Industry Committee on Oct. 18th, 2012

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

When you start talking about cost and exposure and playing in the big leagues, isn't it a world where you simply cannot afford to go in without taking that step first?

[Diane Lank]

In a perfect world, yes, but remember that when we first went into the U.S., we had probably six employees.

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

It is the start-up issue and the cost.

[Diane Lank]

It is the last thing on your mind. You look at trying to sell.

I think that's probably true whether you're a gaming creator or an e-learning creator. If you're a small company, the last thing you're going to think about is looking at patents to see if you're going to get sued. It just wasn't considered.

[The Chair, Conservative, David Sweet]

Thank you, Madam Lank. I'm sorry, but the time is up for that period.

We'll go to Mr. Harris for five minutes.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you, Mr. Chair. There's just never enough time for all these wonderful questions.

I like what I've been hearing recently about both grants and tax credits. We have to try to strike the right balance to foster innovation and research and development through a balanced approach.

I know, Ms. Lank and Mr. Kee, that there's perhaps a difference in approach with respect to the ability to patent software in business practices. Of course, in the United States it is allowed, and in Europe it isn't.

We're currently negotiating the Canada-Europe trade agreement. I'm wondering if each of you might have an opinion on whether during those negotiations Canada should be trying to bring Europe more in line with the United States on that issue or if we should be aligning more with Europe on that issue.

[Jason Kee]

On that issue, the video game industry customarily makes use of patents, particularly outside of the hardware. I'm sure Microsoft, Nintendo, and Sony have patents on their consoles, as they do on all their consumer electronics. There's nothing unusual about that. It doesn't get into the controversial and challenging elements of software patents and business method patents, which we've been talking about here.

We don't have a strong view on this. I've never heard any concerns being raised about the current state of play in Canada, because the current Canadian environment is different from the U.S. environment. We're not as aggressive with respect to patenting, and I haven't heard anything to suggest that this would be changed.

[Diane Lank]

I'm speaking for myself now, not for the company. I would be inclined to be more aligned with the European view. That being said, we still have to deal with the U.S. I don't think it means Canada should be in line with the U.S., but even if Canada took the EU position completely, I'm not sure that would affect our business quite as much.

Our being in Canada is also a huge help to our patents with respect to the EU, particularly in the area of privacy and data protection. As soon as we say that our hosting is in Canada, that opens a lot of doors for us.

[Dan Harris, NDP, Scarborough Southwest, ON]

One of the questions being posed is that there is a productivity issue in Canada. The ability of businesses to adopt best practices could be affected by whether software is patentable or business practices are in place.

Having gone to school in computer programming, I know how fast that industry moves. That's why it's completely understandable, especially in entertainment software, that you're not making great use of patents.

I want to ask about piracy and counterfeiting. I'm a gamer myself. I notice on your website the average age of Canadian gamers is 33, and I happen to be 33. More and more games are moving to always having to be online to play. Many of them are going through other engines like Steam, and recently EA released Origin, where you have to be connected in order to play the games. That's a new approach that's being taken to fight counterfeiting and piracy.

Mr. Kee, what kind of an impact is this having on piracy and counterfeiting? Is it slowing it down for those games or not?

[Jason Kee]

Quantitatively, it's difficult to assess. The actual scale and scope is always difficult to assess because the activity tends to be underground. As the market is migrating, the notion of piracy itself is also evolving.

You're right that there has been a migration to these digitally delivered platforms like Origin or Steam on the PC. Also, people can now use their consoles, such as the Xbox and the PlayStation, to download the game entirely and just play it. They don't go to the store and pick up a disc and a package anymore. They do it all online. That's driven by a number of considerations. The positive and salutary impact on piracy in Canada, would be one. However, it's also driven by how it's more easily accessible to the consumer. It is easy for them to get. It's cheaper for us because we don't deliver with physical transit anymore. There are a lot of market forces that are pushing us in that direction.

Basically, what you're seeing is piracy evolving. The volume of piracy online has had a negative impact on our legitimate industry, but it's also had a negative impact on the old guys who used to sell copies of the games on disc at flea markets. They're being put out of business, just like we're being adversely affected.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Kee. Sorry, the time's up, but I'm glad to hear the bad guys are getting it back now and we're actually making it difficult for them.

Madam Gallant for five minutes.

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

Mr. Kee, how would a border guard recognize a counterfeit of one of your products?

[Jason Kee]

We engage in extensive training with law enforcement, actually, to permit them to recognize the counterfeit version versus a legitimate version. In the case of our product specifically, for the reasons I just alluded to, we're finding that the volume of games on physical media and in physical packages that are counterfeit—where it looks like a fake version of the real thing—is diminishing, because people are moving to online distribution. It's a lot easier for them to download the game for free than it is to try to get it and sell a counterfeit version.

What we do see happening at an increasing rate is the issue of the circumvention devices that I mentioned. They're little chips called modchips that can be installed in an Xbox or a PlayStation to play pirated games. The consoles have technology built in so that if you download a game from the Internet, put it onto a disk, and put that disk in the machine, it will recognize that it isn't a legitimate version and won't play it. To bypass that protection, you open up your device and solder a chip inside it. That will bypass that process. The device will not go through that process, and it will recognize the illegal version as legitimate.

You still have to go through that process and you need a physical chip to do it. The physical chip is one of the items that is not being stopped at the border, so it's also about training law enforcement to recognize those devices as well.

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

Okay.

When patents are filed for technology and pharmaceuticals in Canada, they require a certain degree of disclosure. Does the same hold true for the type of patent protection you would like to see Canadian start-ups in software?

[Diane Lank]

I'm not sure I understand the question.

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

Is there any disclosure that is required on the part of a software developer when they apply for a patent?

[Diane Lank]

Yes. The whole theory of a patent is that someone reasonably skilled in the art can build or develop whatever you're proposing to be patented, so yes, there is disclosure.

I'm not a patent counsel, but I believe that in Canada the publication of the application occurs earlier than it does in the U.S. In the U.S. it is 18 months; it used to be that you didn't know anything about a patent that was filed in the U.S. until pretty close to the patent being issued. There is a difference, but yes, there is disclosure.

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

Does that play into your weighing whether or not you're going to apply for a patent?

[Diane Lank]

If you mean in terms of giving up the company's secrets, no, because if you're going for protection for your idea, you're disclosing something in return for at least theoretically a period of time when your use of that is entirely up to you. You can license it, use it yourself, or refuse to let anybody else use it. That's the theoretical give and take in the patent system. By the time something is disclosed, chances are that everybody has got wind of it. We like to tell our clients what's coming down the pike.

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

With regard to the dispute in the United States, was that on the actual content, or was it a computer code that was being disputed?

[Diane Lank]

It was code. We don't produce content. We just produce code in what is kind of the back office of e-learning. It was all about roles. Blackboard said that they invented having the roles of teacher, student, and administrator in a computer system. We were saying that teachers, students, and administrators had been around for a long time before Blackboard started.

The U.S. Court of Appeals for the Federal Circuit basically agreed that this was obvious and that of course you're going to have roles in an e-learning system.

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

Okay. Observers noted that the U.S. seemed to be, in this case, granting an overly broad patent. Are you aware of any trade agreement we have with the U.S. that includes patents? An overly broad granting of a patent is a form of protectionism. Are there any rules in terms of trade where that could be argued?

[The Chair, Conservative, David Sweet]

Very briefly, please.

[Diane Lank]

I'm not sure. One of my favourite sayings is to never attribute to maliciousness what can be attributed to stupidity.

[Voices]

Oh, oh!