Public Accounts Committee on Nov. 16th, 2009

[The Chair, Liberal, Shawn Murphy]

At this time I'd like to call the meeting to order.

I want to extend a very warm welcome to everyone here.

This meeting is on chapter 2, “Intellectual Property”, of the spring 2009 Report of the Auditor General of Canada. It's very much a horizontal issue, colleagues, so we have a large number of witnesses here from various government operations dealing with the issue, which is the management of intellectual property on a pan-government basis.

First of all, from the Office of the Auditor General, we have Auditor General Sheila Fraser. She's accompanied today by John Affleck, principal. From the Treasury Board Secretariat, we have Daphne Meredith, chief human resources officer. From the Department of Industry, we have Paul Boothe, senior associate deputy minister. From the Department of Health, we have the deputy minister, Morris Rosenberg. From the Department of Fisheries and Oceans, we have the deputy minister, Claire Dansereau. From the National Research Council of Canada, we are very pleased to have the president, Pierre Coulombe.

Again, welcome to each of you.

We have opening remarks from six witnesses; we're going to start off with you, Madam Fraser, for five minutes, please.

[Sheila Fraser, Auditor General of Canada, Office of the Auditor General of Canada]

Thank you, Mr. Chair.

We thank you for this opportunity to meet with the committee today to discuss the chapter on intellectual property in our May 2009 report.

As you mentioned, I'm accompanied today by John Affleck, the principal who is responsible for this audit.

Intellectual property is important, and the federal government needs to pay attention to how well it is managed. The creation, development, and protection of intellectual property are critical early steps in the innovation process. The 2007 federal science and technology strategy, entitled Mobilizing Science and Technology to Canada's Advantage, recognizes that intellectual property is a critical component of the overall innovation system. Ongoing monitoring of the federal intellectual property regime is important to ensure that the intellectual property arising from federal investments in research translates into value for Canadians.

The federal government creates intellectual property in two distinct ways. It is created either internally by federal government employees during the course of their work or externally by contractors during contracting activities. This audit examined both of these aspects.

Our audit looked at how intellectual property is managed in three federal science-based organizations: the National Research Council, Health Canada, and Fisheries and Oceans Canada. We also looked at the roles played by Industry Canada and the Treasury Board of Canada Secretariat. The audit work was substantially completed by the end of September 2008.

In terms of the intellectual property that is generated internally, we found that the National Research Council had mechanisms in place to adequately manage its intellectual property assets, including an entity-wide intellectual property policy and mechanisms to identify intellectual property, while Health Canada and Fisheries and Oceans Canada did not.

We also looked at the Treasury Board of Canada Secretariat's Award Plan for Inventors and Innovators Policy, which is an important policy that provides incentives to government employees and encourages the commercialization of internally generated intellectual property. We found that the federal government did not know how effective the policy was nor whether it had the appropriate financial incentives in place. For example, the entities we audited did not give financial incentives for inventions used by the government. In addition, we looked at intellectual property that is generated by contractors during contracting activities.

In the past, the federal government retained ownership of all intellectual property resulting from crown procurement contracts. However, this changed in 1991, with the introduction of the Policy on Title to Intellectual Property Arising Under Crown Procurement Contracts, which allowed the contractor to keep ownership of the intellectual property developed through contracting activities. The rationale was to increase the potential for commercialization of intellectual property developed by a contractor.

This policy also provided exceptions for the Crown to retain ownership of the intellectual property, but only under specific circumstances. These exceptions were intended to ensure that the Crown's interest was protected. In 2000, the policy was revised to expand its application and to include greater reporting requirements in an attempt to monitor compliance with it.

We found that National Research Council Canada, Health Canada, and Fisheries and Oceans Canada did not accurately identify or report their intellectual property resulting from crown procurement contracts. For Health Canada and Fisheries and Oceans Canada, we found that these departments did not accurately justify when the Crown took ownership of the intellectual property and that they were not fulfilling their obligations as contracting authorities.

The federal government does not know if the objective of the policy is being realized. Industry Canada and Treasury Board of Canada Secretariat have not adequately monitored the application of the policy, with a focus on cases where exceptions were invoked.

In addition, Industry Canada and the Treasury Board Secretariat have not yet evaluated the policy on title to intellectual property. Preparations for an evaluation of the policy in 2011 are ongoing. Our audit work in the National Research Council, Health Canada, and Fisheries and Oceans Canada found that there were significant errors in the data due to a lack of understanding of intellectual property management. These errors will undermine a future evaluation of the policy unless data validity is established at the entity level.

We are pleased to report that all the entities have agreed with our recommendations. Health Canada has shared their action plan with us, and we believe it will address the issues raised in our chapter. The committee may wish to inquire about the actions taken by the other entities to respond to our recommendations.

This concludes my opening remarks. We would be pleased to answer any questions the committee members may have.

Thank you.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Fraser.

We're now going to hear from Mr. Paul Boothe, the senior associate deputy minister of the Department of Industry.

[Paul Boothe, Senior Associate Deputy Minister, Department of Industry]

Thank you, Chairman.

I will take a few moments to outline our plan to monitor and evaluate the government's Policy on Title to Intellectual Property Arising Under Crown Procurement Contracts.

That is the policy on title to intellectual property arising under crown procurement contracts—which is quite a mouthful, so I'm just going to call it the policy.

The policy was put in place in 2000 to increase the potential for commercial exploitation of IP developed by contractors involved in crown procurement contracts. It's our believe that the private sector is best placed to turn IP into commercial opportunities. As a result, the government retains the right to use the intellectual property but ownership resides with the contractors.

There a few exceptions. The government may retain ownership of the IP for reasons of national security; when statutes, regulations, and obligations preclude contractor ownership; when the contractor isn't interested in owning the IP; when the knowledge will be publicly disseminated; when the knowledge will be combined with other knowledge and then transferred to the private sector; and when the material is subject to copyright.

Departments can retain intellectual property ownership in other exceptional circumstances with the explicit approval of the Treasury Board.

This policy applies to all federal departments and agencies and to all contracts, be they for goods or services. Executive heads are responsible for ensuring that their organizations are in compliance with this policy. The Treasury Board Secretariat and Industry Canada are responsible for monitoring the application of the policy and for its evaluation.

In 2007, the Treasury Board approved a plan to evaluate the policy. It proposed, as a first step, measures to increase awareness and to collect more accurate data. Shortly thereafter, measures were put in place to ensure that departmental officials were aware of the policy and understood reporting requirements. Actions were taken to ensure more complete and accurate data collection in order to support an evaluation of the policy by 2011.

As a result of the work launched in 2007, data are now available for the 2008 calendar year from 80 departments and agencies. The government invoked its right to own intellectual property in 1,758 cases—that is, in contracts valued at over $25,000. The most common reason for retaining ownership was to respect a statutory, regulatory, or prior obligation requirement; to ensure the government's ability to disseminate the results publicly; and because of copyright requirements.

So in the first phase of this work, a more robust data collection system was developed. In the second phase, departments will take steps to ensure that they are in complying with the spirit and intent of the policy. For example, Industry Canada will assess each contract that invoked an exception to ensure that it was an appropriate application of the policy. In the third phase, Industry Canada and the Treasury Board Secretariat will engage an expert to evaluate the policy by the end of 2010, one year ahead of schedule, and we'll report the results to the Treasury Board.

Industry Canada and the Treasury Board Secretariat have tabled a management action plan, which provides a more detailed description of the activities we intend to undertake to carry out our responsibility to monitor and evaluate the policy.

We will be pleased to report to the Auditor General on progress annually and to answer any questions you may have on our proposed approach today.

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Boothe.

We are now going to hear from Daphne Meredith, the chief human resources officer with the Treasury Board Secretariat.

[Daphne Meredith, Chief Human Resources Officer, Treasury Board Secretariat]

Thank you, Mr. Chair, and thank you for your invitation to appear before the committee on the issue of the management of intellectual property in the Government of Canada.

I can assure you that the Treasury Board Secretariat and Industry Canada are working together to address the report's recommendations. You have just heard about the joint actions we are taking to monitor the application of the policy governing intellectual property that arises under crown procurement contracts, and its evaluation.

I will focus my remarks today on the role of my office within the secretariat with respect to the Award Plan for Inventors and Innovators Policy, particularly in the context of recommendation 2.33.

Mr. Chair, we have provided you with an action plan, jointly developed with Industry Canada, addressing the two recommendations involving the secretariat. We both agree with the Auditor General's recommendations and have collaborated on our responses. We committed to working together, as well as with other federal organizations, as needed, and we have done so.

As we stated, we will ensure that accurate data is collected to support the planned evaluation of the policy on title to intellectual property arising under crown procurement contracts, and that our assessments of intellectual property policies are coordinated and comprehensively address common issues, including the effectiveness of awards.

Let me turn to the award plan for inventors and innovators policy. One of the ways the Government of Canada encourages invention and innovation in science and technology in the public service and motivates inventors and innovators to pursue the commercialization of their ideas is to give awards to inventors and innovators.

Deputy heads have the authority to give such awards through the Financial Administration Act, sections 12(1)(b) and 12(2)(b).

Further, any minister may authorize the payment of an award to a public servant inventor by virtue of section 10 of the Public Servants Inventions Act.

The Award Plan for Inventors and Innovators Policy was intended to support deputy heads in this activity by providing guidance on methods of calculating amounts of awards to be given to successful inventors and innovators.

As part of the secretariat's review of all management policies, we have begun consultations with the interdepartmental science and technology community to determine whether the award plan for inventors and innovators policy is achieving its intended purpose, or if there could be a better way.

Early indications are that the functional community could be better placed to establish guidelines in relation to awards. More specifically, the Federal Partners in Technology Transfer Assistant Deputy Minister Committee may be best positioned to lead the development of these guidelines. That committee's secretariat has begun a consultation process to evaluate the options, which will be presented to that committee for its decision.

We think the guidelines set by this group may be a more appropriate instrument to ensure a coherent approach across federal science-based departments and agencies. This approach would have the added benefit of ensuring that deputy heads have the flexibility they need to address the unique needs and situations of their own employees.

Thank you. Of course I'll be pleased to respond to any questions from the committee.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Ms. Meredith.

We're now going to hear from Dr. Pierre Coulombe, president of the National Research Council of Canada.

[Pierre Coulombe, President, National Research Council Canada]

Mr. Chairman, members of the committee, thank you for the opportunity to speak to you about IP.

As Mrs. Fraser's report points out, the National Research Council is by far the federal government's largest producer of inventions. NRC's mandate is to transform science and technology into social and economic well-being for Canada. NRC does this by working directly with industry across Canada in sectors from aerospace and construction to bio-pharma and alternative energy. Indeed, NRC has done so throughout its 93 years of history.

Creating IP and extracting value from it for the benefit of Canadians is our main business line. So it was not unexpected to read in the OAG's report that NRC was found to manage its IP very well. I can assure you that this has not come about just by happenstance.

Rather, it has come about through years of deliberate investment, process improvement and by placing a high priority on getting results from the intellectual property we create. And we are not only strong in comparison with other producers of intellectual property in Canada, but we can also hold our own internationally.

At the NRC, we have deliberately invested heavily into the infrastructure that is essential for the management of intellectual property. We are unique within the federal government in that we have our own team of patent agents.

We have invested in expert business development staff throughout our organization. We also have set up a team of business experts, located in our new corporate business office, who are skilled in putting together the large and complex collaborations NRC is involved with.

Imagine the challenge of sorting out IP and business issues in an agreement involving three government departments, four universities, and five firms. NRC does this all the time because such large cooperative, multi-player collaborations are what drive science today.

We have also invested in training, orienting and rewarding our staff right down to the lab bench. Our intellectual property orientation course is given across Canada in all our labs. Our rewards and recognition programs, in particular, our royalties awards program, and our promotion system for researchers also place a premium on participating in commercially oriented activities.

We certainly have lots of successes to point to. However, a key question is, could NRC do better?

The OAG found that we rated high marks for how we handle the IP that our scientists create; however, we need to improve when it comes to identifying whether IP is expected to arise from procurement contracts. NRC agrees with the recommendation, and our procurement office is already working with our central business office to review existing procedures in this area with a view to implementing improved practices, training, and guidelines.

Over the years, NRC has worked hard not only to strengthen its own technology transfer activities, but also to show leadership in the federal community. We are the home agency for the Federal Partners in Technology Transfer, the umbrella organization that supports all technology transfer activities in the federal government.

To finish, I would like to say a few words about something that is of fundamental importance in looking at the strategic management of IP: the question of whether we are producing and protecting the right IP.

Disclosure review is a new tool, which the Office of the Auditor General found to be noteworthy and which we find very useful. Under this program, intellectual property and business experts carry out both patentability and marketability assessments at the stage when a scientist invents something. Even at this very early stage, we ask not only whether an invention could be patented, but also whether we should invest in protecting and perfecting it.

Our records show that we are very successful in creating value for Canadians from science and technology. Last year, we signed over 100 new licence agreements for technological innovations and generated close to $9 million in royalties. Our spinoff companies have attracted close to half a billion dollars in investment and accounted for over 600 full-time jobs.

A great example of this success is IMRIS, an NRC medical devices spinoff firm that develops interoperative magnetic resonance technologies, or MRI. Earlier this month, this Manitoba-based firm, which is traded on the Toronto Stock Exchange, reported third-quarter 2009 financial results highlighted by record sales and growth in revenues and profit.

In closing, NRC is committed to not only maintaining this record, but also improving it. Creating intellectual property, protecting it and transferring it—this is NRC.

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you, Mr. Coulombe.

Now we are going to hear from Morris Rosenberg, the Deputy Minister of the Department of Health.

[Morris Rosenberg, Deputy Minister, Department of Health]

Thank you, Mr. Chair, and good afternoon to you and members of the committee.

I want to thank you for the opportunity to provide an update on progress being made at Health Canada to address the Auditor General's recommendations regarding the management of intellectual property.

I first want to thank the Auditor General and her staff for their report. The consultations and recommendations have served to sharpen our focus at Health Canada on improving our processes in order to produce better results in intellectual property management.

At Health Canada, the research we undertake directly supports our role in policy and regulation to fulfill our mandate of helping maintain and protect the health and safety of Canadians.

While not a primary objective of this work, intellectual property can support our policy development and decision-making. Intellectual property arising from public investment is a public good, and we therefore have a responsibility to ensure that we have the policies and procedures in place to maximize its value to serve the public good.

We understand the need to improve our management of intellectual property, which is why we welcomed the Auditor General's recommendations. We have accepted all six recommendations pertaining to Health Canada, and we are now implementing an action plan to see them through.

We have shared our plan with the Office of the Auditor General. I would like to provide just a few of our plan's key highlights.

First, our plan puts strong emphasis on training managers and procurement specialists so they will be well equipped to identify and properly report on intellectual property expected to result from contracts. We've already developed a standardized procedures package for officials dealing with procurement, one of which focuses on application and reporting of intellectual property in contracts.

In addition, we are committed to providing enhanced training to cost centre managers in the fourth quarter of this fiscal year. For example, we are introducing a mandatory questionnaire on intellectual property as part of a manager's training. This will raise the awareness of managers concerning their obligations regarding intellectual property. As well, a section on intellectual property will form part of the contract review process within the department.

Second, the Office of the Auditor General recommended that we develop a department-wide intellectual property policy. Work has started on advancing our existing draft policy on internally generated intellectual property. We're working to ensure that this policy will meet Health Canada needs before putting it in place throughout the department. The policy is due to be implemented in the next fiscal year. This is an important initial step in meeting the Auditor General's recommendation.

In closing, I'd like to reiterate my commitment to implementing our plan to make sure that Health Canada has the processes and procedures in place to manage intellectual property.

I'll be pleased to answer any questions members may have today.

[The Chair, Liberal, Shawn Murphy]

Thank you very much, Mr. Rosenberg.

Last, we are going to hear from the Deputy Minister of Fisheries and Oceans, Claire Dansereau.

[Claire Dansereau, Deputy Minister, Department of Fisheries and Oceans]

Thank you, Mr. Chair, for the opportunity to provide you with information on the progress that Fisheries and Oceans Canada (DFO) has made since receiving the Auditor General's report concerning intellectual property. We at DFO recognize that intellectual property developed by and for the department can contribute to Canadian innovation, which can provide both social and economic benefits to Canadians. We thank the Auditor General and her staff for their work.

First, let me say that a very large portion of the science and technology performed by the department is used to support its regulatory mandate. As such, it contributes indirectly to economic prosperity in the maritime, fisheries, and aquaculture sectors. In fact, a large portion of the departmental scientific output has traditionally focused on management of the fisheries and of the oceans rather than commercialization per se.

That being said, DFO fully agreed with and welcomed the Auditor General's recommendations on how to better manage intellectual property. We responded with a specific action plan to address those recommendations, all six of which were accepted by us. The plan is premised on developing a comprehensive departmental intellectual property policy and creating an office dedicated to its management.

I want to emphasize that while the department did not have a department-wide intellectual property policy, as identified by the Auditor General, it did manage its intellectual property assets. Many of its inventions and innovations were successfully commercialized for the benefit of Canadian industry and Canadians. Several continue to perform extremely well in the marketplace.

I'm glad to report that since the release of the Office of the Auditor General's results, two department-wide policies on intellectual property have been developed. The first is a policy for the management of intellectual property. The second is for the payment of incentive awards to DFO employees who contribute to the successful commercialization of intellectual property.

Both of these policies were referenced in our action plan. They demonstrate our progress to date on enhancing our IP management. Clearly, next steps will be required in training and education of our people and in establishing appropriate guidelines.

An intellectual property office will be set up over the next few months to address the issues of education, training, and implementation. It will serve as the centre of expertise for the department's intellectual property management. It will guide and support implementation of both policies within existing resources.

The IP management policy provides specific measures and procedures to address the problems identified in the Auditor General's report, starting with the consolidation of existing IP management expertise as a foundation for the IP office. The IP office will launch a department-wide awareness campaign on the IP policy. It will include information bulletins, face-to-face discussions, workshops, and training.

We will ensure that staff and management understand that reporting intellectual property is an obligation and a first step to good IP management. In the process, a department-wide network will be set up to assist the IP office in ensuring that the IP management principles and the procedures in the policy are followed.

Beyond delivering on our departmental commitments to the Auditor General, the new DFO IP policy also provides a solid framework to manage activities involving intellectual property by people and organizations other than DFO employees, including that which is produced in the context of partnerships with the private sector, by DFO's many volunteers, by visiting scientists, and so on.

I strongly believe that the identification of intellectual assets is the first step to rigorous IP management. Therefore, the new policy underscores the obligation of staff to report on all intellectual property they create.

To conclude, I want to assure you that the Department of Fisheries and Oceans has taken the recommendations of the Auditor General very seriously. We have already implemented several steps towards enhanced accountability and improved management of our intellectual assets for the benefit of Canadians.

As the department's chief accounting officer, I am committed to the new policies and will be asking senior departmental staff to report to me on compliance.

Thank you, Mr. Chair.

[The Chair, Liberal, Shawn Murphy]

Thank you, Madam Dansereau.

We're now going to go to the first round of eight minutes.

Mr. Lee, you have eight minutes.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Thank you.

This is kind of a dry subject until you get into the NRC's envelope, where they're talking about actual widgets and aerospace designs and things, so I can understand that when the Auditor General comes knocking, asking if anybody's home, there's nobody home.

Anyway, I congratulate the department on responding. It sounds like everybody's in agreement.

For the record, can I get an example? I don't know who to direct this to. I'm not going to ask a question; I'm just going to ask for verification. When all the witnesses talk about IP, they're talking about patents, industrial processes, copyright, and industrial design. Is there anything else?

Have I missed anything, Ms. Dansereau?

[Claire Dansereau]

We use data sets as well. We gather a lot of data.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Data sets? Okay. Good.

Now, are we talking about the same set of rules and policies for dealing with employees of government and actual government departments as we are for contractors? Or is there a different set of policies in terms of recognizing the intellectual property in the timing that it's recognized or the way it gets recorded as an asset?

Could I direct that to Industry Canada?

[Paul Boothe]

Basically the policy we're talking about here is around what happens when we have a contract with a private sector contractor and some IP is created.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Okay, so that's with a contractor. I understand that envelope.

[Paul Boothe]

That's right.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

What about employees of government?

[Paul Boothe]

With employees of government, it's a different policy.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Okay. Do you know how that operates?

[Paul Boothe]

Yes, I can say a couple of words about it.

[Derek Lee, Liberal, Scarborough—Rouge River, ON]

Okay, fire away.

[Paul Boothe]

Basically the intellectual property belongs to the crown, but we have an awards program that is used to encourage public servants to do that.

Maybe I could just give you an example. Not all the great inventions come from the NRC, although many do.

In Industry Canada we have something called the Communications Research Centre at Shirleys Bay. You may have heard of it. It has won two Emmy awards for work on high-definition TV. It generates about $1.5 million a year in IP revenue, and through the awards policy we have awarded about $375,000 to current and past scientists working there.