Industry Committee on Oct. 2nd, 2012

[Lucie Boily]

The federal and provincial governments really need to get involved to see what is going to work best.

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

Thank you.

In the aerospace industry, what are the main challenges in terms of innovation, on the one hand, and intellectual property, on the other hand? I think that you have pointed it out, but could you perhaps give us more details? How can developing intellectual property be beneficial for innovation and vice versa?

[Lucie Boily]

As we said earlier, developing intellectual property is extremely important, given the globalization of the industry. In that context, our companies have to send lower value-added work abroad. Sometimes, we have to make sacrifices and concessions to keep the development of intellectual property in research here. That means a lot of jobs for five, six or seven years. One of our companies has done a lot of work on the Boeing Airbus program, and about 60 engineers worked for seven years to develop the intellectual property. Those are high-paying jobs. At one point, there was a reference to IP strategies and that is what this is.

Sometimes, we have to make concessions and send less strategic intellectual property abroad, because something else is already being developed and our industry will be able to manufacture a product elsewhere at a lower cost. That enables businesses to be far more competitive. But, if it is not allowed, that can become a problem in terms of the support we receive from SADI or other sources.

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

Now, in the age of globalization, we often have to do business with other countries and that is how transfers are being done.

In your brief, you have made some recommendations on intellectual property in relation to the strategic aerospace and defence initiative (SADI).

What are your recommendations on intellectual property as it relates to SADI specifically?

[Lucie Boily]

I believe that the SADI people are aware of the problem and that, on occasion, they have managed to make adjustments that enabled our companies to do it. Then again, if there is a change in management, sometimes the new person does not know what is going on. In that light, the first thing to understand is the imperatives of globalization and the fact that our industry is fully globalized. The program has to recognize that. That is one of the first considerations. Then others have to be able to tailor their conditions to allow those using the program to share intellectual property, or IP, especially if we are talking about less strategic IP. There has to be an openness in that respect. That is my first recommendation.

As I said earlier, the federal government has an amazing opportunity to use government procurement to negotiate agreements with manufacturers—the primes—thereby obtaining IP. That IP will then allow our businesses to do the maintenance for the aircraft purchased. It is not normal that the maintenance is not done by a Canadian company, here in Canada. But to do this, you need to own the IP. We cannot allow other companies from abroad to decide which part of the IP they keep and which part they give to Canada. All too often, those people ask for what is in the best interest of their company. So they keep whatever has the highest added value.

[The Chair, Conservative, David Sweet]

Thank you, Ms. Boily.

I would have let that go a bit longer, but to finish that answer was appropriate.

Now we'll go to Madam Gallant for seven minutes.

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

Thank you, Mr. Chairman.

Through you to our witnesses, first of all to Mr. Stajcer, what tools do you believe are needed to negotiate IP ownership more quickly so that we don't miss that market opportunity to which you referred?

[Tony Stajcer]

We have to educate. I think it comes down to education.

I have had the experience of negotiating with universities, both in buying patents and in licensing of rights to the IP. The education for the universities, in terms of what the IP really means, is important. A lot of times we actually have to take that IP and layer on other IPs to be able to make it to the market, so education is an important factor in having the universities understand how the IP progresses all the way through to commercialization.

Other than that, every university has a slightly different mechanism. For some I have had to negotiate directly with the inventors, who were a professor and some students, and some of the students had already left the university. Other universities have an office that negotiates for them. They need to come together. There needs to be a mechanism for how they're going to approach IP.

One of the suggestions I had is about a development licence. We have a licence to develop it royalty-free, but if it goes to commercialization, then at that point we can see the value of the IP and negotiate a proper licence. To take that impediment back by saying the company will have IP rights to commercialize it and the university will have IP rights for teaching purposes and further education is at that point good enough to proceed.

When we get to commercialization, we can see the value of the IP. Then we negotiate for real, as opposed to up front. Companies that want to get into it quickly, especially SMEs, see this long process and say, “I don't have time to do this. It's going to go through hoops, and it's different for every university.” They don't even approach universities for some of their IPs. It just sits there. They'll get around it in another way.

I'm hoping something can be done in that area.

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

All right.

How are other countries bridging the valley of death? What funding mechanisms or instruments are they using?

[Tony Stajcer]

In our industry, which is the space industry, in Europe the governments are actually investing heavily in space. They realize that there is a real science driver there, a driver for high-value jobs. We in Canada have fallen slightly to a disadvantage, as Europe has recognized the importance of the space industry. I speak now for the space industry only. They are investing heavily in aerospace.

We as a company, then, are disadvantaged in that we don't have enough funding in that valley of death to actually fund the technologies we may need to be world-competitive. In two areas we are world-competitive, and we do internal investments in the millions of dollars to stay ahead, but we're slowly inching back because of the heavy investments being made by other countries in that same area while the IP is allowed to remain with the company to commercialize and to create jobs.

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

All right.

Still on the aerospace subject—I believe Madam Harvey referred to this—what is it about our IP policy that is impeding the Canadian aerospace industry from gaining a greater share of the global market?

[Maryse Harvey]

The SADI program is the strategic aerospace and defence initiative whereby government, as soon as it partners with a company, becomes owner of the IP that's generated through that specific funding program. This is a problem, because it impedes our companies from transferring some of this IP—some of the lower-value data—to their own sister companies in other nations, where goods or part of the goods being manufactured could be manufactured at a lower price, which would allow us to keep a competitive edge regarding costing.

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

This is a common complaint I hear across the board about SADI, but is it the national security aspect more than the commercial ownership?

[Maryse Harvey]

For aerospace generally it's not a security aspect. If the good doesn't have any military applications, it wouldn't apply in this case.

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

Okay.

In terms of SADI, you mentioned the IP limitations. Is it specifically, then, the requirement for the Government of Canada to own it that is preventing the further commercialization?

[Maryse Harvey]

Yes. It prevents the flow or the transfer of IP when that flow is strategically important for a company.

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

Thank you.

To the first witness, you mentioned that other countries have an IP czar or chief. You also mentioned that we have a varied and overlapping group of sciences that require this: pharma, agriculture, nano, forestry, software.

Are you suggesting that we have one individual in charge, or a panel? How would we ever find one person who would have the expertise in all these areas to be an IP czar?

[Karen Mazurkewich]

Well, other countries have IP czars. It's people who just understand the nature of intellectual property and how it needs to be managed.

Intellectual property is an asset. It's an intangible asset, but it needs to be managed. You can find lots of people with a lot of IP expertise in this country who could take a leadership role in the government to speak for IP. What's happening now is that you have several departments--foreign affairs, industry, heritage, and justice—that all play into IP policy. There's not one person who speaks for it, whereas other countries do have one person. They have strong people, perhaps a judge in IP or someone coming from the private sector.

You can find someone who could speak for IP in this country. They don't need to be experts in every single sector; they just need to understand how this game is played.

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

Now, in everyone's testimony—

[The Chair, Conservative, David Sweet]

Madam Gallant, that's really all the time there is.

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

Okay.

[The Chair, Conservative, David Sweet]

I'm sorry about that. The clock is always our enemy, in every committee.

Go ahead, Mr. Hsu, for seven minutes.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you, Mr. Chair.

I want to start out by asking for some more details about a statement that Ms. Mazurkewich made about Canada leaking IP.

I wonder if you could describe what that means in detail. Does that mean that people are moving? What exactly does that mean? What is moving where?

[Karen Mazurkewich]

You are asking what's moving where. Okay. We did some research looking at how many small and medium-sized companies were involved in mergers and acquisition deals in Canada over a period of five years. What we discovered was that about 58% of the companies that were sold went to overseas buyers, and 66% of the IP went abroad, which means that overseas buyers heavily covet our companies that are rich in intellectual property.

Now, what I was saying is that I don't say that we need to stop all foreign acquisitions of Canadian companies, but we need to recognize that something is missing in this country. Something is not anchoring.... We're not keeping enough of our IP in this country. I think, and maybe Tony would agree, that anchoring IP in this country would also help to create jobs.

The problem is the valley of death phenomenon. We develop companies, but we can't get the companies that do develop IP, at least to an extent, past that valley of death, so other companies come in, buy those companies, and take them out. What are they buying? They're buying our heavily IP-rich companies.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

I understand that there's ownership of IP, ownership of data and things like that, but are people actually moving out of the country?