Industry Committee on Oct. 30th, 2012

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

Could you give us an idea of how much counterfeiting activities have cost us every year since 2007, for example? Specifically, I would like to know how much the Canadian economy has lost.

Earlier, we were discussing the famous report and recommendations that came out. You can tell us where things stand in your sector or in Canada, in general.

[Wayne Edwards]

Again, it's not an exact science, and numbers are not readily available, so whatever we do find is estimated.

One of our members...and if I'm allowed, I'll use the company General Electric, which owns Universal Studios. They feel that, because people are knocking off their DVD products, they're losing $500 million a year. That's one example.

[The Chair, Conservative, David Sweet]

Mr. Edwards, I'm sorry, but we're away over on our time. Thank you very much for that answer.

Now we'll move on to Mr. Braid for five minutes.

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

Thank you, Mr. Chair.

Thank you to our panel members for being here today and being part of our study on IP.

Mr. McDougall, I have some questions pertaining to the NRC and the important work that's done there. At a recent committee meeting we had RIM appear. One of their recommendations for us was that IP developed in Canadian government labs—I think they were referring primarily to the NRC—should be more accessible to private sector companies like RIM, and not only RIM but companies like RIM, so that the IP that's developed with Canadian ingenuity doesn't just sort of sit on a shelf somewhere.

You indicated that with the IP at the NRC you have the option to either license it, to sell it, or to deal it for the benefit of Canada. There seems to be a disconnect in terms of understanding there.

Could you address that? Are there barriers to the licensing of IP developed by the NRC?

[John McDougall]

Historically, if you went back a few years, it was probably more difficult to access than it will be going forward. The primary reason for that was that we were operating in a very fragmented fashion. As we go forward, we recognize that we've got to make our business processes more integrated and more common, so that it's much easier to deal with issues like that. I think that by itself will make a big difference.

I think there's a second component, though—namely, that we tend to be conditioned somewhat by our experiences, not just necessarily with NRC, but with the whole industry. Dealing with IP is very difficult in Canada in general. It's very variable in the way it's done, and there are so many different approaches to it that it's very difficult.

So a little bit more consistency, especially in the public areas, whether it be academic or NRC, would probably be valuable.

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

Great.

I want to make sure I get this question in before I run out of the time. The sixty-thousand dollar question as part of this overall study has been the following, and I'd like you to address this: from your vantage point at NRC, how do we encourage the creation of more Canadian-developed IP, and how do we better protect it?

[John McDougall]

That definitely is the sixty-four thousand dollar question, there's no question.

I think one of the ways you do it is that you actually work on issues and problems that matter to Canada, and you do that very explicitly. Then you do it by designing your approach with complete understanding of the value chain that you're trying to plug into, so that you understand actually the way in which deployment will be successful right from the beginning. If you wait until the end, it's too late, and you end up trying to stuff it down people's throats as opposed to having them very receptive and willing to take it up.

I think those two things by themselves would make a major, major difference.

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

Great.

As a subsequent question, then, changing tracks a little bit, I presume the NRC interacts with the Canadian Intellectual Property Office. Do you have any recommendations on the work of that office, from your perspective?

[John McDougall]

I have to say that I personally haven't had really any direct interaction for some time. My views would be dated. I'd rather ask our staff who are working with them to bring some of those views forward.

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

Great.

Finally, if I still have time—

[The Chair, Conservative, David Sweet]

You have 40 seconds.

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

—the IRAP program is, from my perspective, your flagship program. Is there an aspect of IRAP that helps to promote Canadian IP?

[John McDougall]

Yes. Actually, IRAP is interesting, because the company really has the IP. In every case that's the circumstance. NRC retains a bit of a hook so that companies can't just flip it internationally and that sort of thing—i.e., they actually have to live up to the “benefit to Canada” deal they kind of cut going in—but it's a contractual obligation as opposed to an ownership obligation.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. McDougall and Mr. Braid.

We're going now to another round of five-minute questions.

I want to let members know that out of courtesy we'll have to keep it tight. Another committee will be coming into this room, so I'll need to cut you off at five minutes.

Mr. Wallace, for five minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

That was directed at me, was it?

[The Chair, Conservative, David Sweet]

No, no.

[Voices]

Oh, oh!

[Mike Wallace, Conservative, Burlington, ON]

I'm wondering if I could get something clarified, just for my own education on this.

For me, if I go out and buy golf clubs that say “Ping” on them, and I get the whole set for $150, I'm pretty sure they're not real Pings, right? I'm pretty sure they're fake, and somebody has brought them into the country.

In terms of the issue that, say, Eaton Yale is looking at, or CSA, is it the price point that would turn the light bulb on that this can't be real? Or are they so good at faking it that they leave it at a price point where it's very close to where it could be, and they're making even more money on the thing?

Is it all price that's driving them to do this? Or how would a guy like me figure it out?

[Wayne Edwards]

Mr. Wallace, I think what the RCMP would tell you is that if the price is too good to be true, it's too good to be true. That's the first indicator.

If they were a little smarter, some of these people.... They're looking for quick bucks. It's easier to sell the set of golf clubs for $150 than for $800 or whatever it might be valued at. So they get the quick buck, they get the high margin, and they get it turned around. The actual cost might be $60 or whatever; it's hard to tell.

Mr. Gagachev has a moulded-case circuit breaker in front of you, and he'd be hard pressed to tell, if somebody had a really good knock-off, unless he went inside that unit, whether it was defective or counterfeit or not.

So it's hard to tell. To the untrained eye, it's very difficult. That's why we like to spend time with Border Services Canada to train them. We train the RCMP and we train other police forces to try, but it's a huge problem. We don't have enough staff or finances to do it. It's really a drop in the bucket, what we are trying to prove.

So as the first indicator, if somebody offers you something at a really good price, chances are it's a counterfeit.

[Mike Wallace, Conservative, Burlington, ON]

You listed some things you'd like to see done—criminal offence and so on and so forth—but one of them was about shipments, about manifests or listings of what the shipments contain.

I didn't catch all of that. To my understanding, a shipment comes in within a container, and the container listing is there. Some are opened to see what's actually there. Were you making a recommendation that some additional stuff needs to be done in terms of the actual shipping in?

I don't think we're going to be able to stop it at the source. We don't have enough people around the world to do it at source. We have to stop it as it hits the border.

Is there something we can be doing from that perspective? I think you mentioned something, but I didn't understand what it was.

[Terry Hunter]

It is around the supply chain, security of supply chains, and verifying each step of your product's manufacturing and shipping.

One of the biggest problems we're seeing right now is that it's not the complete unit that's counterfeit, it's components of the unit that are counterfeit. The counterfeiters are getting smarter all the time. They're not paying for the research and development into the products, they're cutting corners, using shoddy materials. They're making the product look good on the outside, but on the inside it's not. They haven't invested any money in it.

To control, if you're importing goods, you have to maintain the security of your supply chain, and verify each stage of the process of manufacturing to the point where it arrives in Canada, and then we train the border service to look at things like the cost of the goods. If the price is too good when the product's being imported, that's another sign. U.S. Customs will use that one as well.

[Mike Wallace, Conservative, Burlington, ON]

Right.

You use the U.S. example quite a bit. The marketplace is ten times the size. So if I were someone who was doing things counterfeit, I may want to go to the United States. I have a better chance of selling the stuff there and getting lost easier because it's ten times the size.

Are they doing ten times as much in terms of protecting? With this registration piece, is everybody involved in that? I can't imagine training every border guard to be able to recognize a counterfeit good.

As you said, you have to open up that circuit breaker there, or that switch, to find out. There's no way you'd expect Canadian border guards to do that.

[Terry Hunter]

What they do is randomly inspect certain items. Then they'll send me a photograph of a CSA mark on a product and I'll identify it as being counterfeit or not.

So it's just random checks, or audits, I would say, of containers. They don't have to be experts. They just have to check the odd one, and then they'll find them.

[Mike Wallace, Conservative, Burlington, ON]

Okay.

Thank you very much.

[The Chair, Conservative, David Sweet]

Thanks, Mr. Wallace.

Now we go to Mr. Harris and Mr. Stewart, who are splitting the time.