Industry Committee on Oct. 30th, 2012

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Stewart.

Now we have Mr. Lake, for seven minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I'm interested in following up on the industrial involvement. Mr. Stewart talks about subsidization. In a sense, I think what we want to see in Canada is more industrial subsidization of the research. We want to find a way to get business more involved in actually doing more research and investing in innovation.

Maybe you could speak to that a little bit, the importance of that.

[John McDougall]

Sure.

The key test of industrial and economic relevance is actually whether industry is willing to participate, and to participate not just not just in “good words” but in real monetary terms.

One of the things, for example, that we would look at in terms of a few years ago is that the industrial participation in real terms at NRC was actually quite small, in the order of, perhaps, 5%. At 5%, in many ways, it's extremely difficult in its...extremely easy, and not very meaningful, types of participation.

If I could use a very bad analogy, but it comes to mind, is it's a bit like buying a lottery ticket. If you take a little of your play money and put it in the lottery, you may win and you'll be very happy if you do, but you won't miss it, probably, if you don't. But if you were to put all your money in the lottery, you know you're going to lose, right?

Now we're asking them to put a significantly greater amount of their own skin in the game, so to speak, and when you do that the expectation of a return on value becomes much higher. So the whole thing becomes more disciplined. Fundamentally, when you come right down to it, the biggest change is to do things that will be of benefit to Canada, through Canadian industry, and make sure that you validate that it really will be by the fact that they're prepared to put more money into it.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You spoke about the IP strategy and you talked about it being on a program-by-program basis. That kind of jumped out at me. Maybe you could elaborate on that a little bit and sort of walk us through on a program-by-program basis what the IP strategy might look like.

[John McDougall]

I'll give you a little bit of an example of the sorts of things.

Part of our business is what we would call engineering work, which is quite close to market, things related to aerospace, automotive, and so on. In those areas, most of the work that is done is quite short term in nature, in terms of its application, so it's going to be developed and applied within maybe two, three, or perhaps five years. So the time horizon is relatively short. The industrial participation is higher, and as a result of that, the risk is also lower. When you put all of those pieces together, the question is simply to ensure that we are working with partners in such a way that we maximize, as best we can, the stickiness to Canada of the resulting work.

In the life science area, there tend to be longer-term agendas. These are typically five-year to ten-year type processes and the risk is higher. The companies, in most cases, are relatively early stage and their ability to pay is small, so what we're really trying to do is help them grow. There we tend to take a different approach. The approach is more to work with the companies, share the risk with them, and take the return from the success of the outcoming technology back from them and the work that they ultimately do.

Then we have what we call emerging technologies that are the sorts of things that actually come to grips with, for example, things like counterfeiting where we're dealing with new techniques of encryption or more labelling or ways of telling one molecule from another when something is imported into the country, whether it's really coming from where it's supposed to, through tracking systems and so on.

These are more pervasive technologies. These are ones where NRC will probably end up in an ownership position and will distribute rights according to the appropriate needs and applications, ultimately.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Do I have time for one more question?

[The Chair, Conservative, David Sweet]

Yes, you have two more minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

We've heard a lot from different organizations about where patents are filed for first. In your situation it would be very interesting to hear, in terms of filing for patents, to what extent you look external to Canada, because there has to be value for those patents in other places. Maybe you could speak to that.

[John McDougall]

The strategy of how you go about protecting is very important. Gradually the global patent system is becoming more uniform. Historically, there were first-to-file or first-to-invent processes, and they were different in different countries.

[The Chair, Conservative, David Sweet]

Excuse me: could you turn the other mike your way and use that one instead? That's right.

Okay. I think we've solved the problem.

The mike you were using was creating a hum.

[John McDougall]

How's this? Is it better now?

[The Chair, Conservative, David Sweet]

Yes.

[John McDougall]

Okay. Sorry about that.

As I was saying, the patent system in the world is gradually becoming more uniform. There used to be two significant differences—a first-to-file process versus first-to-invent—and those of course had very serious implications. They are becoming more uniform, but it still begs the question, where is the place that you want to start? That will differ depending on the technology, on its applications, and so on.

One of the real challenges, or a bigger challenge, I would say, is whether to file at all, and whether patents are the right way. As soon as you file a patent, effectively you're publishing what you know. Then reverse engineering kicks in, and you have to make a decision about whether you really want that to happen or whether you want to try to black-box the technology and really maintain it and embed it somehow in ways that you can protect through trade secrets. You can still license trade secrets, but the beauty is that they don't have to be disclosed. You can license their use as opposed to the secret itself.

This becomes a very complex problem. The closer to market, the more problematical it is, actually, because the other side, of course, is that the user communities are different as well, and different sectors are very different. Those who are associated with the B.C. industry are adamant about owning and having control and various other things.

Most established industries are much more pragmatic. Oftentimes they'll try to leave ownership in an organization like an NRC because they think the management of the use is perhaps improved for the industry that way, as long as there are reasonable protections that allow them to kind of have first right to—

[The Chair, Conservative, David Sweet]

Thank you, Mr. McDougall. We're over time now in that round.

We go to Mr. Regan, for seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you, Mr. Chairman.

Mr. McDougall, I hope to have an opportunity to ask questions of other members of the panel, but like my previous colleague, I'll start with you.

I'm interested to know what happens to intellectual property that comes out of a lab—for example, the medical device lab in Halifax, which is now going to be shut down.

In fact, I'd also like to know why the bad news for that lab last week, when previously they were...or I guess it was made public that it wouldn't be touched for three years. What changed?

[John McDougall]

The reality, if you like, of the business we're in is that we're now in a mode really of constant assessment. Originally we thought we would be able to repurpose people, although their skills obviously were connected to MRIs. What we determined was that actually we couldn't. That's why the decision changed.

In the Halifax situation, it was a relatively small component of a much larger entity—

[Geoff Regan, Liberal, Halifax West, NS]

It was mainly brain imaging, as I understand it.

[John McDougall]

Yes. In Halifax—

[Geoff Regan, Liberal, Halifax West, NS]

They had in fact developed new surgery techniques in relation to the brain.

[John McDougall]

Yes. It's actually a very academic unit, if I can put it that way. Our hope, frankly, is that it doesn't go away but that it remains viable in an academic setting.

That was really the—

[Geoff Regan, Liberal, Halifax West, NS]

[Inaudible--Editor]...withdrawing funding from it, and you're hoping it's going to have some other life of its own somehow.

[John McDougall]

Well, what I can tell you is that there were three components to MRI imaging work in NRC. One was in Winnipeg, one was in Calgary, and one was in Halifax. Halifax was the smallest piece.

They were all operated as a unit. Each of the units had little bits of expertise, as you can imagine. In Winnipeg they were doing a variety of things, etc., but in the Halifax centre, much of the work was on brain-related imaging.

[Geoff Regan, Liberal, Halifax West, NS]

Okay. Well, that seems important, but let me turn to Mr. Edwards now.

I'm concerned about what I'm hearing from Mr. Hunter about particularly circuit breakers, welding units, and so forth, but there have also been reports, I think you mentioned, on counterfeit parts being acquired by National Defence under its procurement plans. I've also heard about that in the U.S. I remember hearing about parts, I think, for radio equipment or something that originated in China, that arrived in the U.S. and were tested in somewhere like Colorado, and then they went to Afghanistan where, in the extreme heat, parts of them melted. In testing that in Colorado, you aren't going to discover that, in all likelihood, unless you test it for heat. That is one more example.

Are you seeing that here? Do you know what procedures are in place to prevent it from happening, to ensure that the items are not counterfeit?

[Wayne Edwards]

Thank you for the question.

I'm not specifically familiar with the example you've given, so I can't make a comment on that. I think, in general, what we do see is that we have committees like this within our organization, Electro-Federation. We have senior people from a lot of electrical companies and mechanical companies, and we all talk about the fact that there are issues. Where we have difficulty is getting people to be very specific on their own individual products.

We said here today that Eaton has said it, and another company called Schneider has come out and indicated what they have. But what happens here is that companies don't want their name associated with counterfeit products because it has a negative effect on their market. So they're very, very shy about opening up to the press or putting that in writing so that people can actually say, Company XYZ has a fake product, because nobody else will buy that product again. They're very careful with that, so it's hard to get that kind of information. But we do know there's a significant amount of it going on. Given the fact that only 1% of the containers, we're told by Canada Border Services, are actually inspected, if we pick up a lot of counterfeit equipment, then how much is coming past that we don't see?

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Mr. Hunter, can you comment on the question? First of all, if DND, our Department of National Defence, is getting counterfeit stuff, that's very concerning, but so are the examples you gave of Christmas lights, circuit breakers, welding units, pill containers.

If I go to.... I don't want to mention the national retailer. One comes to mind that has its own currency.