Science and Research Committee on March 7th, 2023

[The Vice-Chair, Conservative, Corey Tochor]

I call this meeting to order.

Welcome to meeting number 32 of the House of Commons Standing Committee on Science and Research.

Today's meeting is taking place in a hybrid format pursuant to the House order of June 23, 2022. Members are attending in person in the room and remotely using the Zoom application.

Today, we are beginning our study of the support for the commercialization of intellectual property.

I'd like to make a few comments for the benefit of witnesses and members.

Please wait until I recognize you by name before speaking. For those taking part by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking. For interpretation on Zoom, you can select, at the bottom corner of your screen, English, French or floor. I will remind you that all comments should be addressed through the chair.

I now would like to welcome our witnesses to our committee.

Each of you will have five minutes. I will do my best to get your attention when you have roughly a minute left. If you could keep it within five minutes, that would be beneficial.

For opening statements, we'll first hear from Mr. McLean.

[Mike McLean, Chief Executive Officer, Innovation Asset Collective]

Thank you, Mr. Chair.

Thank you to the committee for the opportunity to speak today.

My name is Mike McLean. I'm the CEO of the Innovation Asset Collective, which is a not-for-profit funded by the federal government to improve the ability of Canadian companies to implement IP strategy and increase their freedom to operate. IAC is led by IP experts who help Canada's entrepreneurs and innovators develop the IP positions they need to compete on the world stage.

Canada faces an ongoing IP challenge. Despite being a nation of innovators, we remain poor owners of IP, which is the currency of today's global economy. Intangible assets, as a percentage of Canada's economy, have been shrinking since 2000. Patent applications from Canadian enterprises have declined on a per capita basis since 2005. Canada is struggling to create strategies driven by IP and data. This raises concerns about our ability to compete in the global ideas economy. The OECD shows that Canada is lagging other advanced countries, with a predicted per capita GDP growth of only 0.7% per year through 2030.

Traditional incentives to increase investment, such as lower interest rates or tax breaks, are ineffective in the knowledge-based economy as they do not account for the ownership of IP and the control of data, which is required to ensure that a firm's investments in R and D turn into new revenue.

IP and data are exclusionary assets used to limit competitors or to capture the financial benefits of innovation that come in the form of IP or data rents. You cannot commercialize what you don't own. Only companies with sufficient freedom to operate can be assured of capturing the high returns that deliver prosperity to Canada's economy. In comparison, many countries are implementing strategies to successfully commercialize innovation and build dominant IP positions that secure an unequal share of financial returns.

China recently released a 115-point plan, called the “Outline for Building a Powerful Intellectual Property Country”, which highlights the country's dedication to becoming an IP superpower. South Korea, France and Japan have each established sovereign patent funds to advance those countries' IP positions. Centralized IP resources such as those in Germany's Fraunhofer institutes and Singapore's IP Office help propel those nations to the top spots in global innovation rankings.

The Government of Canada has recognized a need for change and announced its IP strategy in 2019. This included a $30-million investment in a pilot project, which became IAC. During our time as a pilot program, IAC has gleaned valuable insights from the businesses that form our membership.

Canadian SMEs face challenges in developing self-sufficient IP positions. The first challenge is the time required to build such a position. A single patent can take four to five years to issue. Building a portfolio of rights requires a long-term investment.

A second challenge is the limited capacity of talent in Canada with the necessary expertise. The majority of IP professionals in Canada are focused on securing IP rights or litigating disputes related to those rights. Only a small minority understand the IP strategies and commercialization models that are required to create sustainable differentiation in international markets.

The final challenge is the expense. Companies with limited capital will often focus their spending on building and selling products, rather than on securing the IP needed to sustain profitable growth.

Fortunately, there are solutions to these challenges.

It is possible to build a resilient ecosystem that can improve the freedom to operate for Canadian companies until they have self-sufficient IP positions, increase the capacity for business leaders to build IP strategies and ownership positions necessary for commercial success, and help fund the consistent activity needed across the board. Investment in collective approaches rather than individual firms is part of creating this resiliency.

IAC is proud to play a role in testing and implementing some of these concepts. We are building a patent collective that will protect Canadian clean-tech companies and increase their freedom to operate as they grow and access new markets. We have also sourced IP insurance to cover costs to defend or enforce IP rights. IAC's collective model allows Canadian innovators to access much-needed IP resources and cost savings.

To continue building the capacity of Canadian innovators and entrepreneurs also requires IP education that is focused on IP strategy and building capabilities within businesses to commercialize IP. We need to build IP-savvy business leaders. Programs like those funded by ElevateIP and IRAP's IP assist, or those built by IAC or IP Ontario will move this process forward.

Complementary to IP education is access to IP funding to encourage capital-constrained innovators to consistently act to secure the IP needed to scale their businesses.

Efforts are under way at the federal, provincial and regional level to help improve Canada's IP capacity. However, the investment in these programs is extremely limited compared with the billions of dollars spent annually on innovation. These programs require funding at an increased scale and the will to sustain them over the long term in order to deliver a systemic impact on Canadian prosperity.

Coordination and collaboration across these efforts is also needed to maximize impact for Canadian companies.

Canada has some of the best talent and expertise in innovation and an enormous opportunity to advance this country's economic growth, but the window of opportunity will not be open forever. We must act quickly to establish the strategies and infrastructure that are needed to prosper in a global ideas economy.

Thank you.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much for that.

Now we're moving to our next presenter for five minutes.

Go ahead, please, Mr. Binette.

[Louis-Félix Binette, Executive Director, Mouvement des accélérateurs d’innovation du Québec]

Thank you, Mr. Chair.

I'd like to thank the committee members here today.

I am pleased to be here to discuss support for the commercialization of intellectual property.

However, as far as the biggest challenges facing society and the planet go, I think the real question we need to answer is this: In the years to come, will Canada be a net consumer of innovative solutions produced and invented elsewhere or a net exporter of solutions developed here?

What I want to talk about today is the role that an entrepreneurial vehicle like a start‑up can play in that very race and the conditions required for that strategy to be successful.

First, I'd like to tell you a bit about Mouvement des accélérateurs d'innovation du Québec, or MAIN for short. MAIN is a not-for-profit organization established in 2016 by business accelerators and incubators. MAIN's mission is to strengthen the capacity of the start‑up support ecosystem and exponentially increase its impact on the innovation development cycle.

We believe that start-ups don't succeed in a bubble. They are able to compete and thrive internationally because they grow within a supportive ecosystem that provides resources, networks, expertise and more. Our organization's goal is to ensure that every start‑up anywhere in Quebec has access to the best available resources as early as possible to help it develop and grow.

In addition to fuelling this vast ecosystem, we undertake accelerator support projects across Quebec, taking into account geography and the diversity of ecosystem actors. We do that in partnership with a growing number of accelerators, incubators and other business support organizations, as well as mentors, experts and other consultants. We also forge strategic alliances with other national entrepreneurship organizations. It is our belief that, if more Canadians are going to launch start-ups, we need more entrepreneurs. As the steward of Quebec's ecosystem, MAIN is one of the five Canadian recipients under the Government of Canada's ElevateIP program, and we are very proud.

Before I go any further, I want to take a moment to clearly explain what a start‑up is. Here is the simplest definition: an innovative company with high growth potential. In French, we sometimes call a start‑up a “jeune pousse”. The difference between a start‑up and a more traditional new company is that it focuses entirely on innovation in developing a product, service or business model, to quickly break into a market with huge potential.

Usually, start‑up entrepreneurs and their initial investors spend considerable time and energy, not to mention huge amounts of capital, before turning a profit. It often takes years of spending and investment before a start‑up sees a single dollar in profit. In many cases, a start‑up even loses money on its first sales; not until the start‑up scales its product or service does it have a shot at becoming profitable.

It is widely recognized that numerous companies within the start‑up ecosystem will never achieve the profitability and growth stage. That goes with the territory. They will never make it out of the “valley of death”, as it's known. A start‑up is a unique vehicle and approach when it comes to entrepreneurship. A start‑up is where innovation and entrepreneurship meet, in the space between research and action. All start-ups are a gamble. In betting on them collectively, we accept that not all our gambles will pay off, but we are looking for a few big wins that will ensure a return on all of our investments.

Luck inevitably plays a part in a start‑up's success, especially timing in terms of when the company is launched, how long it takes to access the market, and what the geopolitical, socio-economic or health situation is. We do, however, have some levers at our disposal to improve a Canadian start‑up's odds, not the least of which is intellectual property.

In Canada, we excel at innovation, but our capacity to commercialize that innovation hampers our competitiveness on the world stage. We don't claim to have all the answers as to why that gap exists, but one of the things we've heard from companies is this: protecting their intellectual property is a cumbersome and expensive administrative undertaking with little short-term gain. Another reason for the gap may have to do with how hard it is to get intellectual property out of public educational institutions, where it is trapped.

Development organizations all over Canada, like Quebec's newly created Axelys, are working very hard to overcome that, but the fact remains: obtaining or being granted a licence for intellectual property developed in the research lab of a public educational institution is time-consuming, expensive and frustrating. Oftentimes, the process leads to a dead end.

Let's look at the positives. Canada ranks well globally when it comes to patent activity, although my colleague here showed that the situation was different in the last few years.

Owning a lot of sneakers obviously doesn't make you a good runner.

Innovation is measured in market share, not patents. Over the past few years, all of Canada has stepped up efforts to commercialize innovation better.

Take Quebec, for instance, with the creation of Axelys and the launch of the Quebec strategy to support research and investment in innovation—representing huge investments in the entire innovation cycle.

Consider the steps taken by the federal government, in particular, the strategic innovation fund, the intellectual property strategy—which combines IP assistance with the industrial research assistance program administered by National Research Council Canada—the ExploreIP online resource, ElevateIP funding and the recent creation of the Canada Innovation Corporation.

[The Vice-Chair, Conservative, Corey Tochor]

I'm sorry, but we are going to have to cut that off. You're over the five-minute mark.

[Louis-Félix Binette]

I'm sorry. Thank you.

[The Chair]

We'll now go to our first round of questions. It will be a six-minute round.

[The Vice-Chair, Conservative, Corey Tochor]

To kick us off, we have MP Williams.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair.

I want to start by thanking the committee for agreeing to undertake this study. I think it is very pertinent right now. It is very important to Canada.

Number one, when we talk about IP commercialization, we're talking about the economy, good-paying jobs and wealth. However, there is another side. We're even looking at national security and protecting Canada's knowledge—the currency of innovation, as Mr. Binette noted. In today's Globe and Mail, there was a good comment by Senator Colin Deacon, who noted that, over the past 20 years, the portion of Canadian-invented patents transferred to foreign firms has tripled from 18% to more than 50%.

Today, it is very pertinent to start this study. Hopefully, I speak on behalf of most of the committee when I say we're looking forward to the recommendations, in order to ensure Canada is capitalizing on IP.

This is for both gentlemen. I'm going to start with Mr. McLean and then Mr. Binette. Based on the work of their organizations, what is the single biggest roadblock for SMEs trying to commercialize their IP? In your opinion, how do we fix it?

[Mike McLean]

For me, the largest roadblock is the lack of understanding about IP strategy and approaches to capture and commercialize IP. Canadian companies do not have access to role models or peers who understand these issues. Our economy has been dominated by resource companies and financial institutions for a long time. Until recently, those businesses have not needed to build strong IP positions in order to succeed.

Our technology and knowledge-based companies, however, do. They don't have access to the right talent sets, peer groups and networks to build those capacities and understand those businesses. We need to build institutions and role models that can help drive that change and build successful companies that can then spawn others.

[Louis-Félix Binette]

I can complement this, because I agree with Mr. McLean's comments. From the point of view of start-ups, most early-stage companies—let's say pre-launch—are cash-strapped. They evolve, but there is less loose cash in Canada than in other markets.

The difficulty in protecting IP going to market will lead start-up entrepreneurs to make decisions based on having very little available cash in the early stages of companies. That is a disadvantage compared with start-ups in other ecosystems, which might have more access to early funding before their launch phase—their seed phase.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Mr. Binette, one statistic we look at compares us with the United States, which is probably one of the best in the world for IP generation—the United States and China. In 2019, the U.S. had 169 times the IP generation Canada did. We did around $39 million, and they did almost $6.6 trillion.

What is the U.S. doing that we aren't, in your experience?

[Louis-Félix Binette]

From what I can see, it's this. Someone out of a U.S. university can come up with an idea, through a little research they did in a lab, and say, “I could turn that into a company, if I had the money.” Based on that, they can raise $1 million—no questions asked—and start exploring how they can take that knowledge out of the university and turn it into a company.

You can't do that here. It happens, but it's on an exceptional basis. That, for me, is a real difference. That first $1 million is how you explore the fit between knowledge and an eventual market.

[Ryan Williams, Conservative, Bay of Quinte, ON]

How does venture capital in Quebec compare to, say, the U.S.? Can you comment on Quebec, or maybe Canada, and our venture capital environment or infrastructure?

[Louis-Félix Binette]

Venture capital is the same from coast to coast to coast. Venture capital in Canada will come in once you have a product. If you've started commercialization, you've already shown the market will buy your product. Venture capital starts at the seed phase. Pre-seed funding is very rare, and there is very little what we call friends, family and fools money. These are people who are willing to invest very early on based on an idea. Of course, the risk is greater, but that's why we call it capital de risque or venture capital.

The way venture capital is structured in Canada mostly, with a lot of partners and funds handling institutional money, the ability or the willingness to take a lot of risk and to move pre-seed has some obstacles to that.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Do you think Canadians are able to invest or take risks the same as Americans, or does there seem to be a cultural shift among Americans versus Canadians with risk?

[Louis-Félix Binette]

That's a tough question. I'm in the business of accompanying start-ups and making them succeed on the coaching side, if you want. However, definitely, our tolerance to risk.... A lot of the early capital for start-ups comes from public institutions, which are by nature risk-averse. No one wants to be seen in the newspaper as having funded a failed company, even though, as I explained in my intro, that's part of the recipe. It makes it a little harder to take risks. There might be institutional framework reasons for that. It might be that people who have a lot of money in Canada are not very willing to spend it or spray it on different ideas. There might be other alternatives.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you very much for that.

We're now moving to Mr. Collins, for six minutes.

[Chad Collins, Liberal, Hamilton East—Stoney Creek, ON]

Thanks, Mr. Chair.

Thanks to the witnesses for attending this morning and providing evidence and information to us.

Mr. McLean, I'll start with you.

You emphasized in your opening coordination and collaboration. I think the word that Mr. Binette used was “ecosystem”. He talked about almost the same theme. How does the federal government help with that? How do we make those connections?

I read the previous report that was undertaken on IP strategy at another committee. That study occurred about five years ago. It talked about a concierge service helping with those networks, whether for small or medium-sized enterprises and/or post-secondary institutions, and getting them to those people who were the investors.

How does the federal government help with that process?

[Mike McLean]

There are two steps that can be taken to address that collaboration aspect. The first is creating a simple map of the programs that are available at all levels of government, so that entrepreneurs can quickly understand where they can get the help they need. The second is understanding that we have a limited capacity of experts in this country to deliver on some of these programs. We need to identify where there is redundancy or where there are opportunities to share resources between these efforts, so we can maximize the impact of the experts we do have.

[Chad Collins, Liberal, Hamilton East—Stoney Creek, ON]

Mr. Binette, can I ask you the same question?

[Louis-Félix Binette]

I'm going to answer in French, if you don't mind.

Clearly, one of the challenges Quebec and Canada face is connecting entrepreneurs with existing resources. There's a concentration of resources, whether in IP or elsewhere.

The real challenge right now is finding the right resources and supports. That burden falls entirely on entrepreneurs. As I explained, for a start‑up, anything that is a burden, a weight or a waste of time as far as accessing existing resources goes is a risk, a disadvantage that hinders its ability to compete with potential international competitors.

The real challenge is creating a support continuum and ensuring that, as soon as we discover companies with high growth and innovation potential, we connect them with the available support services. We can't wait until they find out about our services through a Google search or a social media ad.

Only then can we make the most of the limited resources we have and eventually build a significant body of data and knowledge on how start‑ups move from the lab to the market. That will tell us which connections give start‑ups the biggest boost throughout their life cycle. We don't have those data at the provincial or national level because we don't have any data standards to measure a company's growth.

Currently, we look at patents and sales, but for start‑ups, sales are a latent indicator because they come later, as we know. When we focus on sales and revenue, it's too late to know whether the start‑up made good progress during the three, four, five, seven or eight years of development. That's what we're seeing these days with tech companies.

[Chad Collins, Liberal, Hamilton East—Stoney Creek, ON]

Thank you for those answers.

As a former city councillor, I had the opportunity to work with my municipal council on supporting the McMaster Innovation Park. There's lots of great work going on in the innovation park, leveraging private investment and working with local employers in terms of finding ways and means to generate wealth and generate employment locally.

How does the federal government then make sure that we're not all working in silos. In that instance, there was provincial support provided to the university to help with the construction of the innovation park, as well as ongoing funding to assist with their operations. The municipality contributed in terms of providing resources to purchase the lands that the innovation park sits on, and of course there have been federal investments that have been made by our government to help with all kinds of studies and work that goes on in the innovation park.

What role can the federal government play in terms of leveraging assistance from the provinces, from municipalities?

I think, Mr. Binette, you talked about a regional approach that some have taken. You've given clear examples in Quebec.

To both of you, how do we support that integration through three levels of government with the private sector and other stakeholders who might be at the table as well.

[Mike McLean]

I think the key piece for the federal government is building national infrastructure that can be deployed to local needs. The local organizations may not have the resources or capacity to build the infrastructure needed. The government, though, has the contacts with the businesses, and they really understand the needs of those organizations and the needs of their local areas. If we can establish national-level infrastructure that can be deployed and put into the hands of those types of individuals and organizations, then that really has a multiplier effect in my mind.