Industry Committee on June 6th, 2017

[The Chair, Liberal, Dan Ruimy]

Welcome back, everybody, for another exciting journey into the Standing Committee on Industry, Science and Technology. This is meeting 65, and we are continuing our study of intellectual property and tech transfer.

Today we have with us by video conference from the Association of University Technology Managers, Stephen Susalka, chief executive officer. Welcome.

From Innovate Calgary, we have Kenneth Porter, vice-president, intellectual property management. Welcome.

As an individual, we have James Hinton, intellectual property lawyer, Bereskin & Parr LLP, adviser, Council of Canadian Innovators.

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

[Stephen Susalka, Chief Executive Officer, Association of University Technology Managers]

Good morning.

Thank you to the members of this committee for the invitation to speak today. I wish I could be with you in person.

My name is Steve Susalka, and I'm the chief executive officer of the Association of University Technology Managers, also known as AUTM.

AUTM is a non-profit organization composed of over 3,200 individuals, including some 200 Canadian members who represent more than 300 academic and research institutions worldwide and focus on supporting inventions as they move from the lab to the marketplace.

What exactly is academic technology transfer? That term can be defined in five words: research, invention, evaluation, protection, and commercialization. Using data from AUTM's annual licensing activity surveys, I will compare the technology transfer efforts of Canada and the U.S.

First, on research, academic technology transfer is fully reliant on the money that is spent on research at universities, colleges, and hospitals. According to AUTM's 2015 surveys, the 36 Canadian institutions reported approximately $6.1 billion U.S. in research expenditures. In comparison, the U.S. reported approximately $66.6 billion U.S. Because the U.S. has approximately 11 times the amount of research expenditures that Canada has, I'll divide the U.S. numbers going forward by that multiple—about 11—in order to make a fair comparison.

The next step is invention. Technology transfer activities begin when a scientist, student, or staff person at an academic institution develops an idea for a new invention. Canadian institutions reported 1,813 invention disclosures in 2015. That correlates to approximately $3.4 million U.S. per invention disclosure. For perspective, data from U.S. institutions demonstrate that Canadian institutions spend about 28% more on research expenditures per invention disclosure produced.

The third step is evaluation. Canadian technology transfer offices receive hundreds of these invention disclosures each year; however, not all of them are commercialized. Why? Some inventions might not be protectable enough, and others might not address a substantial market need. Technology transfer offices assess the viability of the various inventions they receive and invest in as many of them as they can afford.

Looking at the number of patent applications filed is a good proxy for the number of invention disclosures actually pursued, recognizing that there are a number of caveats. If you look at the number of new patent applications by research expenditures, you will see that about $5.9 million U.S. in Canada results in one new patent application. Compared to the U.S. rate, Canadian institutions spend about 42% more on research expenditures per new patent application.

The fourth step is protection. The protection of the inventions, generally through patent and/or copyright protection, is a critical piece of the technology transfer process. Without it a company will not take the risk of investing the substantial resources needed to develop an early-stage idea into a product. As this committee no doubt recognizes, a strong and reliable patent system is absolutely crucial for a flourishing technology transfer ecosystem.

The final step is commercialization. Of course, the ultimate goal of academic technology transfer is to create new products and services to help Canadians and serve the public good. Since academic institutions do not sell products, the institution's intellectual property is instead licensed to companies that develop and market the institution's invention.

Canadian institutions reported 700 option and licence agreements in 2015, demonstrating that Canada was just about as efficient in optioning and licensing intellectual property compared to the U.S. when normalizing to research expenditures.

Another result of effective Canadian academic technology transfer practices is the generation of new start-up companies based on academic intellectual property. In 2015, Canadian institutions reported 90 start-up companies formed, again demonstrating that Canada was just about as efficient at forming start-up companies as the U.S., when normalized by research expenditures.

Interestingly, the equivalent option and licence agreement rates do not result in similar licensing revenue when compared to the U.S. In fact, Canadian institutions accounted for only $62 million U.S. in licensing revenue in 2015, which worked out to only about 27% of the normalized U.S. licensing revenue figure. Although licensing revenue numbers are often swamped by a handful of home runs, this difference in licensing revenue is dramatic.

Three points can be made with this data.

First, Canadian technology transfer is about 28% to 42% less efficient in generating invention disclosures in patent applications. Why? One reason could be inventor-owned IP policies are lowering the number of reported inventions and patent applications. They are being created, but just not counted. Also, there might not be as much of an emphasis on intellectual property disclosure and protections as in the U.S. through the Bayh-Dole Act that requires federally funded inventions to be disclosed.

My second point is that Canadian technology transfer is just as efficient in agreements executed and start-up companies formed, even though they start with fewer invention disclosures and patent applications. How? First, this statistic is impressive and reflects well on the quality of the technology transfer professionals in Canada as they are doing more with less. Second, successful Canadian start-up accelerators are likely contributing to the significant number of start-up companies. Third, a focus on IT-based technologies by some institutions are also likely to contribute to more start-ups than expected, due to lower overhead.

My final point is that Canadian technology transfer only produces about 27% of licensing revenue in comparison to the U.S. Why? First, again the inventor-owned intellectual property policy means some inventions, and perhaps some of the higher-value inventions, are not being counted here. Second, downstream funding sources, for example, for institutional prototyping funds or governmental commercialization funds, are perhaps not as prevalent as in the U.S.

I look forward to continuing the discussion as we find ways to further increase the commercialization of the diverse and impressive research being pursued in Canadian institutions.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to move to Mr. Porter from Innovate Calgary.

[Kenneth Porter, Vice-President, Intellectual Property Management, Innovate Calgary]

Good morning.

I am Ken Porter, vice-president for intellectual property management at Innovate Calgary. Innovate Calgary is a non-profit corporation that provides economic development support for entrepreneurs and enterprises in Alberta, and technology transfer services for the University of Calgary.

I am also a board member of the Association of University Technology Managers and immediate past chair of the AUTM Canadian subcommittee, through which hundreds of Canadian technology transfer professionals organize networking, training, and advocacy activities. Of note, directors from across Canada will be meeting in Montreal on June 25, and I invite all committee members to join us there.

The mission of an academic research enterprise is to create and disseminate knowledge. Our mission as technology transfer professionals is to support knowledge creation, for example, by facilitating industry-academia research collaborations, and to support knowledge dissemination via commercialization.

Knowledge and technology created over the course of academic research can be transferred to the public through a variety of mechanisms: publications, meetings and presentations, student employment, consulting, industry-sponsored research, licensing, and start-ups.

Relevant to our discussion today, researcher incentives for disclosure and participation in technology transfer and commercialization are unique to each individual. They may include a desire for a positive impact on society, opportunities for industry partnerships, experiential learning and employment opportunities for students, a sense of personal fulfillment, recognition, and financial rewards.

Conversely, there is a variety of reasons why researchers may not choose to disclose IP. They may consider it a distraction, an impediment to scholarship, a source of financial or personal risk, irrelevant to their academic careers, or unlikely to yield any useful outcomes. They may be unaware of the benefits of disclosing IP, or of institutional policy obligations to do so. It also takes time and effort.

Government, academic institutions, and technology transfer professionals can support and encourage researcher participation with time, such as entrepreneurial leave and teaching load reductions, recognition for patent and commercialization activities, funds for research and partnerships, and education.

Universities rely on technology transfer professionals to provide education through outreach, presentations, and workshops. However, Canadian professionals are often stretched to provide essential services, such as patent prosecution, marketing, licensing, and start-up creation, thereby reducing opportunities for outreach. From 1995 until 2009, universities were funded by the tri-council's intellectual property mobility program, which directly supported staff. Since IPM's discontinuation in 2009, however, staffing levels have declined, which has impacted researcher education.

Funds for research and partnership have also been reduced. The popular CIHR proof of principle grants, which directly supported knowledge mobilization, were discontinued in 2016. In addition to bringing back the IPM and POP programs, Canada could enhance academic innovation through programs such as the U.S. SBIR and STTR programs, both of which leverage university IP and research capabilities.

An example of a current Canadian funding and collaborative research program, funded by Western Economic Diversification, is the Western Canadian Innovation Offices consortium, which incorporates features of both the IPM and POP programs.

WCIO connects western Canadian industry needs with the research and innovation resources at WCIO's 40-member consortium of universities, colleges, and polytechnics. The goal is to improve engagement between industry and academia and address industry-driven innovation challenges. The current pilot program supports the energy sector. To date, WCIO has funded seven technology development projects, leveraging $1 million in funding to attract over $5 million in research investments from industry. The seven projects involve partners from 10 universities, one college, three polytechnics, and 12 companies.

In addition to project funding, WCIO supports eight business development professionals who lead WCIO's outreach activities. The BD professionals learn academic capabilities and match them to industry opportunities for collaboration.

An important objective for WCIO is to involve polytechnics in innovative research projects. Polytechnic facilities, used for prototyping and fabrication, are well suited to supporting WCIO projects, and the faculty and students are highly motivated. A student recently said that, as a machinist, being involved in innovation made him feel like a superhero.

At a recent WCIO showcase, I moderated a panel and asked the industry representative how their project would be affected if there were no WCIO. He simply replied that without WCIO, there would be no project. Clearly, incorporating polytechnics into research projects such as WCIO is crucial for the Canadian innovation ecosystem.

WCIO makes no claim on IP ownership, which is instead decided on a case-by-case basis by the collaborators. Such flexibility of IP approaches is a strength of the Canadian system. The degree of control over IP that an institution requires depends on the nature of the work, the scientific field, and how the contract fits with a particular research program. In most cases, IP rights granted to a sponsor are sufficient for commercialization without inhibiting the future project of an academic research program.

IP policies in general reflect the nature of research at an institution, the campus culture, and the infrastructure available to mobilize commercialization. Institutions with medical schools can often invest years of patent and clinical development into a therapeutic agent or medical device and may be better served by an institution-owned IP policy. Conversely, institutions without significant medical research are in a far better position to embrace a creator-owned IP policy, where speed to market drives innovation for fields such as IT and software innovations.

It's important to recognize that intellectual property extends beyond patents and includes copyrights and trademarks that provide opportunities for knowledge mobilization beyond the STEM fields. The Canadian profession, through organizations such as Research Impact Canada, has made great strides towards disseminating innovations from non-STEM faculties, including the social and clinical sciences, education, architecture, and the humanities. Such faculty members are often unaware of the value of their innovations and of the possibility of disseminating knowledge through non-academic channels.

Innovate Calgary hosts events to showcase their work, creating an open forum for dialogue among faculty members. Most recently, an event held in partnership with the Werklund School of Education attracted over 60 researchers, and attendees extended the conversation to nearly five hours. Researchers presented innovations from a variety of disciplines, including psychology, business, kinesiology, social work, women's studies, and education. One researcher expressed that he was starting to understand that commercialization wasn't all about the money, that it was also about scaling impact.

Thank you for inviting me here today, and I look forward to our discussion.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to move to Mr. Hinton. You have seven minutes.

[James Hinton, Intellectual Property Lawyer, Bereskin & Parr LLP, Advisor, Council of Canadian Innovators, As an Individual]

Good morning.

Thank you, Chair and esteemed members of the committee, for the privilege of appearing as a witness before you.

I'm an IP lawyer and patent and trademark agent with Bereskin & Parr, and an assistant professor at Western University. I also advise the executive of the Council of Canadian Innovators. I work almost exclusively with Canadian companies to help them benefit from their technology through intellectual property.

I've researched and written in this space with the Centre for International Governance Innovation and the Centre for Digital Entrepreneurship and Economic Performance.

I will first identify where there are limitations with Canadian tech transfer and IP and finish by presenting constructive opportunities to move forward.

Should Canadian universities and research institutions drive innovation, fostering Canadian companies that own and benefit from Canadian-developed technology or should they only invent and educate, create world-leading technologies, and allow others to commercialize and reap the economic benefits of these technologies? If we want our publicly funded research institutions to be champions of innovation, we currently have problems. The technology is suboptimally protected, and even where protected, the technology is being given away.

Our academic institutions are not patenting at the same rate as their foreign counterparts, as we just heard. This is particularly relevant in the clean technology space. On average, Americans are patenting 2.3 times more per academic publication than Canada. China is patenting at a rate almost 15 times more per academic publication than Canada. We have not been keeping up with our international competitors to capture the value of our technology through international IP systems.

If there's no patent and the invention becomes public, then there is nothing to prevent someone from practising the invention. It's not only that we don't protect, but we also allow the technology that we have protected to be raided by foreign firms. In particular, IP benefits from public-private partnerships are flowing out of the country. To commercialize research, publicly funded institutions currently partner with industry players. Many agreements end up with newly developed intellectual property wholly owned by the industry partner, or licensed, because they have the vision to harness and capture the value of the IP. These industry partners are very often foreign companies, leading to critical IP leakage out of the country.

What's worse is when a Canadian company is looking to develop similar technology, the foreign tech can prevent that Canadian company from practising that technology, or force them to take a licence. We are essentially encouraging a system whereby Canadian companies must then license back Canadian taxpayer-funded IP from the big foreign technology competitors. Instead of reinvesting in Canadian R and D, Canadian companies are paying IP royalty fees.

How bad is the outflow of IP ownership? We've done some research on the invention and ownership in the artificial intelligence machine learning space, and more than half of Canadian-developed IP is now owned by foreign companies. This is not an isolated issue. Of all Canadian invented patents issued last year, 58% are now owned by foreign companies. This is up from 45% a decade ago. The trend is getting worse.

This means that Canadians are doing the hard work to create great technologies, but we are not able to benefit from them. This further prevents us from being able to reinvest in new technologies and new industries. If we are embarking on Canada's innovation age, we must prevent the IP from being raided by foreign firms and instead capture the resultant wealth and associated economic benefits so we can create successful and globally competitive companies that rival the world's best.

How do we do this? Education and increased sophistication for Canadian innovators is a start. Ultimately, we need to generate more IP and ensure that IP that is generated in Canada with taxpayer funding is available to Canadian innovators. Traditionally, policy-makers are focused on domestic IP rules. The problem with that approach is that most Canadian innovators don't secure Canadian patents because the market is just not big enough, so changing our domestic rules will have little impact for Canadian innovators.

We have to find mechanisms to help Canadian innovators compete in global marketplaces where the large commercialization opportunities lie. That means playing by the IP rules of foreign countries. IP exposure reduction measures, such as the strategically designed patent collective or sovereign patent fund is one solution we have studied that would help deal with the challenges facing Canada's innovation ecosystem.

As the data shows, we don't own the existing IP in many industry sectors, so our firms do not have the freedom to operate in those markets. The strategy is to acquire and bundle foundational patents, international patents, in a manner that provides Canadian innovators with market access opportunities. Instead of having to take licences individually when companies have the most to lose, the collective approach allows Canadian companies to have improved freedom to operate internationally.

Still further, many of the foundational patents developed by our public institutions can form part of the pool, providing Canadian firms with the freedom to operate under university-generated IP.

This improved freedom to operate ensures that Canadian companies are able to have a strong position when entering global markets and ensures that taxpayer investments are not flowing out via royalty payments to the owners of foundational patents.

Our taxpayers expect more from their investment—that the benefits flowing from the technology and the IP provide the expected taxpayer return. We have to ensure that the IP strategy for technology transfer has a focus on national public benefit.

Imagine having to tell a promising Canadian technology company which is trying to scale up, find markets, and increase profits that the government has just given its biggest established technology rival, foreign technology rival, access to Canadian university research. If the Canadian firms are not able to compete with the foreign technology firms for Canadian-developed technology, the funding research in Canada looks a lot like a subsidy for the development of foreign technology firms' IP. This not only wastes a lot of money but also disadvantages Canadian technology companies and our future prosperity.

In this innovation age, we can't treat IP as we do our natural resources, by selling it off early. The value in IP is speculative value, so selling early doesn't allow for that big upside. As Ben Bergen, executive director of CCI said, “The countries that have IP are wealthy, and the countries that lack it are seeing their prosperity erode.”

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much for that illuminating speech.

We are going to move directly into questions, starting with Mr. Longfield. You have seven minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Chair.

Thanks to everybody for being here in person and virtually.

We have a big topic today. I would like to continue with our last presenter, Mr. Hinton.

When we're talking about international companies having access to Canadian universities, we have an example in Guelph, where my riding is, where we're developing clean tech. We're developing water technologies. Some of the local water technology companies haven't been able to purchase access to some of the equipment that's been put in place. There's a barrier to entry for some of the small firms to using some of the university resources, whereas larger firms can come in and invest.

You mentioned clean technology, and I used clean technology as an example. By sector, do you have an idea of where the biggest challenges are with small business having access to university resources?

[James Hinton]

There has been a lot of study on the clean tech space. Our focus has been on clean tech and AI, and there are a lot of opportunities, but in the clean tech spaces you're talking about, there are a lot of regulatory issues that you have to build into your IP strategy. Getting the regulation right, and the standards, and where you have to meet, and where the technology needs to meet are very important.

We need to ensure that Canadian IP can meet these standards, and if it can't meet the standards, then we're losing that opportunity.

[Lloyd Longfield, Liberal, Guelph, ON]

When you look at leakage, I'm chairing the innovation and post-secondary education caucus, and we had a curve presented to us from Universities Canada that shows our services. Our royalty fees are in a massive trade deficit. You have mentioned that trade deficit when we're doing an IP study. Could you comment on that deficit, or do you know of other countries that have been in a similar position that have been able to get out of that position?

[James Hinton]

There are very few countries that have an IP trade surplus. The U.S. is one example. Japan is another example. A lot of other countries are struggling with this problem. France, Japan, and Korea are a few examples that I've researched. There are different ways of trying to balance this.

The research shows that we don't own very much intellectual property, so we need to find creative mechanisms to encourage more creation. The SBIR, including some costs for intellectual property generation, is very important. Then being more sophisticated with what we're publicly funding is there.

I think there are a lot of good examples that come from international actors, other countries, and their national IP strategies, and what they are doing that we can learn from. The sovereign patent fund is one of the examples we studied.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

I want to move over to Mr. Susalka, who met with us when we were in Washington.

Thanks for joining us again this morning.

You brought up some really good points when we were in Washington around the industry participation in research funding. In Canada, 11% of research funding comes from industry, while in the United States, it is 7%. It's been flat for 10 years, you told us. Licences that include equity have increased by 40%. You mentioned that Canada seems to be doing more with less. Is this an example? With Mr. Hinton we were talking about leakage into the United States. Is AUTM looking at U.S. businesses operating in Canada, putting research dollars into Canada, and drawing IP out of Canada? Is that something AUTM is concerned with or is looking at through its Canadian membership?

[Stephen Susalka]

Thank you for the question [Technical difficulty—Editor].

[The Chair, Liberal, Dan Ruimy]

Sorry, could I get you to restart the answer? You froze on us.

[Stephen Susalka]

Sorry about that.

The quick answer is that we do not collect that type of [Technical difficulty—Editor] investment in Canadian technology transfer.

I will point out one thing. Just to echo your comment earlier about industry funding, I'll say that one of the real advantages of Canadian technology transfer is the close interaction with industry. Collaborations and the types of centres that Mr. Porter mentioned are examples of great overlap between industry and academic institutions, an overlap which the United States doesn't have at that level.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

Mr. Porter, when we look at SAIT, there is a template that SAIT has been using for IP. This is maybe an open question here for anybody.

Is whether templating is being done successfully in the United States or other jurisdictions something that we want to be looking at in Canada? Is there anything around standard templating, portal creation for registering patents, or going for non-exclusive licence agreements that are open agreements?

[Kenneth Porter]

Well, there are a couple of things.

Polytechnics rarely claim ownership of IP, and that is due, in part, to the kind of work they do. Usually the ownership of IP goes to intellectual contribution. For projects at SAIT, as a rule, the industry comes to SAIT with a problem they want solved, and then SAIT applies its capabilities. However, on the university side, typically the IP is the result of a multi-year, multi-person project, so the intellectual contributions come before the IP is generated through the project; just like for SAIT the intellectual contributions come from the industry side.

[Lloyd Longfield, Liberal, Guelph, ON]

Does the consortium have a common collecting point, or does it go in to SAIT all in the same way?

[Kenneth Porter]

It's on a project-by-project basis. From the intellectual property side, I think Steve mentioned the flexibility we have, whereas in the United States it's all institution owned, IP mandated by Bayh-Dole and by federal funding that supports university research.

The tri-council doesn't mandate IP ownership to any one party here in Canada. The institutions are free to choose whether they are more comfortable with inventor owned. Waterloo is the extreme there with inventor owned with no obligation to report. The University of Calgary is inventor owned with an obligation to report and to share revenue. We also have institution owned. So, in some ways, the IP policy can fit the research enterprise at a particular institution, and that's an advantage in Canada.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you.

[The Chair, Liberal, Dan Ruimy]

We're going to move to Mr. Dreeshen. You have seven minutes.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Thank you very much, Mr. Chair, and to all of our guests.

Stephen, it was nice to have an opportunity to see you. Unfortunately, our technology doesn't seem to be finding its way seamlessly across the border right now.

I know some of the things you talked about with regard to the dollars invested in research in Canada and the U.S., when you take a look at the relationship of size, there are a lot of efficiencies and a lot of things we do well, but the key thing you spoke of is the tech transfer only getting 27% of the bang for its buck as it does in the U.S.

I spoke a couple days ago with a venture capitalist. Basically, what they were saying is that when you look at what happens in the U.S. and the way in which they court investors, and the way it is done in Canada.... You'll go down there and they're going to take you to the football game. They're going to show you the whole place. They're going to show you the town. If you come to Canada and you want to talk to researchers, they're going to take you into some office and give you a slide show, and that's going to be the relationship. I think it might have been exaggerated a little, but I think that's part of it. When they're wooing people with dollars to invest, it's a good job that is done by universities.

I don't know if that ties into part of this, or why it is you can get people who are a little more aggressive in their investments to go into some of those areas.

I do appreciate the opportunity to see you again. Our trip to Washington certainly helped us a lot to understand that.

I wonder if you could quickly talk about that Canadian tech transfer, and what you see as maybe one of the key components that we should look at.

[Stephen Susalka]

There are a number of initiatives that [Technical difficulty—Editor] is pursuing.

[The Chair, Liberal, Dan Ruimy]

Sorry, could you just back up a second? You froze up for more than a couple of seconds.

[Stephen Susalka]

I'm sorry about that.

I was going to mention that one of the initiatives that's being pursued by more and more universities in the United States is prototype development, and further development of intellectual property at an institution level. This is an area which I think Canada is well-poised to pursue, given, as Mr. Porter mentioned, the polytechnics that exist, as well as the strong industry interaction.

If you think about intellectual property, a lot of times an academic invention is very early stage. Perhaps it shows a design for an orthopaedic drill, for example. Developing that into at least a prototype [Technical difficulty—Editor]