Industry Committee on June 15th, 2017

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

My last question is for Code and Jeff.

Both individuals from business who were here at our last meeting said one of their beefs was that these researchers working in universities come up with an idea, and then they own the IP. One guy was from Nortel. He said that when he worked at Nortel, he did patents, and Nortel owned them. The guy said, “We put our money in, the government puts their money in, this researcher gets the IP, then we have to go buy it from him and make an arrangement.” He said, “It's ridiculous that we have to pay twice.” Those were their words, not mine.

Do you guys have any thoughts on that? It would be a change. Should we look at changing the way we do business?

[Jeff Musson]

Absolutely. Don't get me wrong, I'm not saying that the researcher doesn't.... He should be able to have some success in what's been created; however, I know there are certain instances where they can't be the roadblock either.

Again, what's the entire goal? Is the goal for universities to turn a profit on technology that's been developed or is to foster some other kind of metrics? You're absolutely right. That does happen and for a variety of reasons. That professor may have an ego and wants to be known for this, but has no way to commercialize it. But absolutely, something has to be changed.

[The Chair, Liberal, Dan Ruimy]

We're out of time, but do you want to answer?

[Code Cubitt]

I'll be good.

[The Chair, Liberal, Dan Ruimy]

We're going to move to Mr. Sheehan, for five minutes.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you very much.

We appreciate the presentations today. They're quite helpful for this study.

Code, you mentioned in your presentation that you had three bad experiences with universities. Later in the testimony, you mentioned one experience, and I believe ego was just talked about by Jeff. I understand that and the culture. The two other experiences, were they the same issue or were there different issues? Could you expand on that?

[Code Cubitt]

One was a difficult time dealing with a tech transfer office. It was a regionalized tech transfer office, and we just couldn't get time from them. It was difficult to get documents moving and flowing back and forth. We're no longer involved with that company, but I think they were successful three years later.

I don't remember the details of the third one off the top of my head, but it was similar.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

It begs the question. You're involved in the United States and Canada. Talk about your best experiences in the United States and why they were best.

[Code Cubitt]

One that pops to mind is an MIT experience where the professor, if I remember the structure correctly, was paid, the university was paid. It was a template of how to do it: yes, we welcome your interest in this technology. The whole thing took about four months, which was quite reasonable. Then I think the royalty expectations were, I'm going to say de minimis, less than 5%, and then 3% after five years or something like that. It was refreshing to have a process and a person at the other end of that process who knew what they were doing and had done it numerous times. That's anecdotal.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Four months was significantly less time. What do you attribute four months to?

[Code Cubitt]

I think it was the research professor who had a vested interest in getting it out. He wanted to see his work in the market.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

That's good to understand.

Jeff, you mentioned that you're involved with bringing together entrepreneurs and different people in the tech world. I come from Sault Ste. Marie in northern Ontario. We have some great little things happening up there in research, whether it is related to forestry or invasive species. We also have the Ontario Lottery and Gaming Corporation, so there's a lot of spin-off of IT businesses related to the gaming industry, and there are a lot of neat things happening.

How is it that rural Canada—and I'll call it rural for lack of a better term, since it's really outside of the urban centres—could get more involved and more engaged, so that people like Code find them? You mentioned hunting and finding them. Maybe both of you could comment on that sort of thing.

[Jeff Musson]

The good news is there's never been a better time than in today's society, where you have Internet connectivity and video conferencing, and wish to have the rural areas....

I'm originally from southwestern Ontario, and that's another area that—if you're outside of Kitchener-Waterloo, Toronto, Ottawa, and the key sectors—you have to be able to plug in. What happens in the case of Sault Ste. Marie is that you guys are known for forestry. You have some mining. The beauty is that technology is weaving its way through all these industries today.

One problem entrepreneurs have is looking for beta customers to try out technology. If you have willing participants in these areas, now again you start forming informal clusters, and that will allow innovation to take place.

The other great thing is it is very costly in Toronto's real estate market to be renting facilities for businesses, office space, and what have you. I have to tell you, if you're able to develop technology outside of the GTA or outside of Silicon Valley, and locate those companies in Sault Ste. Marie, in Chatham or wherever, that's a big incentive as well to be able to still plug in.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

That's great.

Code.

[Code Cubitt]

I would just add pure business development. One of the things you'll hear from me as a VC is that universities need to be a bit more business oriented. Your tech transfer office could have BD—corporate development people who run around doing business development.

I distinctly remember in California a woman from Ireland who was pitching Irish technology, and I saw her everywhere. She developed relationships, and she was moving technology from Ireland to the United States. I think it's shoe leather; it's rolling up your sleeves.

[Jeff Musson]

One final point on that is that people like doing business with people they know, and it's a relationship—I'm sure Code would agree—that develops over time. That's all part and parcel of it as well.

[Terry Sheehan, Liberal, Sault Ste. Marie, ON]

Thank you. That was great.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We go back to Mr. Masse for two minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

How would you rate Export Development Canada and others in terms of getting some of the things to market, and in terms of assistance for that? At the end of the day, I don't want to be a part of it if the end result is to help create products and services that then put Canadians out of work.

I'll start with Code and go across. I don't know if the universities have had any, but in terms of Export Development Canada and access to capital to expand what has been the general experience?

[Code Cubitt]

I'll take a stab at it from this direction.

Our investment strategy is based on a statistic. You can tell I'm a pretty numerical guy, but it turns out that fewer than 10% of Canadian start-ups get capital from outside of Canada. Of all the exits, 33% of the exits and 40% of the profit go to those 10%. It's a bit of a winner's bias there, but it's pretty intuitive that if you run out of money, you run out of time.

Our premise as a firm is to find really interesting Canadian technology and bring U.S. investors into our companies. The criticism we heard early on—to some extent, anyway—was, “Yeah, but now you're going to be taking our great companies, shipping them to California, and draining our talent and our knowledge”, and so on and so forth.

I have a different view, which is that the more technology we create and the better brand we create for creating technology, the more people will be attracted to us. Yes, we're going to have to shed some initially. It's almost like a good faith donation, a loss leader.

Specific to your question, I think EDC understands that. They understand that it's a global marketplace, it's a global knowledge repository, and the world is globally competitive. Jeff mentioned that the Internet enables all businesses everywhere to compete. If we don't have a global view and recognize and leverage global assets, we're going to be isolated and suffering.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We have time for a question on each side for six minutes, so we're going to jump to Mr. Longfield, for six minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you, and I'd like to split the time with Frank.

What a great discussion.

Something that's come out of the testimony we've had so far has been business owning more IP. I'm also looking at the universities needing to own IP in terms of long-term research. I'm thinking of crop science and pharmaceuticals, for which there's considerable overhead from the university side.

Code, have you seen any examples of two-directional IP being driven by business having one set of agreements, and IP being driven by universities having another set of agreements? Is that a model we could be pursuing?

[Code Cubitt]

Just to clarify, you mean that the businesses create contracts a certain way and that the universities do it a different way.

[Lloyd Longfield, Liberal, Guelph, ON]

I'm thinking that the University of Guelph has developed a protein spray for cardboard. It went through a lot of research to do that. Businesses didn't ask for that, but, wait a minute, if I'm packaging breakfast cereal and I don't have to include bags in my cereal box, that would be very valuable for me, so I could pay the university a licensing fee for that. That's versus if I'm in the cereal box business, and I ask you to develop a protein spray for me and I will pay for the IP for that to be developed.

[Code Cubitt]

I see. I think it's a combination of both of those. I think the collision between academia and industry is a powerful one, because academia can have a much longer-term view and go much deeper on the research side. Industry, obviously, has a much more near-term focus on products and development, so I think there's a serendipity of long-term research, the curiosity of some professor, and then there's a practical notion. If you bring them together and industry says, “Look, here's my shopping list of these five things”, maybe there's a professor who says, “Hey, I know about that.” But at the same time there are four others who are doing something else that won't come to fruition—Geoff Hinton is a great example—for 30 years. We need to support both.