Industry Committee on June 15th, 2017

[The Chair, Liberal, Dan Ruimy]

Welcome, everybody, to meeting number 68 of the Standing Committee on Industry, Science and Technology. Today we are continuing our study of intellectual property and technology transfer.

Today we have with us from Mistral Venture Partners, Code Cubitt, managing director. We have from North of 41, Jeff Musson, executive director. From Universities Canada, we have Pari Johnston, vice-president, policy and public affairs; and Wendy Therrien, director, research and policy.

We're going to get started with Mistral Venture Partners. You have up to 10 minutes.

[Code Cubitt, Managing Director, Mistral Venture Partners]

Thank you. I'll read my prepared remarks.

Thank you sincerely to the committee for inviting me to share my views today. The subject on the table, technology transfer, is an area where I have deep interest, many years of experience, and a strong desire to see improve.

I've been an entrepreneur and a technology industry participant for more than 25 years. I began my career at IBM in Toronto before moving to the United States in 1997. Since that time I've been a founder of three venture capital-backed technology companies as well as an investor in 38 other companies. In total, the companies I've been a part of have gone on to create more than $2.5 billion in enterprise value.

I moved back to Canada in 2013 with my family to settle here in Ottawa, and I'm currently the founder and managing director Mistral Venture Partners. Mistral is a Canada-based venture capital firm focused on making investments in early-stage Canadian companies, including a number that were developed, at least initially, at Canadian universities.

We currently manage a little over $50 million on behalf of more than 60 investors, and we've made 16 investments to date. One of the main reasons I moved back to Canada from California—beyond the weather, of course—was a personal desire to participate in the entrepreneurial ecosystem in my home country. After working for many years in the United States, it became increasingly clear to me that, for Canada to remain competitive globally, it would be critical that we embrace entrepreneurship and innovation.

Foundational technology developed by university-led research is one of the strongest assets we have to compete in this age of global innovation. Careful consideration of how best to spend public investment dollars should be a top priority for Canada to ensure we remain competitive and growing on the global stage.

In my view, the challenge we have—or better said, the opportunity—is that between $6 billion to $10 billion is spent annually for research initiatives at Canadian universities, while only about $60 million in IP licensing income is received. By contrast, the total licensing income related to technology transfer from universities in the United States in 2015 was $2.5 billion. That's nearly five times as much as Canada on a per capita basis.

The University of Utah was recently ranked the top technology transfer university in the United States by the Milken Institute based on a number of quantitative measures. The most interesting result in my opinion is that they have been able to average $136,000 in licensing revenue for every $1 million of investment over the past four years. I estimate Canada's equivalent metric to be between $8,000 and $10,000 per $1 million of investment spent.

In an effort to propose specific and concrete ideas on how we can improve our system here in Canada, I suggest the following list as a starting point:

One, legislate that a specific percentage of research dollars given to universities be directed solely to technology transfer activities. As a starting point, I would suggest between 0.5% and 1%.

Two, I would share licensing income with the professors and students in such proportion as to attract the brightest minds from a global pool.

Three, I would streamline technology transfer as much as possible across the country to minimize the friction, i.e., reduce the learning curve for market participants to find and buy technology. Specifically, I would create a standard equity template or royalty model and avoid one-off agreements that only seek to optimize returns that are perceived to be of higher value.

Four, I would weave tech transfer success metrics into the tenure decision process, the goal being to attract and retain world-class talent and to focus research on areas of commercial promise.

Five, and maybe this should be number one, measure and publish the results of university technology transfer across common metrics, normalized by the amount of research dollars spent. These metrics might include things like patents issued, IP licences contracted, or the number of start-up companies created. Over time, this market-driven force will more efficiently allocate research spending dollars. The competitiveness of Canadian universities can be measured by their output, patents, licences, and start-ups created relative to the input of research expenditures.

Public and private university research provides fertile soil from which foundational technology germinates. Efficiently nurturing these seeds of innovation is the key to fostering technology-based economic development. Other critical ingredients are necessary as well, including the creation of the highly trained human capital that industry desires, as well as the structures and methods by which innovation can move easily from the lab to the factory.

There are a myriad of ancillary and multiplier effects to foundational research, including the creation of middle- and high-skill jobs through commercialization and technology transfer. This is why your focus on this topic will provide real leverage for the Canadian economy.

Thank you very much.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to move to Mr. Musson from North of 41.

[Jeff Musson, Executive Director, North of 41]

Good morning.

First of all, I want to thank the committee for holding these hearings to address the important issue of intellectual property and tech transfer. As a tech entrepreneur, I can tell you this is long overdue. I appreciate being given the opportunity to speak here today.

In addition to being the executive director of North of 41, I'm also the president and CEO of a software company called Dynamite Network, based in Toronto. We build software for companies and focus on artificial intelligence. As a company, we've partnered with academic organizations and institutions over the years, including the University of Western Ontario, the University of Waterloo, and the University of Toronto. We've also partnered with colleges such as Niagara College and Sheridan.

We have received funding, both federally and provincially, so I feel that I have a unique perspective to bring to this committee because I have first-hand knowledge as to the positives and negatives in the area of IP and tech transfer.

As I said, in addition to running Dynamite, I'm also the executive director of North of 41, which is a tech-based organization with over 12,000 members. The organization's membership base is comprised of tech entrepreneurs like me, whose companies are in the hypergrowth phase of their business life cycle.

As part of the organization's mandate, North of 41 hosts programming for its members through various events, everything from tech-focused round tables to—and I see some familiar faces—hosting Tech Day here on Parliament Hill, which we did last May and will be doing again this October.

As part of that Tech Day initiative, North of 41 recently launched an online platform called the “Canadian innovation town hall” to encourage communication between all levels of government, bureaucrats, and tech entrepreneurs. The purpose of the online portal is to allow political stakeholders unfiltered access to tech entrepreneurs in an ad hoc industry advisory capacity.

This summer, North of 41 will also be releasing its research paper, “Innovation to Prosperity”, which discusses and provides recommendations in order to improve and support Canada's innovation policy.

There are five key areas that this committee has chosen to undertake. I'm here today to focus specifically on item number three, which was identifying incentives for researchers to register intellectual property, and item number four, incentives and practices for the private sector to identify and utilize post-secondary intellectual property.

I've been following the hearings closely, and I wanted to say I agree with one of the presenters who said a couple of weeks ago that we should “look at this as knowledge transfer as opposed to tech transfer”, because that's in essence what it is.

To give some current context in terms of the tech industry, in order for Canada to have a prosperous tech sector and to compete on the global stage as a country, we must have a robust and effective intellectual property program. It must allow for industry and academia to both achieve their objectives and at the same time increase the overall knowledge base of the tech sector. It's imperative for all stakeholders to be rowing the boat, as they say, in the same direction.

The size of Canada's tech sector is relatively small when compared to other jurisdictions around the world. Having said that, as a country, Canada punches above its weight class as it relates to the tech sector. To put it into context, I remind people that the entire population of Canada is equivalent to the total population of the State of California, yet despite our relatively small size, we've developed expertise in specific areas such as cybersecurity, artificial intelligence, fin tech, and biotech, just to name a few.

Being world leaders in these areas allows Canadian tech entrepreneurs to compete on the world stage. No longer is it Canadian tech entrepreneurs versus Canadian tech entrepreneurs. It's Canadian tech entrepreneurs versus the world. In this country, intellectual property can be considered the digital resource of the new Canadian economy. Just as Canada's natural resources are viewed as a national asset, so too should tech sector innovation.

Our North of 41 group has identified two areas we need to address. The first is cost as it relates to preparing patent applications. The second is a need to have a central registry for post-secondary R and D for industry entrepreneurs to access.

I'm a graduate of Osgoode Hall Law School. I'm considered a tech geek with a law degree, so I'm a unique individual.

I know I'm going to anger some of my former classmates when I say that the costs associated with filing for intellectual property protection have never been higher. This limits the filing of any IP protection to those with significant financial means, and it presents a problem because typically the entrepreneurs who are developing groundbreaking new technology do not have large sums of money to spend on IP protection.

I've filed a couple of patents myself, so I've gone through the entire process, and it is not an easy process. I think it would be made easier with some changes. Currently, when it comes to filing patents, most entrepreneurs are faced with the choice of spending financial resources on IP protection or taking those same resources to further their tech development. The general consensus among tech entrepreneurs in our North of 41 group is that technology changes so quickly that, by the time a patent is filed, reviewed, and issued, the technology in most cases is obsolete. Further, if a patent is in dispute, the cost and time to litigate far exceeds any monetary settlement. In order to encourage the filing of IP protection and therefore increasing the book value of innovation by Canadian tech entrepreneurs, the system of filing patents and adjudicating disputes must be streamlined.

In addition to cost, there's a need for industry to understand areas of R and D that the university and colleges are doing. I'm sure within the government setting there is a register, but it's not something that's easily accessible by industry.

Knowledge transfer is also a concept that must be embraced between industry and academia. Traditionally, academia has a strong track record of developing innovative technology, and conversely, a weak track record of commercializing it. One of industry's strengths, on the other hand, is commercializing and getting the technology to market. Having a free flow of knowledge transfer is critical for Canada's innovation economy to prosper. A patent is virtually worthless unless there is a path to commercialization. Job growth only occurs if technology is commercialized. Once that technology is commercialized, only then are companies able to scale it out, which in turn leads to job growth in the tech sector. There needs to be better communication between those who are creating technology and those individuals who are looking at commercializing opportunities.

In terms of the government's role, I believe the government's role is to bring the parties to the table, not to try to do the work of academia or industry. Instead, government must create an environment that will allow innovation to flourish. Government's role is not to pick the winners or losers; neither is it the role of academia or industry. In fact, this is the role of the marketplace. From a global perspective, Canada's tech industry has a very good reputation and has all the necessary attributes to compete on the global stage, but we must act now in order for it to continue to grow.

Those are my opening remarks. I look forward to answering any questions that you may have.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to move to Pari Johnston.

You have up to 10 minutes, please.

[Pari Johnston, Vice-President, Policy and Public Affairs, Universities Canada]

Thank you very much for the opportunity to be here today. I will also read from some prepared remarks.

On behalf of 96 Canadian universities, I am pleased to have the opportunity to participate in the committee's consideration of issues related to intellectual property and technology transfer in post-secondary education. We have submitted a brief to the committee in both official languages.

Universities stimulate knowledge mobilization by training talented graduates, publishing open access articles, creating and testing data stemming from public research, creating high-tech startups, and through new technologies and research solutions that benefit large and small businesses.

Our universities, here in Canada, conduct 41% of the country's research and development and are key partners in industrial innovation. They conduct over $1 billion in research for the private sector annually.

There is no single path for innovation and no magic bullet to achieve innovation. Each region and sector will require a unique mix of collaborations between universities, government, private and non-profit sectors. At the centre of this innovation ecosystem is federal support that facilitates dynamic partnerships with flexible IP arrangements. Since innovation takes many forms, Canada needs a policy ecosystem that is flexible and diverse.

Universities Canada welcomed the $950 million over seven years in budget 2017 for innovation superclusters and the requirement for industry partnership with post-secondary institutions.

Our country has long been able to bring together those two sectors through initiatives that benefit Canadians, such as the Consortium for Research and Innovation in Aerospace, or CRIAQ, a Quebec non-profit organization that includes 21 academic institutions and 57 companies. It provides an exceptional intellectual property agreement whereby industrial partners receive an exclusive royalty-free license. The organization estimates that companies see a $1 return on every 25¢ invested.

Other initiatives drive regional economies. The Centre for Hybrid Automotive Research and Green Energy is an industrial-scale research and development lab at the University of Windsor. It transfers electrified vehicle technology to local industry partners at globally competitive levels.

Our universities' willingness to share is a unique asset to help drive innovation. Open innovation provides the private sector with quick access to the results of federal investments in discovery science and can encourage its commercialization. The University of Toronto's structural genomics consortium, which includes nine major pharmaceutical companies and collaborators worldwide, freely discloses the results of its work to the international health care community, leading to the creation of many Canadian companies.

Canadian private sector investment in R and D continues to decline compared to that of other countries in the OECD. From 2006 to 2014, our global ranking in business expenditures in R and D dropped from 18th to 25th. Open science could be part of the solution to combat this trend and encourage Canada's private sector to pull more IP from universities.

Today, I'd like to make four recommendations to the committee that would help grow Canada's innovative capacity and strengthen our IP landscape.

First, Canada’s research ecosystem is fertile ground for tomorrow’s leading market innovations. Government action in budget 2018 on the recommendations of the April 2017 fundamental science review panel will be a critical next step in unlocking Canada's innovative potential for commercialization and knowledge mobilization. This panel of eminent Canadians, which includes some of our top business leaders, makes it clear that significant reinvestment in basic research is critical and foundational to driving innovation in this country.

Our second recommendation is to maintain space for universities to have flexible IP policies. Canadian universities use a range of IP policies, from creator-owned to institution-owned, with most adopting some hybrid of the two. There is no one best way to do innovation, and both types of policies can drive patents and commercialization. For example, the creator-owned policy at the University of Waterloo has helped make the region one of the most dynamic areas in Canada for start-ups and high-tech growth, while UBC's institution-owned policy recently allowed it to license a promising new treatment for prostate cancer to the pharmaceutical giant Roche.

Flexibility allows universities to modify their strategies, depending on regional, sectoral, and partners' needs. Fully harnessing the potential of university R and D to meet the diversity of business needs means our institutions must maintain policies that are open to risk and experimentation.

Our third recommendation concerns strategic funding. While the innovation activity produced by our universities continues to increase, its growth slowed considerably after the loss of the intellectual property mobilization program in 2009. This was a tri-council initiative designed to encourage the sharing of expertise between university tech transfer offices. It led to a number of enhancements in the Canadian IP ecosystem. Its termination resulted in a loss of technology transfer staff across Canada and a loss of substantial national expertise on university best practices related to IP.

Like other innovation nations in the OECD, Canada would benefit from a stand-alone fund dedicated to catalyzing knowledge mobilization from universities for economic and social benefit.

Finally, we recommend that the government catalyze the creation of a national IP concierge service. This national hub could coordinate tools and initiatives that promote knowledge mobilization from all sectors, including universities. Services could include a database of pro bono legal services with IP expertise and a suite of template agreements demonstrating best practices in university business negotiation, such as the Lambert Toolkit in the United Kingdom, or the Australian IP Toolkit for Collaboration.

In closing, I want the committee to know that we are interested in working with you to establish recommendations in order to leverage academic knowledge and foster innovation and economic growth. Universities, in partnership with the government, private and non-profit sectors, as well as international collaborators, have an important role to play in building a better Canada for all Canadians.

I look forward to discussing this with you soon.

Thank you very much.

[The Chair, Liberal, Dan Ruimy]

Thank you very much. It's very exciting testimony today.

We're going to move right into questions.

Mr. Arya, you have seven minutes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

I thank all the witnesses for appearing today. A special thanks to my friend Code Cubitt.

Code, I'll start with you. I think you mentioned that universities in the U.S. earn about $136,000 for every $1 million invested. The comparable number in Canadian universities is just $8,000 to $10,000 for every $1 million invested. Is that correct?

[Code Cubitt]

That's correct.

[Chandra Arya, Liberal, Nepean, ON]

The technology transfer from universities to industry, how can it compare? Can it compare between the U.S. universities and the Canadian universities?

[Code Cubitt]

The simple answer is I'm not sure why you wouldn't compare. It's a global economy. Those universities are the same as ours. The University of Utah receives about $400 million a year in research spend—

[Chandra Arya, Liberal, Nepean, ON]

My question is, how easy or how difficult is it for the U.S. universities to transfer technology to industry compared to Canadian universities?

[Code Cubitt]

I don't accept the premise. It's a university. This is Utah, right? We have the University of Toronto, in the fourth largest city in North America. Utah is in the middle of nowhere and they're able to produce $52 million a year in licensing income. We can do that as a country. Utah is number one and Stanford's number four, so there's a long way to go from here to there. I just don't see why they'd be any different at all.

[Chandra Arya, Liberal, Nepean, ON]

Ms. Johnston, I have a question for you. How much do you think the Canadian universities are earning out of this technology transfer or licensing of IP rights?

[Pari Johnston]

I was listening to my colleague, who mentioned the number of $60 million. We'll confirm those numbers, but I don't have that, exactly, at the moment.

[Chandra Arya, Liberal, Nepean, ON]

If you could, please send it to the clerk so that we'll get it.

[Pari Johnston]

Certainly, yes.

[Chandra Arya, Liberal, Nepean, ON]

Thank you.

Ms. Johnston, the research and innovation done by universities, most of that is funded by taxpayers' dollars. Sometimes industry also participates in research and innovation. Whenever an industry is a participant in any innovation, why shouldn't we just transfer the intellectual property to that industry so that they can monetize it? Why should universities hold onto those IP rights?

[Pari Johnston]

As I was alluding to in my opening remarks, certainly our experience and that of our member institutions is that the flexibility to be able to be responsive to the various needs of different sectors and different regions requires an approach whereby, in some cases, the institution and the faculty maintain the IP rights, and in other cases—

[Chandra Arya, Liberal, Nepean, ON]

Excuse me, they're not used by the industry. That's what we are hearing. Most of the IPs are not getting used by industries because they're getting hoarded by the universities. Why hoard it? Why don't you let the industry use it? After all, it's funded with public money.

[Pari Johnston]

I don't think it's a question of not letting industry use it. There are certainly many instances where there are university-owned IP rights—I was citing the example of the University of British Columbia, which has an institution-owned policy—but it's certainly working to license and engage with industry on a daily basis.

What we're saying is that the opportunity to have a range of approaches is, in fact, what's needed to promote innovation in different sectors and regions.

[Chandra Arya, Liberal, Nepean, ON]

Obviously, it is not working right now.

I'll go back to you, Code. What is your experience in negotiating technology transfer agreements with universities in Canada, and how does that compare to the U.S.?

[Code Cubitt]

I've had three specific experiences with universities in Canada and none have been good. I can tell you that in our portfolio, our Canadian portfolio, which includes some U.S. companies, we have three university-led initiatives that we've licensed out of the universities in the United States.

The way I think about it is venture capital is a lot like the government spending money on universities. We invest in technology creators, and then we hold them accountable, and we expect a return on that investment. The Government of Canada should have the same philosophy when it's spending money on universities. There should be a measurement. There should be accountability.

[Chandra Arya, Liberal, Nepean, ON]

That's good.

I think that in the fifth point in your presentation you mentioned the metrics that have to be there so that it is easy for us to track what is happening. Can you expand on that, please?

[Code Cubitt]

At the end of the day, the input into the universities from the government is cash. That cash is used to do fundamental research. I would allow that not all fundamental research should or could be commercialized. It's probably 10%, 15%, or 20%. The money is going in, but the question is how to measure the productivity of those universities and of that spend. Three simple metrics that I would suggest are the number of start-up companies created at each university, the number of licences consummated, and the dollar amount of those licences. That's a simple way of measuring, quantitatively and not qualitatively, across universities. You can normalize that by the number of dollars that go into each university.