Industry Committee on Oct. 18th, 2012

[Diane Lank]

We have not filed for provisional patents. I'm not sure we would have a position on it one way or the other. We know they're out there. They can be a place holder.

For those of you who don't know about provisional patents, you can file a paper saying you have a great idea and if you're clear enough with the specification, a year later you can file the actual claims of a patent and you would get the priority date on which the provisional patent was filed.

When we have ideas, we want to get them filed these days, so we go straight to the claims and avoid the other step.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

A major theme that we've heard from your presentation today is the importance of education, particularly for start-up companies. Is there, perhaps, a role for the Canadian Intellectual Property Office, and indirectly a role for government in assisting, supporting or advancing that educational process?

[Diane Lank]

In a perfect world, if we didn't have that 800-pound gorilla to the south, I would suggest there would be a huge role. It would be wonderful if the Canadian Intellectual Property Office could have a simplified filing approach, if maybe they could hold the hand of a start-up and tell them how to do it.

The problem is that would not coalesce very nicely with the U.S. system. You want to have some parity between the two systems, which exists right now. The claim system is pretty much the same.

For companies, to the extent they exist if they just want to file in Canada, I think the Canadian Intellectual Property Office could probably simplify the approach greatly that way, but if they're going to file in the U.S., too, I'm not sure that would be useful.

[The Chair, Conservative, David Sweet]

Thank you very much, Madam Lank and Mr. Braid.

We'll go to Mr. Regan for seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

Thanks to both witnesses for being here today.

Based on your experience, what can the Government of Canada do to make Canadian businesses more innovative?

It's a small question.

[Diane Lank]

It could be doing more than what it's doing now. For example, I know our company takes advantage of SR and ED as much as we can. We heard the other night on some U.S. debate how attractive our Canadian corporate tax rate is.

I think universities can play a large role in encouraging innovation. It's phenomenal. We're in this building called The Tannery and we share it in part with Communitech, which is our local tech hub. It is filled with start-ups and the excitement they can provide is absolutely remarkable. I don't know but I suspect that the government has something to do with funding organizations like Communitech.

I can tell you that Communitech spawns a lot of innovation. I'm not sure that the government itself can spawn innovation, but I think it can encourage innovation through organizations and associations, and assistance through tax credits or whatever to companies that are part of innovation.

I don't have any other specific examples.

[Geoff Regan, Liberal, Halifax West, NS]

Before I go to Mr. Kee, when you say tax credits or other—

[Diane Lank]

I mean some sort of financial incentive.

[Geoff Regan, Liberal, Halifax West, NS]

There has been a debate since the Jenkins report about whether it should be tax credits or directed grants. Do you have a thought? The concern obviously is if it's directed grants, then it's the government picking winners, as opposed to letting the business community make its own decisions about when to do research or not and to get tax credits accordingly.

[Diane Lank]

Can I say both?

[Geoff Regan, Liberal, Halifax West, NS]

You can say what you want.

[Diane Lank]

It's interesting. At the company I'm with now, we will go after grants. We are utilizing a grant in Ontario right now, the next generation job fund, which has been exceedingly helpful to us. We are using a grant in Newfoundland to start up our shop there. I think very much there's a place for grants.

The issue with grants is that you have to be pretty savvy to know where to go and how to file. Some of the paperwork for grants is daunting. I think grants have their place, but financial incentives like SR and ED do as well.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Kee, there are two questions on the table so far.

[Jason Kee]

On the latter one that we were discussing, I would actually agree in terms of them both. I think there's a role for both.

I think the issue and process involved in applying for direct funding can be complex, but the issue and process involved in applying for a tax credit, particularly a SR and ED, is equally if not more complex.

I'm sure this committee has also heard a challenge with respect to the professional cottage industry of consultants that exists to facilitate that, who then take 25% off the top. That's money that's going to consultants and not to the industry.

[Geoff Regan, Liberal, Halifax West, NS]

Let me ask you about that. If you required instead that a company that was starting to do R and D on something would have to give notice that it would later intend to file, to seek that credit, would that diminish or remove some of that cottage industry, so to speak?

[Jason Kee]

I wouldn't be in a position to comment on the specific initiatives at this moment. There are plenty of opportunities to streamline operations to make them more efficient, both from a sense of administrating from the government standpoint and also from the perspective of the companies attempting to access the money.

Tax credits as a policy option are preferable in some respects simply because they are agnostic. If you're eligible, you can apply, and that's it. Regardless of whether you're a small company or a big company, it's equally accessible to you. Much of the significant R and D that's often done is done by some of the larger entities.

On the other hand, however, the small guys tend to prefer, or it's more beneficial to have, a direct funding model. The principal reason is they lack the capital to survive before they file their taxes and get that money back, and they aren't going to be able to survive long enough on that. In some industries but not for all, we've developed sufficient financial measures, particularly with the financial sector, to help provide bridge financing for that, especially for the SR and ED credits and for some of the other credits. The financial sector is not as mature when it comes to leveraging those kinds of credits, so I think the best system is a combination of both those options because you're responding to different elements and different sizes of companies that have different kinds of needs.

Certainly, our industry, from the small guys to the big guys, leverage different kinds of financing, both in terms of tax credits and direct financing.

The broader innovation question is a very large question. Intellectual property, in my view, plays a key role in that, but it is only one piece of a much larger puzzle. Also it depends on what we mean when we talk about intellectual property. With Ms. Lank's presentation we're talking about the patent regime. We're also talking about the patent regime from the perspective of almost a business-to-business issue. Certainly while many of my member companies don't engage in much by way of patents, they do things in terms of copyright and trademark, and companies engage in litigation with each other all the time.

The thrust of my own presentation was not about that. The concern we are having from an IP enforcement or an IP crime standpoint is one of enforcing against criminals, those who are engaged in widespread commercial-scale counterfeiting and piracy. It is a wholly different problem that we're talking about. It's an issue of making sure proper resources are given to law enforcement to pursue that as well as make sure that the measures are in place to help us respond to those issues. It's very distinct and should be considered as a very distinct challenge.

You also need to have a combination of both. IP crime is clearly a domestic issue. It's an issue of what's going on in Canada and what we can do as Canadians and as the Canadian government to respond to that challenge. I agree entirely with Ms. Lank's point about when it comes to business to business, we all operate in a global environment now. Therefore, even looking at the Canadian regime, we must recognize that Canada can control its own regime and perhaps influence the regimes of others, but the patent regime and patent litigation are going to trend to the United States, not the least of which is because it's where the big damages are. We don't have that kind of challenge up here. That is important to bear in mind.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Kee.

We're well over time. Thank you, Mr. Regan.

We're on to the next round. These are five-minute rounds, and we'll lead off with Mr. Carmichael.

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

Thank you, Chair.

We'll have shorter and tighter questions, I guess.

To continue on the piracy issue, let me start with Mr. Kee. We obviously have a copyright and trademark protection regime established here. You addressed some of it in your opening remarks. Are we doing enough in Canada at this point?

Also, when we hear about situations in the U.S., such as what Ms. Lank referred to, what are they doing to combat similar types of challenges?

[Jason Kee]

The principal challenge we're finding with respect to the piracy and counterfeiting issues, which is in copyright and trademark, is that in terms of the trademark issues, there are still a lot of gaps that need to be filled. The Copyright Modernization Act went a long way toward addressing some of the challenges. We all had different perspectives on that bill. It included some things we wanted and some things we didn't want. It brought us a step forward in dealing with some of the main challenges. It was very important to us because of this issue of the technological protection measures and how important they are to our sector.

On the trademark side, there are still a lot of gaps. There are a lot of issues with respect to how the Trade-mark Act operates in terms of criminal provisions and anti-counterfeiting. There are things you can do in copyright that you can't do in trademark because of law enforcement, which has been a challenge for the industry.

The biggest challenge is the issue of actual enforcement and of devoting proper resources. We have some fairly robust provisions on the books with respect to issues of anti-counterfeiting. Even when you have someone who is clearly a bad actor, is clearly a criminal actor, who has fallen within those provisions, sometimes law enforcement doesn't necessarily pursue those cases, or if they do pursue those cases, and they've actually become much better in recent years at taking IP crime seriously, the prosecutors don't take it forward.

There's a real challenge with education in terms of the crown prosecutors. We don't have dedicated IP crime prosecutors in Canada, for example. They do have some in the United States. As a result, they don't take the cases forward. Even though you have people who have literally a warehouse full of counterfeit products, the crown slaps them with a $5,000 fine, pleads them out, and then they're gone and moving on to the next one. That doesn't necessarily act as a deterrent. This is a minimal cost of doing business. When people realize they can make as much money from counterfeit goods, especially drugs like counterfeit Viagra, for example, than they can from the actual drug trade, and they get a $5,000 fine as a consequence, you're going to find movement into that area, because there's a lot less risk.

It's really a matter of allocating our resources to address the problem, and frankly, educating internally within law enforcement, educating the crown, and making sure that we have key point people in the law enforcement community who are responding to these issues.

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

Depending on how broad that market is, it sounds as though it could be an e-learning opportunity.

[Jason Kee]

Indeed.

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

What about in the U.S.? Are they aggressive from an enforcement perspective? Is it an education issue, or is it strictly enforcement?

[Jason Kee]

It's probably all of the above. It's understandable that in terms of the realm and spectrum of issues law enforcement has to respond to, IP crime isn't necessarily number one. The issue is making sure they take it seriously, or more seriously than they have historically. Law enforcement, particularly the RCMP, has gotten much better at that. It's more on the crown prosecutor side that there are some challenges.

Certainly in the United States they have done a lot on the education side. One of the initiatives was to introduce what's called the IP Enforcement Coordinator, which is a new office under the White House. It reaches out to the disparate departments that each have their piece of the IP puzzle to make sure they are all communicating with each other and looking at ways to do better enforcement using the resources that are available. First there is an educational element. They are also making sure they are allocating the resources to pursue IP crime, which they've done much more aggressively and much more robustly than we have in Canada.

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

Okay, thank you.

I have one quick question for Ms. Lank on offensive and defensive patent positioning. When you go into a big market like the U .S. from Canada, can you afford not to have patents established on all creative products and all innovation?

[Diane Lank]

We did.