Industry Committee on Oct. 3rd, 2016

[The Chair, Liberal, Dan Ruimy]

I call the meeting to order.

It is exactly 3:30 p.m. Welcome, everybody, to meeting number 25 of the Standing Committee on Industry, Science and Technology.

Today we're going to hear from Michel Gérin, special adviser with the Intellectual Property Institute of Canada, and Jeffrey Astle, past president. From the Quebec Furniture Manufacturers' Association we have Pierre Richard, president and chief executive officer, and Réjean Poitras, vice-president, board of administration. Finally, we have Confection 4e Dimension.

[A voice]

They're not here.

[The Chair, Liberal, Dan Ruimy]

Oh, they're not here?

[A voice]

They were going to be by video conference, but they were bumped back for technical issues.

[The Chair, Liberal, Dan Ruimy]

Skip that last one. There's a technical issue. They're not here today.

All right, we're going to get right into it. Thank you, gentlemen, for coming in.

We'll start with the Intellectual Property Institute of Canada. You have 10 minutes.

[Jeffrey Astle, Past President, Intellectual Property Institute of Canada]

Thank you.

Good afternoon. My name is Jeff Astle, and I'm a member and past president of the Intellectual Property Institute of Canada, or IPIC. I am a patent agent, a trademark agent, and a lawyer, and as such, I work as intellectual property counsel at Pratt & Whitney Canada in Longueuil. With me is Michel Gérin. He was our executive director for 14 years, and he is now an adviser to IPIC and an honorary member of the institute.

IPIC is the professional association of patent agents, trademark agents, and lawyers practising in all areas of IP law. Our membership totals over 1,700 individuals from across the country, and we have been supporting innovation for 90 years.

I want to thank the committee for inviting IPIC to appear today. We will be making some recommendations to help ensure that Canada's IP system functions well, is competitive, and supports the manufacturing sector.

Before we go further, I would be remiss not to take this opportunity to speak about an important improvement to the IP system that came into force in June. The Patent Act and the Trade-marks Act now include sections that protect confidential communications between clients and their patent and trademark agents from disclosure in court by a privilege akin to solicitor-client privilege. These enactments bring Canada's laws into line with other jurisdictions and will promote full, free, and frank communications between manufacturers and their innovation professionals.

Although I'm not speaking on behalf of Pratt & Whitney, I will say that our company and other innovators had sought these amendments. Congratulations to the previous government for putting the legislation forward, to the current government for ensuring that it came into force, and to the officials at Innovation, Science, and Economic Development Canada for their diligent work on this issue.

The natural progression to these changes is now to modernize the regulatory framework for patent and trademark agents. I will come back to that in a moment, but I will first ask Michel to speak about some other recommendations.

[Michel Gérin, Special Advisor, Intellectual Property Institute of Canada]

Thank you, Jeff.

The Intellectual Property Institute of Canada, or IPIC, proposes that the federal government create a first patent program. Such a program has existed in Quebec since 2015 and offers financial assistance to help businesses obtain a first patent or an industrial design. The assistance can cover as much as 50% of eligible expenses, up to a maximum of $25,000. Such a program at the federal level would offer assistance to inventors and SMEs at a critical point when they have developed an idea to be protected, but may not have the necessary financial resources to obtain this protection or may not understand the importance of doing so. It is estimated that the program cost would be approximately $25 million a year.

Second, the federal government should adopt an innovation box model that provides favourable tax treatment for income derived from intellectual property, or IP. The expression "innovation box" comes from the checkbox provided on tax forms to identify revenues eligible for a reduced tax rate. The expression "patent box" is also used.

Tax incentives related to research and development activities, or R and D, support the invention process, while innovation boxes support the commercialization of these R and D activities. These incentives are complements and not substitutes. They work together to improve both R and D activity and commercialization activity in Canada.

and it is important that the government and Parliament continue to devote resources and time to ensure that IP laws remain current and competitive. We hope that you, the members of the industry committee, will be busy during your term in examining more changes to IP legislation.

Jeff will now speak about a recommendation that would require legislation.

[Jeffrey Astle]

Thanks, Michel.

As I said, I am not speaking on behalf of Pratt & Whitney Canada, but I am happy to share my experience as someone who works in IP within a manufacturing company. Literally, my office is 30 feet from the heart of our manufacturing operations.

Our company designs, develops, and manufactures gas turbine engines for airplanes and helicopters used around the world. Competition in this field is fierce and relentless. The company invests over $400 million a year in R and D and has close to 1,500 employees working in that area. For example, we are constantly striving to improve our products through innovation in performance, weight, and cost. Any development in one of the components that go into an engine can give us an advantage that in turn helps to keep and create jobs in Canada.

Let's take, for example, a replaceable component in a jet engine. An innovation in that component can make a significant difference in engine performance. We can have a patent on the component that protects its shape, its material, or its coatings, for example. We can also have a patent on the manufacturing process for the component if we invented the way to produce it.

We rely on the patent agents with whom we work to ensure that we obtain patents suitable to prevent our competitors from copying our inventions. If we didn't, we would lose the advantages that we achieve through our investments in research and development. For the agents to do this successfully, they must understand the technology and, more importantly, know all the intricacies of patent law, the rules, and the processes. I put a lot of faith in those patent agents, and they have the pressure to deliver. For example, when there is a patent dispute, trials can hinge on a word in a patent claim. I lived through one in the United States in which the stakes were in the tens of billions of dollars.

This is why we need a modern regulatory framework for patent and trademark agents, a framework on which innovators of all sizes can rely to ensure that agents are competent and that they are keeping current. They should see a system that is the same as the one they are familiar with for the regulation of other professionals that they hire, such as engineers, accountants, and lawyers.

Currently, we have only part of a system. The Canadian Intellectual Property Office, or CIPO, administers qualification exams with the assistance of IPIC. This requirement has contributed to the excellence of the profession. However, there is no mandatory code of ethics, no clear discipline process, and no mandatory continuing education. Therefore, we need to complete the regulatory framework.

In this regard, IPIC is pleased that ISED recently held a consultation about the governance framework for agents. A question is whether CIPO should continue to regulate agents or if the profession should be self-regulated.

For the manufacturing sector, the choice of the model is very important because the IP system needs balance.

CIPO has examiners in its patent office who decide if an applicant gets a patent or not. CIPO has an important public interest role in preventing patents from being issued if they are not warranted. It represents the side of the equation that restricts the scope of patents and trademarks and industrial designs so that we maintain a healthy and competitive marketplace.

CIPO has a budget of about $150 million and employs close to 1,000 people to perform its side of the public interest equation. For the system to work well, to protect and thereby incentivize innovation, we also need the other side of the equation. Agents therefore play an equally vital public interest role in seeking those patents.

Obtaining a patent is a back-and-forth process. I endeavour to seek protection that is as broad as possible for the company. A patent examiner may respond that protection of the scope that I am seeking is not allowable in view of the state of the art. Remember that we're dealing with cutting-edge technology, and things are, by definition, not obvious. Through this process, we isolate the invention.

That is where the agents come into play. Patent agents help clients craft patent claims in response to such examiners' feedback. To help properly protect the client's invention, an agent helps assess the validity of those claims and what would infringe those claims. They level the playing field for all applicants, whether big or small; ensure that there is balance in the system; and represent that side of the public interest equation.

I think we can all agree that given this role, they must be competent, must act ethically, and must keep up to date.

If CIPO sets the rules and training requirements and administers discipline and all other functions, it will have a conflict between its primary role of IP gatekeeper and its secondary role of ensuring that the innovators are well represented. The inherent bias in CIPO removes the balance in the system if it regulates agents.

My interests as an innovator are not well served if I can't rely on the independence of my agents. This was stated 20 years ago by a public administration expert, Professor Bruce Doern of Carleton University, in a report commissioned by CIPO in which he said,

...there is no convincing rationale for the patent and trade-mark profession to be so directly supervised by an agency of the federal government in matters of its professional qualifications.

As the federal agency involved, CIPO should focus on its more complex mandate tasks and should not be so closely regulating one of the client groups that it must interact with in other vital public interest ways.

[Michel Gérin]

Almost all professions are under provincial jurisdiction and almost all are regulated by self-regulatory bodies. This represents more than a million professionals in Canada. An example of a profession at the federal level that is self-regulated is the Canada lands surveyors. They have been self-regulated this way since 1999. Self-regulation is the most cost-effective solution because of the time that the profession devotes to make it work. For example, members of IPIC give hundreds of hours to prepare and mark the qualification exams, and also to train future agents. Essentially, they train their competitors.

We therefore recommend the creation of the College of Patent and Trademark Agents of Canada. It requires legislation to do so, as the college would be accountable to the Minister of Innovation, Science and Economic Development. The minister would appoint members of the public to the council of the college, and the college would issue public reports on its activities. It would administer the admission process, require continuing education and insurance, maintain a code of ethics, and manage a complaints and discipline process. This would improve the IP framework that is used by manufacturers.

Thank you. Merci.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We will now yield the floor for 10 minutes to Mr. Pierre Richard from the Quebec Furniture Manufacturers' Association.

[Pierre Richard, President and Chief Executive Officer, Canadian Furniture Show, Quebec Furniture Manufacturers' Association]

Mr. Chair, committee members, ladies and gentlemen, good afternoon.

My name is Pierre Richard, president of the Quebec Furniture Manufacturers' Association and president of the Canadian Furniture Show. I am accompanied by Mr. Réjean Poitras, president of Amisco, a large furniture manufacturer in Quebec. He is also the vice-president of the board of directors of the Quebec Furniture Manufacturers' Association.

I am going to read our presentation, but Mr. Poitras will have very direct responses for you, due to his experience as president of a manufacturing company.

We wish to thank you for inviting us here today. We're pleased to present to you an overview of the Quebec reality, but also of the Canadian reality in furniture manufacturing. We have tabled a brief that gives you quite a bit more detail than what I will be presenting in the next few minutes.

Let's begin by presenting an overview of the Canadian furniture industry.

This industry is composed of manufacturers of residential, office and institutional furniture, related products, and kitchen cabinets. Canada is the world's eighth-largest furniture producer. It is distinguished by the superior quality of its products, components, finishes and assembly, their comfort, design, customization, customer service, and the great value-for-the-money aspect.

The Canadian furniture industry employs 63,300 workers, almost the same number of workers as the aerospace industry. The industry is largely composed of SMEs, with 97% of manufacturers having fewer than 100 employees. It is also the country's second-largest consumer products industry. Quebec and Ontario are the main furniture-producing regions: 36% of Canadian producers are in Quebec and 36% in Ontario.

In recent years, the Canadian furniture industry went through a difficult period due to three main factors: first, the proliferation of products imported from countries with low production costs; second, the rise of the Canadian dollar; and third, the economic and financial crisis of 2008-09. The furniture manufacturers who went through this period showed resilience and creativity by enhancing and increasing their efficiency.

Before I go further, allow me to say a few words about the Quebec Furniture Manufacturers' Association.

The QFMA was founded in 1942. We will be marking our 75th anniversary in 2017. It includes residential, office and institutional furniture manufacturers, as well as manufacturers of furniture components and industry suppliers. Most of the businesses are Quebec-owned.

The QFMA is also the owner and producer of the Canadian Furniture Show, created in 1972. This annual show is held in Toronto and, with more than 7,000 participants from Canada and other parts of the world, it is one of the five largest trade shows in the country.

Let's take a look at the impact of Quebec furniture manufacturing on the Canadian economy.

The Quebec furniture industry is a significant engine of prosperity. It generates annual revenues of $3.4 billion. Looking only at the sectors represented by our association, annual production expenditures total $2.3 billion. This amount generated close to $1 billion in wages, about $220 million in revenue for the provincial and federal governments, and $207 million in parafiscal revenue.

We note also that the Quebec furniture industry is the top client of the Canadian hardwood forestry industry. It accounts for 24,000 jobs, making it one of the seven-largest employers in Quebec's manufacturing sector.

We will now present a brief overview of the main issues and challenges in our industry, as well as our recommendations.

I will speak first about research and development.

As you know, R and D costs are extremely high, with no guarantee of success. For our industry, R and D activities include new product development as well as manufacturing innovation, and are seldom accompanied by the obtaining of patents. We suggest enhancing the accessibility of assistance programs allocated to R and D and ensuring their availability to guarantee ongoing innovation within our industry.

In terms of jobs, the furniture industry realized employment growth from 1997 to the turn of the millennium, peaking at 117,000 jobs in 2000. Since that time, there has been a significant drop. As of 2014, there were only 72,000 jobs in the industry, including self-employed workers. This represents a drop of 39% during that period.

The industry is also facing a shortage of specialized labour. This shortage has been amplified because of a negative perception fuelled by plant closures, which have drawn considerable media attention. Among our recommendations, we suggest that the government organize major promotional activities to create awareness of the industry and careers in this field.

I would like to say a few words on the subject of e-commerce.

Our industry is lagging in this area. Furniture manufacturers, which are mainly composed of SMEs, simply don’t have the means to develop tools to allow them to either work with the major online retailers or directly manage online transactions and relationships with consumers, in addition to marketing their products.

We suggest subsidizing the acquisition of the necessary equipment, providing financial support for the training of employees, and lastly, offering tax relief measures on the profits derived from e-commerce for manufacturers getting into this area for the first time.

Let us now move on to safety and environmental issues.

Public safety and environmental standards are continually going through a revision and updating process here in Canada, as well as in the countries to which we export. The QFMA and its members are obviously in favour of any measures aimed at improving public safety and environmental protection. This being said, we recommend ensuring that the implementation of new Canadian measures is done in collaboration with the industry and within a reasonable time frame and that, in certain cases, this implementation is accompanied by transitional measures.

Let us address exports, a very important field for our industry.

The United States is the favoured market for Canadian furniture manufacturers. In fact, for Quebec, 94% of our furniture exports are shipped to the U.S. In addition, furniture manufacturers have to constantly innovate and develop new products. They rely on Canadian and American trade shows, which are their main showcases to reach the major buyers.

Among our recommendations, we propose devising a furniture export strategy based on Canadian and American trade shows and providing financial support to take part in these shows.

With all these changes, it is clear that the Canadian furniture manufacturing and retailing industry has been transformed and that it is important to draw a precise profile.

The development of the industry, in Canada and internationally, requires a thorough knowledge of all of the stakeholders, which no one seems to have. To ensure the success of activities at the international level, the furniture industry needs to be able to develop a better understanding of its market and of the U.S. market. We suggest preparing a profile of Canada's furniture manufacturing and retailing industry, as well as conducting market intelligence, including analysis of the competition, the clientele, decision-making processes, and selection criteria.

In conclusion, the Canadian and Quebec furniture manufacturing industry has gone through a very difficult time. It had to enhance and increase its efficiency. The future shows modest signs of optimism with the emergence of new opportunities. Our manufacturers are now well-positioned to take advantage of these opportunities and continue to contribute to the wealth and prosperity of the country.

However, in a context of constant change and a highly competitive global market, we remain vigilant, since nothing can be taken for granted.

Ladies and gentlemen, thank you for affording us the opportunity to present to you the realities of our industry and some recommendations to consider. We offer you our full co-operation in the context of the development of the Canadian and Quebec manufacturing sector. We will be very happy to answer all your questions.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to start with Mr. Longfield. You have seven minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Mr. Chair, I'm going to be sharing my time with Terry Beech. Before I do that, I have a really quick question for Mr. Richard.

You mentioned the strong dollar having a negative impact. Have you not seen any recovery since the dollar has gone down? I know we've seen in other manufacturing industries that they haven't seen that recovery happen.

Can you comment on that, please?

[Pierre Richard]

I'll give a general comment, with pleasure, and then I'll go to Mr. Poitras. He is living this reality because he exports to the States.

From the general perspective of what we have seen from our members, it's not a light switch. If the dollar goes down, exports don't all of a sudden go up immediately. It takes time. You do not base an export strategy on fluctuating rates, because they will fluctuate in the other direction at some point. You also have to build a whole distribution mechanism to ensure that you can fulfill that.

Basically, as the dollar goes down, yes, we have seen an upsurge in exports. However, much of that is due to the recovering economy in the States, perhaps more than just the exchange rate.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

Go ahead, Mr. Poitras.

[Réjean Poitras, Vice-President, Board of Administration, President and Executive Officer, Amisco, Quebec Furniture Manufacturers' Association]

That's correct. I think the recovery of the U.S. economy is as important as the current weakness of the Canadian dollar.

From a strategic point of view, we must not forget that we protect ourselves with foreign currency exchange contracts. Even though we can exchange a portion of our revenues into American dollars at the spot rate that we see, under the foreign exchange contracts we have signed with financial institutions, our average rate is not the one we see every day on television or on the financial markets. This is a sound strategy for balancing risks over time.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you very much.

We'll go over to Mr. Beech.

[Terry Beech, Liberal, Burnaby North—Seymour, BC]

Mr. Chair, I thank my friend Mr. Longfield for sharing his time.

Thank you for presenting today. Intellectual property is kind of a personal passion of mine. My apologies to the gentlemen at the other end of table, but I'll probably focus my questions on the two friends closest. I'm appropriately positioned.

There are three things I want to talk about. The first is with regard to your recommendations, the first patent program and the innovation box. If we have time, I'd then like to spend a little bit of time talking about intellectual property policies at Canadian universities and see if you guys have any opinions on that.

On the first patent program, I like the idea in general. I think it's very interesting. Of course, Quebec is new, so we don't have as much data as we might like. Are there any other countries in the world that are doing this that we could look to? Given that we've gone through a full year, do you have any information on who's actually utilizing the program—industry, academics, small business, large business, etc.?

[Michel Gérin]

With regard to the Quebec program, we know that in the first year, all the funds that were allocated were used. The criteria are for small businesses, and therefore it's not for universities to use. I don't have more information on exactly who is using it.

In terms of another country we're aware of that has something similar, China has subsidies for patenting, but I think it's broader than just the first patent. A broad range of all types of patents and so on are provided subsidies. Otherwise, I'm not aware of the existence of a first patent program elsewhere.

[Terry Beech, Liberal, Burnaby North—Seymour, BC]

Thank you.

With regard to the innovation box, I read your report. I get how it's different from other tax incentive programs like SR and ED. It's more on the commercialization side. However, what struck me when I read the proposal was the problem of preventing businesses from seeking intellectual property in order to qualify for the lower tax rate instead of what we're trying to incentivize, which is the other direction. How would you do that?

[Michel Gérin]

This has been developed in many countries, this innovation box. Among the most recent is the U.K. They went to a very generous program. That prompted other countries in the EU and the OECD to study this idea. The OECD has actually come up with guidelines on this type of tax incentive. I say “guidelines”, but I don't know how much they can enforce them. They probably can't enforce them. I think the EU has agreed to them.

In the guidelines, you need to tie the income, for example, to R and D activity that has taken place in the country. There's a formula whereby the company that is claiming this tax credit has to show that it actually spent its own money on R and D to some extent. It doesn't need to have done all the R and D itself—it may have outsourced some of it—but a formula on that will affect the patent credit.

One thing I don't think we mentioned in our paper is that Quebec has also launched a program that's starting in January. Their criteria are that it has to have a patent, the R and D must have been done in Quebec, there has to have been some tax credits for R and D, and the manufacturing has to be done in Quebec as well. The idea is that it's not just getting IP but it's getting IP and also your manufacturing.

In our case, we're proposing that it be in Canada. For manufacturers, the incentive is therefore to do R and D and then, if you commercialize it, there will be a reward at the end, an incentive to do so, but you should be manufacturing and doing your R and D here in Canada to some extent.

There are probably different formulas to look at—how much of the manufacturing, how much of the R and D, whether you can outsource some of it, whether it can be done in other countries, and so on—to arrive at a number.

[Terry Beech, Liberal, Burnaby North—Seymour, BC]

Thank you for that, and thank you for that reference. I look forward to reading those reports.

We have about a minute and 20 seconds, maybe less. The chair is more strict than I am.

With regard to intellectual property at Canadian universities, I've been doing a lot of research, looking at different policies across Canada and comparing them to other countries, such as the United States, the U.K., etc. What is obvious is that they vary greatly. Tech transfer offices have different rules on who owns the actual IP and how different revenue-sharing agreements are structured.

Do you have any opinions on how that is currently being conducted across Canada and how we might be able to do better?

[Michel Gérin]

IPIC is not taking a position on the best formula in terms of ownership, but Jeff has extensive experience working with universities in his day job. Maybe he wants to share some comments here.

[Jeffrey Astle]

We have relationships with about 18 universities at last count. Based on my experience, what has facilitated our work with the universities over time was establishing a simple arrangement in terms of IP rights and the work between us that so we didn't have to negotiate agreement after agreement.

We get ourselves into a sort of draft template and we try to apply it across all universities. We try to be fair in terms of what we get and what the universities are allowed to take with them and commercialize if possible. Establishing this type of relationship with universities facilitated our ability to work quickly and get projects going a lot faster.

I mean, the agreements were standing in the way of getting things done. It was taking forever to get a project together. Once we had those templates down and working, it was fine.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We are going to move to Mr. Dreeshen. You have seven minutes.