think I heard you say—a detriment to you, and on whether or not you think it would be wise for universities to come together and try to have a common approach?

[David Harris Kolada]

Certainly, and thanks for the question.

To clarify, this view comes from our portfolio companies, the SMEs that are trying to commercialize these technologies. Of course, we work very collaboratively with universities—they are members of our consortia—and we encourage that going forward.

What we hear about is how complex and difficult it is for the entrepreneurs. It seems that every time it's a one-off, so while we agree that it would be very difficult, given the history, to sort of standardize and harmonize the procedures across Canadian universities, efforts to make it simpler and more efficient, I think, could be implemented on a case-by-case basis, and we would encourage that.

Part of that, potentially, is around the incentives, around the tech transfer offices within the universities. It's sort of like a “no one got fired for buying IBM” type of thing. Similarly, no one got fired for putting the can on a potential technology that didn't get spun out.

If it does get spun out and the university doesn't get their fair share, and it ends up being a big winner, then it looks as though someone hasn't done their job properly. If there were more of an incentive to get these technologies spun out more effectively so that there was a portfolio approach—if there were some winners and some losers, and that was part of the accepted procedure—maybe these could happen a bit more efficiently and there could be a bit more volume, because, as I think Rob mentioned, sometimes by the time you get these things spun out and patented, the market's moved by.

[Harold Albrecht, Conservative, Kitchener—Conestoga, ON]

Do I have another minute or two?

I'll just go on to Mr. Annan, then, with regard to Mitacs.

You indicated that your partnerships have grown. I think you said you went from 18 in 2007 to 2,000 in 2012. That's an amazing record of growth. Have you seen a corresponding increase in the number of IP applications, and then, more importantly, in actual examples of commercialization?

I know that's probably going to follow the growth of your partnerships by a few years, but are you seeing the corresponding movement as well?

[Rob Annan]

Thanks for the question.

Yes, absolutely, we are seeing it. You point out rightly that there is a bit of a delay. We are very much still a research organization, so we don't tend to work very close to the commercialization end. We're really more in the middle, not right at the very early discovery end, so we're seeing things sort of moving through the pipe as we move forward.

There are certainly examples where bringing in researchers.... For instance, we had a small company in Ontario—SideStix, I think it's called—that was developing prosthetic devices to assist with walking, and they really needed just to do some quality control research on some of the materials they were using in order to put some of the final pieces together for that commercial application. That was completed and rolled out.

What we often see, as I said in my presentation, is that companies have intellectual property that needs some expertise, perhaps, not to develop brand-new IP but maybe to refine it or to get more information around it. That's a key part of that commercialization process, but it isn't necessarily geared towards the creation of brand-new IP. We're certainly seeing commercialization happening through our companies. There's no doubt.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Albrecht.

We now go to Mr. Regan for seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chairman.

Thank you to the witnesses for coming today. It's nice to have you with us.

Let me start with Ms. Peters.

I'm interested in your comment about the State of Israel, which, as you say, has standard agreements. Could you elaborate on how those work and whether you think that's a model Canada should follow? I presume it's legislated in Israel if it's required, obviously, that everybody supply everyone. Are there problems with that “one size fits all” approach?

[Avvey Peters]

I don't know all of the details, but my understanding is that this standard agreement is for state research centres that are receiving funding from government and partnering with industry, so part of the condition for receiving that funding is that the industry-academic collaboration agreement is standardized; it makes the process more efficient, and everyone has the same common understanding going into this kind of relationship as to what will happen.

It removes that speed barrier, if you will.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Mr. Fortin, would there be any problems if we had that kind of system in Canada? Should that kind of system be limited to government research centres? Are there any obstacles to collaboration that should be removed?

[Clément Fortin]

There wouldn't be any problem with applying that kind of system if a large part of the money came from the government. We receive 75% of our funding from governments: 25% from the provincial government, and 50% from the federal government. The agreement works very well and it is unique. It transcends the intellectual property policies of universities. There are 20 or 30 universities participating, and they all agree. It is sometimes difficult when they are new.

If a significant amount came from the government and a generic agreement set out the principles, we would work with that. If an entrepreneur wanted to obtain funding, it would be up to him to develop his own agreement. I have been an entrepreneur, and I can imagine that you can develop your own agreement. You can be more flexible. I think the generic agreement could work in the majority of cases.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Kolada, you talked about the valley of death. We heard previously that it's an area where there's a lack of support for the development of new technology and start-ups. Do you see impediments at that stage that are problematic? Are there things government does or doesn't do that need to change?

[David Harris Kolada]

Yes, it's fraught with a number of issues.

The principal issue is really just a matter of the risk/reward at that stage from an investment perspective and also from a customer adoption perspective.

Taking the customer's perspective for a moment, the risks from deploying a technology that has not been, in their view, sufficiently proven or de-risked are so great that they could jeopardize their business or people's lives. For example, in a wastewater treatment plant, a clean water drinking plant, or a multi-billion dollar facility where something gets implemented that has not been correctly scaled up, the loss, potentially, of business and opportunity would be massive. That's a big obstacle to adoption.

The key issue there is being able to get it demonstrated to the point where these issues are identified and worked out prior to commercialization. That takes money. There's no two ways around it for these capital-intensive industrial technologies.

Where the government can play a role, as I mentioned earlier, is in being a guinea pig, in some cases. They could use the assets the government owns to demonstrate in a controlled environment, and get some of these bugs worked out and the scalability issues addressed. If it's a lighting technology in some of the built environments, such as in some of the buildings the government owns, for example, it doesn't necessarily mean writing a cheque. But it could mean utilizing their assets in a novel way.

From an investment perspective, the venture capital community, which is the prime funder at these early and mid stages.... Certainly with clean tech, which is the perspective we bring, it's very difficult to make money in this valley of death stage. The amount of time between when they invest and when they can see an exit is long. And the amount of money required to get to that next valuation point and a potential exit is high. To the extent capital can be brought to bear, such as SDTC, in a situation where you're doing that de-risking and are providing the private sector some capital that matches theirs—it's a partnering process as opposed to just throwing money at things, which may or may not work—we find it to be very effective. In fact, we think it's a model that could be replicated in other high-capital-intensive industries beyond clean tech.

[Geoff Regan, Liberal, Halifax West, NS]

You don't seem to be saying that government should be choosing the winners in terms of investing, at that stage, with dollars.

May I ask whether you think it's a difficulty for government to choose among the different technologies, or choose the winners, in the sense of saying that these are the ones we're going to partner with to try things in government? Would the list be endless? Obviously, it's much broader than lighting. There are some things that perhaps government couldn't be a guinea pig for, but in choosing to be a guinea pig, aren't there times when we have to kind of choose and say that we think this one is going to succeed and that one isn't?

[David Harris Kolada]

Absolutely. I have a couple of thoughts on that point.

First, on that adoption and piloting type of scenario, I think there are ways that.... If you set up things like the CANMET lab, for example, in Alberta, which is specifically for oil sands-related technologies, it's built; it's there specifically for those kinds of technologies at that phase. You're not picking winners. You're bringing them in and allowing them to use the facilities to scale up the technology. If you're getting a little bit downstream on that, certainly there would need to be fairly tight criteria in terms of which technologies could be brought in and demonstrated or piloted.

In terms of funding and the model that we use, I think it's very important that we're an arm's-length entity, and we do pick winners. That's our job. We're a policy instrument of the government. We operate within a very well-defined environment. Within that, we only fund the best technologies that we find.

So we think it's important that this kind of following the private sector money and matching it...but also being able to intelligently determine which technologies get funded and which ones don't is critical.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Regan.

We'll move on to the second round now, five minutes for each.

I would just caution that pretty well everybody went over their time in that round. I know we're not dealing with a simple area, but we probably need to keep our questions a little narrower and our answers a little tighter.

Mr. Carmichael, for five minutes.

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

Thank you, Mr. Chair.

Thank you to our witnesses.

With that caution, I will try to be precise. Perhaps I will just carry on with my colleague's line of questioning.

Mr. Kolada, when you talk about IP and obviously selecting those that are going to truly lead to success, I take that's probably the standard by which you demand or you expect that applicants will have their IPs fully secured. They have gone through the process of IP application and securing it before they get to you, have they?

[David Harris Kolada]

Thank you for the question.

It varies. We deal with companies, as you are aware, or projects that are in the development and demonstration phases—so completing the development and then doing a demonstration project. Depending on where in that spectrum they fall, the answer will vary. Obviously, the earlier they come, the less buttoned-down their IP typically is, but that's not always the case.

So when we say that the IP must be secured, we mean appropriate for that stage...and also to have a defensible plan. When we're doing our due diligence—I'm participating in a round of due diligence this fall—often what we're looking for is that they have started to do the work in terms of searching for prior art, making sure they have a path to market and a freedom to operate. It may be that it's using trade secrets, and not patents at all. It's to have a strategy that makes sense and that is appropriate for their sector.