Industry Committee on Oct. 2nd, 2012

[The Chair, Conservative, David Sweet]

I call the meeting to order.

Good afternoon, ladies and gentlemen. Bonjour à tous. Welcome to the 39th meeting of the Standing Committee on Industry, Science and Technology.

We have four witnesses before us today from three different organizations. From the Canadian International Council, we have Karen Mazurkewich, who is director, intellectual property. From the Aerospace Industries Association of Canada, we have Lucie Boily, vice-president for policy and competitiveness, and Maryse Harvey, vice-president for public affairs. I understand you will be sharing your time. Finally, we have Tony Stajcer, who is vice-president of corporate research and development at COM DEV International.

I believe you have all been notified that you have six to seven minutes for your opening remarks, and then we'll go to rounds of questions.

I'll start with Ms. Mazurkewich. You have seven minutes, please.

[Karen Mazurkewich, Director, Intellectual Property, Canadian International Council (CIC)]

Thanks. Good morning.

My name is Karen Mazurkewich, and I'm here on behalf of the Canadian International Council, which is an independent member-based council established to strengthen Canada's role in international affairs.

Almost two years ago, the CIC approached me to write a report on how Canada ranks internationally with respect to its intellectual property regime. As a former journalist with the Wall Street Journal in Asia and the Financial Post, I asked the obvious first question: who speaks for intellectual property in Canada? I was struck by the response: everyone and no one.

To be precise, the job of the intellectual property office is to administer IP regulations, but it doesn't have the mandate to create policy. In fact, four ministries have input on IP policy. However, the most senior person in charge is only a mid-level bureaucrat at science, industry, and technology. While the U.S. has an IP czar who reports to the President himself, and the U.K. has a chief economist on IP and three other economists reporting to him, Canada has no one at a senior executive level who speaks for IP.

[The Chair, Conservative, David Sweet]

Ms. Mazurkewich, our interpreters may have a problem with that level of speaking. Could you make the cadence a bit slower? They would appreciate that.

[Karen Mazurkewich]

Oh, sorry. All right.

To continue, then, my next question was “Why?” The reason, I believe, is that Canada suffers from IP fatigue.

There are protracted battles within the pharmaceutical industry, and the international pressure for stronger copyright enforcement has distracted policy-makers. Canada is stuck in a decades-old debate that has distorted the prism through which IP policy is viewed. As a result, it hasn't developed a comprehensive IP policy that addresses the needs of the future technology firms. Pharma research is important, but it will not be the biggest driver of jobs in this country. We need broad IP policy to support new technologies, particularly now that the boundaries are blurred between agriculture and pharma, nanotechnology and forestry, software and medicine.

I'm here to speak for some of the start-ups and small entrepreneurs with the biggest growth and job potential. The research conducted on behalf of the CIC showed that foreign companies that snap up Canadian start-ups favour those with IP assets; in fact, 66% of the IP that was sold as part of Canadian mergers and acquisitions deals between 2005 and 2009 went to firms outside this country. We have an IP leakage problem, people.

While I'm not suggesting halting foreign sales, we need to understand that if we want to build innovative companies, we need to anchor a significant portion of our IP in this country.

How do we do that? We need to look at the commercialization of technology. We know that our universities collectively have one of the worst track records in the developed world for commercializing technology. Our researchers write papers, but we can't seem to get the research off the page. Technology sits on the shelf. We have to encourage universities to work with industry to speed up the collaboration process and get ideas to market.

There are some solutions. Canadian universities should centralize technology transfer offices and create simplified legal agreements that take into account the risks that the private sector makes in commercializing invention.

The federal government can encourage this by structuring its incentive programs to reward universities that are industry-friendly and by supporting consortiums that bring industry and universities together to solve technology gaps.

We need to build capacity programs that teach entrepreneurs IP management skills. For example, we can look to Denmark's “growth houses”, which offer funding so that start-ups can perform patentability searches and subsidize the cost of filing a patent or trademark. I've heard repeated complaints from industry that university doctoral candidates are chasing technologies that have already been patented or pursuing technology that is obsolete in that it's not where the market is moving. We need to be more engaged.

Governments need to incentivize businesses to generate more patents. The CIC advocates that the federal government create a direct subsidy or make changes to the tax credit system to give entrepreneurs the option of hiring lawyers to file patents.

Canada should also establish its own public-private patent investment pool to fund patents in critical sectors. Currently institutions spend enormous amounts of time and money looking for renters who will license their technology. A patent investment fund would pool related patents and make them available for licensing on an industry-wide basis. The fund would also be in a position to purchase IP from high-tech firms that fall into bankruptcy, such as Nortel, or provide equity to entrepreneurs seeking to trade licensing rights for cash. In short, a patent investment fund would be like the amazon.com for Canadian patents.

We also advocate the creation of specialized IP courts. They already exist in some developed countries and in emerging markets such as China. Patents are being used as weapons of mass litigation, and we need to give our companies better support through the legal system.

Finally, we need a gold standard for patents. To that end, the government should improve the examination of patent applications and upgrade the Canadian Intellectual Property Office's antiquated database so that it can be searched online as easily as the U.S. archive. It should also let third parties contest an application before a patent is granted. Israel publishes applications and then weeds out the bad-apple patents by re-examining any applications that have been challenged. We should do the same.

In closing, I would argue that IP is complex and ever-changing. Wise governments undertake regular IP reviews that are conducted by independent experts. Most developed nations have carved out IP strategies, recognizing that a dynamic and carefully conceived IP policy is vital to their prosperity. Canada needs to join the race.

On behalf of the CIC, I'd like to thank you for inviting me here today, and I'm happy to take some questions later.

[The Chair, Conservative, David Sweet]

Thank you, Madam Mazurkewich.

Now we'll move on to Ms. Harvey and Ms. Boily for seven minutes.

[Maryse Harvey, Vice-President, Public Affairs, Aerospace Industries Association of Canada]

Thank you, Mr. Chair.

Thank you very much for inviting me to appear before you today.

I will start by providing you with a little bit of an overview of our industry and the context in which we operate. My colleague, Lucie Boily, will talk about the precise challenges we face.

The Aerospace Industries Association represents both aeronautics and space manufacturers and service providers. The industry employs about 80,000 Canadians across the nation. There are about 150,000 indirect and direct jobs. About 15,000 to 20,000 engineering and scientific staff work in this industry, so it's a very high-level, high-knowledge industry. It has yearly revenues of about $22 billion and exports of 73% to 75%. Investment in R and D is about $2 billion per year.

Our companies are evolving in the changing global context. We must adapt if we want to remain competitive. The industry, as you may well know, is highly globalized in nature. We have very long and costly R and D cycles. It's an industry in which there is no margin for error, basically. It is very capital intensive. To win world mandates, tier 1 and tier 2 suppliers must take on some risk, do design and engineering, and develop some IP, as well.

In terms of the industry's vision and opportunities, the Canadian aerospace industry has a clear vision: given the outstanding growth in commercial aircraft and space technologies around the world, we want to grow our market share. The expected growth is $3.4 trillion for commercial aircraft. We are talking about 34,000 new aircraft in just the commercial aircraft aspect.

If Canada is to remain competitive, we want to grow. We want to grow across the nation. To do that, we're going to need some policies and programs, including IP policies, that evolve with us and allow us to be competitive.

How do we capture and increase our current market share? We need strategic and early positioning on new aircraft platforms that are going to be flying in the near future. We're going to have to move up and into the global supply chain and make sure that our companies do, including small and medium-size companies. We're going to have to make sure that we increase the design capability of mid-size companies and that we enhance our international collaboration to increase our R and D intensity across the value chain.

On global pressures and their impact on IP management, every other nation interested in attracting R and D and aerospace has very aggressive mechanisms in place to attract foreign investment, which means flexible IP policies, among other things. It also means access to specific markets that are increasingly linked to local investment in those markets. Therefore, if we want to access several large markets, we must sometimes locate some work in those markets to win mandates and have access to those markets. That is the reality now.

Cost pressures from airline operators, of course, have an impact on our cost reduction in terms of the production of systems and parts.

We need to have new ways of measuring success in the aerospace industry. It's really about the creation of high-level, sustainable employment. We need new market penetration. We have to be more diversified. The development of world product mandates on major aircraft and the development and commercialization of new technologies is how we are going to define our success and keep our competitive edge. The growth of our industry, in terms of revenue and export, will certainly come from continued excellence in technology and IP generation.

[The Chair, Conservative, David Sweet]

Madam Boily, you have about two and a half minutes left.

[Lucie Boily, Vice-President, Policy and Competitiveness, Aerospace Industries Association of Canada]

Well, IP is definitely becoming a pivotal issue for the growth of the Canadian aerospace industry, and I will speak to two aspects of that. One of them is under the commercial funding agreements of programs such as SADI, and the other is with respect to government procurement.

There are four major issues with large impact. The restrictive IP policies of certain programs like SADI limit the collaboration across borders, as the IP is deemed the property of Government of Canada. As Maryse said, the new aerospace programs are the result of collaborative efforts, and international partners require sharing of IP. Therefore, our industry is at a great disadvantage because of the fact that IP is restricted to the government.

It also stifles commercial exploitation for some foreign companies that have subsidiaries in Canada. Very often they're at a disadvantage with their sister companies when they bid internally for world product mandates, because they don't have the right to use the technology outside Canada. Also, it's very difficult for our companies to implement competitive industrial strategies because they cannot get work done in other countries where there are low-cost sources, and therefore they're at a cost-competitive disadvantage.

The last, but also extremely important, issue is in terms of government procurements or federal acquisitions of foreign aircraft. Very often government does not negotiate the rights to the IP that give the high value-added work to the companies, and this work is kept by the primes in their own countries. Our SMEs particularly are at a great disadvantage, because they don't have access to this IP because government does not negotiate it at the front end.

There are a number of solutions. Certainly there have to be optimal and consistent IP guidelines across all government departments, and we have to reduce the restrictions on programs. We have to be much more open so that we can meet the demands of other countries, and we have to reinforce our procurement policies by negotiating upfront access to IP, which is so necessary to create more of these high-value jobs that the industry already provides.

Thank you very much.

[The Chair, Conservative, David Sweet]

Thank you very much, Madam Boily.

Now we will go to Mr. Stajcer for seven minutes, please.

[Tony Stajcer, Vice-President, Corporate Research and Development, COM DEV International Ltd.]

Good morning, Mr. Chairman and ladies and gentlemen. Thank you for inviting me here to speak on the intellectual property regime in Canada.

My name is Tony Stajcer. I am vice-president of research and development at COM DEV International Ltd. COM DEV is an international company supplying space satellite equipment to the major satellite integrators around the world. I look after the R and D, a function in COM DEV looking to capitalize on our R and D investments and also to maintain an IP database as well as to ensure that we protect our IP and that we commercialize across the globe.

IP plays an important role in innovation. There is an entire chain, from generating IP at the front end with university collaboration, through what we call the valley of death, and finally through market development and commercialization.

Today I will talk about two aspects. One is that as a company, we are involved in collaborating with universities. As my colleagues have pointed out, collaboration between industry and academia needs to improve. I want to also emphasize the next step, which is the valley of death where there are limited funds to take the technology across that gap and get it to the commercialization stage so we can create jobs and value in Canada.

On the first point, the industrial and academic collaboration, there are many different models for IP ownership when we support universities. We provide industry funds into universities. At some universities, the inventors own it—the professors. In other cases, a university IP office owns the intellectual property. In these cases, we have invested a lot of money in universities, but we've had no consistent mechanism to define the IP rights and execute them such that we can be encouraged to take that next step and invest in commercializing that IP.

We find the same things. As my colleague Karen pointed out, the IP sits on the shelf. Some of it is outdated by the time it gets developed. There is an impediment to industry to start pulling that IP off the shelf, investing in it, and going to the next stage.

All in all, there are some good examples of programs, such as Mitacs, for example, whereby you develop a program with a university. You fund the Ph.D. and grad students who work on it. They also work in the industry a minimum 50% of the time, but the IP is owned by the company. The company is in the best position to commercialize the IP because the markets are well developed. A full set of suppliers are already in the chain. The people in industry who are in the markets are best positioned to understand how that IP actually applies.

One of the key issues is IP that is developed. The university believes it's world-breaking, but they have no idea what the market actually wants. From that point on, you usually require that IP plus a lot of background IP and other IP that you will add through the next stages of development before you get to commercialization. Therefore, the value of that IP is difficult to forecast right from the outset.

We need some mechanism that encourages collaboration and that does not put a stop or obstacle in the way of having companies invest in that IP and pulling it in. We need to encourage companies to say they will have a development licence. Once they get to that point, we have to track the IP—who adds what to that—and the final product. Once you have the commercialization plan, then you can start to negotiate what the IP value really is. At the beginning, it's irrelevant, because it's very difficult to understand how it's going to fit into the final product. That example is to encourage a standardization of an IP model at that front end, such that we can take that research and push it into the next stage.

The second point I wanted to make was that as we get into the next stage, we are seeing limited funds to take that IP further. This is the high-risk area. We have done TRLs 1 to 3. We have some fundamental research on the shelf. We can see how it could apply. The next step is a very risky investment period.

This is where, I believe, for our innovation cycle in Canada—and this was identified by the aerospace review that was led by John Saabas—we said there is a valley of death and there is not enough funding to fund the ideas and take them through that gap. You have to be able to accept failure. You have to be able to take on 10 ideas, 10 technologies, and you have to be able to say you will understand if six, seven, or five fail. The idea is you have to do that to get the three, four, or five winners. Obviously we'd like to get more winners, but you have to be able to accept that failure.

Companies are not well positioned to invest fully in that area. This is where the government has to play, as in the SADI program or other programs like Mitacs. Mitacs is a very small program, and I like the model, but it could be extended. This is where government and industry have to co-invest in taking that technology across that gap.

There are inconsistent IP rules across the different types of funding mechanisms. This is one of the problems. If you go after one fund, you have one set of problems; if you go after another one, you have another set of problems. It takes a long time to negotiate issues. In that area, the speed of getting that IP consistent across various programs, as well as developing a mechanism such that there is no impediment to making that transition quickly....

As an example, we have had a program for two years for which, in the time we negotiated the funding and support, we've almost missed the market. We missed the timing. We cannot recover that. It's very important that we have the right set of tools to negotiate IP quickly and decisively, get into the next stage of development, and get it through the valley of death.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Stajcer.

Thanks to all the witnesses for their opening remarks.

Now we'll go to our rounds of questions. The first round is seven minutes. We'll go over to the Conservative Party. Mr. Carmichael, you have seven minutes.

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

Thank you, Chair.

Thank you to our witnesses for attending today.

Clearly this committee is focused on finding solutions to the issues you've raised today. It was interesting that in May of this year the government representatives told us that Canada is the place of second filing; we're not the primary filing point, and for many reasons. We've now met with a number of different universities. I presume you've read their testimony. We've talked to them about the different models they employ.

Ms. Mazurkewich, if I could start with you, I tried to keep up to your solutions, but they were hard to.... I'm going to have to read tomorrow's Hansard to make sure I have them all.

I agree with all of you on finding some sort of standard model, because I found the universities' solutions so varied. I think this is where we can play an important role, as government, to find solutions that are more standardized, more productive, more likely to result in commercialization, which is what we want to achieve.

I wonder, Ms. Mazurkewich, if you could address this aspect. In a couple of your recommendations you talked about incenting IP-friendly universities. It sounded to me as if lots were IP-friendly, but can you address the model of who owns the IP, who shares in the cost, where the money comes from, etc., a little further? Then maybe we'll go over to Mr. Stajcer and then back over to you folks.

[Karen Mazurkewich]

The difference between Canada and the U.S. is the fact that the U.S. did standardize academic and industry agreements through the Bayh-Dole Act quite a few years ago. Those have been standardized. In Canada it's a grab bag of different universities having different decisions as to who owns which piece of IP and how they're going to do it.

I think the most important thing that we need to look at.... I think it would be very difficult to get all the universities to come to a standardized agreement. I've been told, when I started my report, to give it up—that they tried it 10 years ago and it didn't happen—so my argument would then be to look at the legal agreements. Let's find some more standardized legal agreements that could be used across the universities, maybe through some template clauses, to simplify things at the stage where industry comes in with the universities and starts meeting and negotiating some of these agreements, rather than trying to get all the universities to change the rules.

I think programs such as the FedDev programs have worked with universities to bring industry together with universities. I think they need to look very carefully at the ownership of IP. This is an issue about the culture at universities and how the universities have been seeing IP as what we call “Google chasers”. They're all looking for that one big deal that is going to give them lots of new revenue. That happens maybe once every 20 years, especially in the pharmaceutical industry, where there might be a big drug, but as we know, one patent does not a product make. The universities need to understand that a little more. Some of the programs that we initiate, through the FedDev programs and such, could try to incentivize the universities to change how they do the agreements with industry.

Consortiums are also a great way to work, and there have been some really good examples of consortiums in which several universities get together. This has happened in the aerospace industry in Quebec, a very good model that has been copied internationally. I'm told it took something like four years to hammer out. They got several universities together and hammered out what you'd call a pre-existing agreement so that every time an aerospace company is doing a deal with a university, they don't have to go back over the same ground over and over again. I think consortiums are a great way. Government should really try to help create more consortiums--industry-academic consortiums--in a number of different sectors, and use the aerospace sector as a good model.

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

Thank you.

Mr. Stajcer, would you comment?

[Tony Stajcer]

I tend to agree on having a standard model, if that is possible. My main concern is to get into discussing the model at the stage where industry starts to take over. The industry has to start driving right from the point where the research ends, because how you fit that technology into the market is key. The roadblock there is that we need an agreement about which industry can say, “We can live with that and we can implement that”. Don't stop innovation there, because nothing gets into the pipeline. If nothing gets in the pipeline, nothing gets out.

Yes, we need to encourage industry at that point, saying that they will have ownership of the IP to some respect. For example, I support a research chair, for over $1 million, over a number of years. Actually, it's gone into millions of dollars. The IP is not owned by me; I have the first right to do an agreement, but the IP is not owned by us, or the only right we have is to look at it and say, “Yes, we will negotiate a licence for that IP”, as a first refusal. However, I think it has to extend beyond that, in the sense that it can be an impediment. We need to take those impediments down.

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

It strikes me that proprietary ownership is probably one of the biggest hurdles we face throughout, though.

I wonder, Ms. Harvey or Ms. Boily, if you could address the consortium model and how the universities play into that.

[Lucie Boily]

Yes, somebody said in one of our working groups that negotiation of IP clauses between partners often takes months, and the situation is normally worse when universities are involved. IP has no value until it's commercialized. The model that Ms. Mazurkewich referred to is a CRIAQ model, and that is a model that is negotiated up front between industry partners, meaning large firms--usually OEMs--smaller firms, and universities. The template is negotiated up front among all the partners, so this is not an issue of a university developing an IP and then transferring it or something; it's much more at the outset of the development of the research, and it's definitely collaborative among all of them.

[The Chair, Conservative, David Sweet]

I'm sorry. Our time has run out on that round.

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

Thank you.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Carmichael.

We'll go on now to Madame LeBlanc.

You have seven minutes.

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

Thank you very much, Mr. Chair.

I would like to thank all the witnesses for their very interesting presentations.

I would like to follow on Mr. Carmichael's comments about the consortium model that was developed in Quebec and that, as a result, was distributed or adopted across the world. This is a great source of pride.

Could you please tell us what the advantages of this model are and how we could reproduce it in other sectors of the industry or in other parts of Canada? Would that be possible?

[Lucie Boily]

First, one of the advantages of this type of model is that it allows our industries and universities to cooperate from the outset. In addition, that helps our industry to work with partners abroad, partners who have those types of tools and are able to cooperate. There are models in Europe, such as the FP5 model.

If we want to apply this in other sectors, we should really start by looking at the consortium model. It is not necessarily something that we can take and apply automatically across Canada. We have to try to determine how this can be developed in other provinces. At any rate, a lot of people are very interested in many of the features of the CRIAQ model.

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

Have you received any assistance or support from the federal government and the Quebec government to develop this program and, as I said, to perhaps reproduce it elsewhere in Canada? Did you get a positive response from the two levels of government?

[Lucie Boily]

The CRIAQ, or the Consortium for Research and Innovation in Aerospace in Québec, is a Quebec program. So the provincial government funded the program, but it is still a program that many of our businesses across Canada are using.

As part of the review of the industry that we are completing, this model is certainly being proposed to and reviewed by everyone. Once again, we are looking for solutions. We are seeking assistance to set this up, but we cannot use a cookie-cutter approach, if I may put it that way.

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

No, of course not.