Industry Committee on Oct. 17th, 2011

[The Chair, Conservative, David Sweet]

Thank you, Mr. Patacairk.

Mr. Thibeault, that's all the time there.

Now on to Mr. Lobb for five minutes.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thank you, Mr. Chair.

My first question is to Mr. Geist, and it's a general comment. Many good points were brought up in the opening presentations. One thing I didn't hear, though, that stifles innovation concerns the U.S. patent lawsuits.

I used to work for a software company before being elected. The company I worked for was a 150-employee outfit that had started to really put the boots to the U.S. competition. And they were sued in the southeast district of Texas for patent infringement. They were one of the lucky ones. They actually came to a resolution so they could continue with business.

How can young Canadian firms protect their intellectual property and do business in the U.S.? That's where many of the new businesses are going to grow their companies. So how can they do that? How can we help them? What can we do?

[Dr. Michael Geist]

I don't think it's strictly an issue of how to do business in the United States. There are problems associated with patent thickets. The ability to innovate in whatever the space happens to be is often impeded by what's called a patent thicket, where you have multiple patents all over the place. You're effectively creating an arms race, not so much for innovative purposes, but merely to have something to defend yourself with when somebody comes calling.

From my perspective, that represents an incredible amount of waste, in a sense. Lately we've seen it in the smartphone market, for example, with billions of dollars being spent, not to conduct R and D, not on marketing, developing, or doing a range of the sorts of pro-innovative things we like to see, but just for these companies to arm themselves for the prospect of future battles.

From a Canadian perspective, we have to recognize that we need a patent act and patent reform to ensure that we try to avoid, to the maximum extent possible, some of those kinds of patent thickets that can actually stifle innovation.

I would point to one in the pharma area. In negotiations with the European Union as part of CETA, significant pressure is being brought to bear by the European Union for increased protections on the patents side. I think that will have more of a stifling effect for some of the Canadian-based pharma companies. They will find stuff locked down, never mind the associated costs that will increase costs on the pharma side for consumers.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Okay.

I have one question for Mr. Wilson.

Enterprise resource planning systems are obviously very valuable to the group you represent. You mentioned there are 10,000 people or companies that you represent. How are they evolving with their ERP systems? What percentage would be real time? I know where I worked before we weren't real time and it was an issue. I'm just wondering where most of your companies are with that technology.

[Mathew Wilson]

I'll make a general comment.

I don't know, Martin, if you have anything else to add.

Because of the breadth of companies, from large multinationals to small software engineering firms, there's probably a broad spectrum of where they are on that. I couldn't put a definitive answer on where anyone is or anything else. It depends on the region, the company, and the sector they're in.

[Ben Lobb, Conservative, Huron—Bruce, ON]

In terms of competitiveness--obviously, if you have a state-of-the-art system that's real time it adds a huge advantage--what can we do as a government to help promote businesses to make that investment?

[Mathew Wilson]

I think there has been a lot done. The ACCA will help quite a bit, as I mentioned earlier. It's a critical thing. Making that a permanent deduction would be very helpful. Right now it's only a two-year phase that was just extended in the most recent budget.

You're right that the ability to do real time anything is critical in the business world, as well as in the consumer world. So any type of technology innovation that can be brought to bear--we talked about skills training of employees--is very helpful public policy. I don't have anything more specific than what has already been answered.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I'd like to discuss briefly the IRAP and SR and ED programs. The company I worked for was a huge benefactor. What are your thoughts on those programs?

[Martin Lavoie]

There's probably a way to expand SR and ED a bit. The Jenkins panel report made some recommendations to make it just labour costs, for example. That would restrict the types of activities that would be eligible under SR and ED, considering that 70% of R and D in Canada is done through SR and ED and indirect programs. So if IRAP can counterbalance the indirect support we're providing right now with some more direct support for ICT acquisitions, we would probably support that recommendation.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Lavoie.

Now the vice-chair, Mr. Masse, has five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Chair.

Thanks for coming here.

I thought it was raised that those crazy radical socialists in the United States decided to restrict debit card fees because they were unfair. It's a good example of sometimes needing a strong regulatory system.

I'd like to ask Mr. Wilson and Mr. Forzley a question about their members and their experiences out there. When it comes to fees for credit cards, or whatever, we know that they're higher here in Canada, but are the banks consistent in Canada with those in the United States? Do we find that the banks are different--U.S. versus Canadian banks--or do we find, for example, that my bank, TD Bank, charges something different in Canada than in the United States?

[Mathew Wilson]

Can I pass the buck on this one?

[Brian Masse, NDP, Windsor West, ON]

You can. If you don't know, it's okay.

[Samer Forzley]

In many cases, in the U.S. or even here in Canada, you're not dealing with the bank directly; you're dealing through a payment processor. These are the people who actually process your payments, even though the credit card companies—say VISA or MasterCard or the banks—sometimes get the heat. In a way, it's the payment processors as well that are part of the issue, so on the banks' side, their portion is now restricted through the Durbin Amendment or others. In the U.S., at least, they are now going to have to be consistent because of that amendment. That only applies to debit cards, of course.

In Canada it's different, because really there is not much competition, and it's more that you negotiate one on one, so the fees vary by merchant.

[Brian Masse, NDP, Windsor West, ON]

Maybe I'll ask a question for our researcher and then come back to this--a little bit of a picture of the different level of fees that are being charged between Canadian businesses and consumers and those of the United States. That would be interesting information to have.

I am really worried about our competitive nature. As this industry grows, if we continue to have this inconsistency, it's going to create more problems. We need to nail that down. Perhaps that can be done by regulation, if anything.

I'm going to turn the rest of my time over to Mr. Thibeault. He will ask the rest of the questions.

Thank you very much.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you.

In following up on that, we're hearing about things like Google Wallet. That has been launched in the States, but it is also using VISA and MasterCard, which have those interchange rates. I'm sure it's inevitable that Google Wallet is going to come to Canada. What type of impact will that have on merchants?

In the last Parliament, this committee looked at how interchange rates are affecting small and medium-sized enterprises. When we have something like Google Wallet coming forward, which we are hoping will make things easier for the e-consumer, how is that going to hit SMEs?

[Samer Forzley]

I assume the question is for me.

Google Wallet, or others like it—Amazon Payments, or PayPal, and there is a slew of them—not only use credit cards. In the U.S., the fact that your debit card is VISA or MasterCard branded allows you to use debit cards online. They also allow you to do ACH, where you give the provider your bank routing numbers and they can draw money from your bank account. So by virtue of being part of Google, PayPal, Amazon, or others, you are now able to access money directly from your bank account.

Actually this space, the whole peer-to-peer and wallet space in the U.S., is heating up quite a bit. As it comes to Canada, it will increase adoption, of course, because if you trust Google and you have everything Google, Amazon, PayPal, or whatever, you have your digital identity in a way tied to your credit cards or debit cards online and you can transact more readily. It does, in a way, provide some layer of safety because those programs have some buyer protection as well, on top of what your standard credit card or debit card gives you.

The trick for Canada is easily tying your debit card and access to your bank to your wallet. It's not easy because you don't have a network branded debit card.

[Glenn Thibeault, NDP, Sudbury, ON]

To Mr. St-Amant, where I was going next, you talked a little bit about it, so I guess in terms of consumer protection, how can Canada better prepare itself for the widespread adoption of mobile payments or e-wallets?

[Jacques St-Amant]

First, to your previous question, there are two other issues that I think we should add. Our payments infrastructure—our plumbing, if you wish—is pretty much not able to currently sustain the kinds of new payments that are developing in the United States. We have lagged behind in that area too.

Another issue is that depending on the type of device you want to use, the retailers may have to spend more to have the gizmo on their counter, and they're not necessarily very keen on that. I'm sure the Retail Council, for instance, would be glad to tell you all that in detail.

In terms of consumer protection, the current situation is untenable. We have a number of rules, some in federal legislation, others in provincial legislation, in CPA rules and in codes of conduct that nobody has ever heard about. Contract law in general is impossible to understand, and I would argue that for the benefit of everybody—the issuers, the consumers, the retailers—we need to have some sort of level playing ground so that everybody knows what the rules are. I'm afraid that will entail federal legislation.

It may be that we can at least create a floor. After that, a hundred flowers may develop as competitors may want to offer better protection, etc., but we do need to have a clear floor, and I would argue that it probably comes mostly under federal legislation, but you may wish to have nice long chats with your provincial and territorial friends too. There are mechanisms in place to address issues of harmonization, but there is a reflection to really develop there.

[The Chair, Conservative, David Sweet]

Thank you, Mr. St-Amant.

I want to advise members that I'm being pretty flexible here. I'm refereeing the aggregate times of the parties, but because of the nature and sophistication of the answers, I'm trying to give the witnesses time. I'm trying to balance the time as a whole, because of the nature of what we're dealing with here.

Now on to Mr. Richardson.

[Lee Richardson, Conservative, Calgary Centre, AB]

I was curious about the differences in regulation between Canada and other countries. Mr. Geist talked about caps. I'd also like to pursue the differences between the banks here and those in the United States.

Why do we have all these impediments here in Canada? Who are we protecting?

[Dr. Michael Geist]

On the data caps, which became a big political and popular issue earlier this year, with usage-based billing, I think what we saw here was a couple of years of a policy running under the radar screen for most Canadians. The relationship with the CRTC was such that you had a couple of larger players, led by Bell, that were able to push forward.

I thought the government, all political parties, did a good job in February to grind that to a halt. We had hearings from the CRTC over the summer, and we'll see what the CRTC actually does. But recognize that our caps problems won't get solved solely by regulating them away. I don't think that's what the CRTC will do at all. They might do it at the wholesale level. They're not going to be solved at the retail level. The only way you can fundamentally change them is to change what the marketplace competition looks like. We need more competitors. We may need some of the open-access rules that we heard about from the manufacturers. Those are the kinds of things that help smaller ISPs that sometimes have large subscriber bases in local communities but aren't nearly as large as the big players. Allowing them to compete effectively, allowing new entrants to come in, trying to foster the wireless broadband—these are some of the tactics we can engage in to allow us to stem what has been a gradual decline in the Canadian situation. We're one of the only countries in the world that has virtually uniform data caps. The effect of that is significant hidden costs when you start talking about new kinds of e-commerce services.

[Lee Richardson, Conservative, Calgary Centre, AB]

Can you comment on the banks?

[Samer Forzley]

From a practical point of view, in the U.S., the banking network is fairly open. Today, even though every week we hear of more banks closing, there are still over 17,000 banks in the U.S. Many of those are small, one branch. They're credit unions of the firefighter departments, for example. For those banks to be able to do business, whether it's through debit cards, credit cards, or even online banking, the banking network has to remain fairly open. You can actually enter that network in several ways. You can be sponsored by a bank. You can work with somebody like an RPPS, which is owned by MasterCard. There are different ways of entering this banking network, and for a competitor, whether it's an alternative payment provider or a credit card processor, it's easy to enter. Even at the bank level, there's a significant number of banks. As for payment processors, if you sit down and list them, they number in the hundreds. Here it's not even in the tens.

So it's a fairly open network. Almost anyone with a little bit of money who can actually put a deposit down to guarantee the payment flow can join that network. It's just a different structure altogether in the market.

[Lee Richardson, Conservative, Calgary Centre, AB]

I wish that was more helpful. I'm still not quite understanding what the difference is.