Science and Research Committee on March 30th, 2023

[The Vice-Chair, Conservative, Corey Tochor]

I call this meeting to order.

Welcome to meeting number 37 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 by using the Zoom application.

Today we are continuing our study on the support for the commercialization of intellectual property.

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

For interpretation for those on Zoom, you have the choice at the bottom of your screen of either floor, English or French. Those in the room can use the earpiece and select the desired channel. I remind you that all comments and questions should be addressed through the chair.

In accordance with our routine motions, I am informing the committee that all of our witnesses have completed the required connection tests in advance of this meeting.

We have three witnesses with us today, who will each have the opportunity to provide a five-minute opening statement. Then we'll have rounds of questioning from our members.

We'll start with Jim Balsillie for five minutes.

Jim, I'll give you the floor. If you can do your best to keep it within five minutes for scheduling purposes, I'd appreciate it.

With that, I will cede the floor to Mr. Balsillie.

[Jim Balsillie, Chair, Council of Canadian Innovators]

Mr. Chair, honourable members of the committee, thank you for the opportunity to contribute to your study on the commercialization of intellectual property.

I am Jim Balsillie, chair of the Council of Canadian Innovators and also of Canada's Innovation Asset Collective.

As this committee well knows, Canada has directed tens of billions of dollars to build capacity in science and research. These investments have propelled our universities into the top global rankings for academic publications and for education. What is missing is a focus on the ownership of ideas, which is a precondition to commercialization.

Simply put, you cannot commercialize ideas you don't own. Canada has never paid serious attention to IP ownership. Repeated initiatives aimed at promoting economic growth either ignored the ownership prerogative altogether or were designed to transfer decades' worth of publicly funded research to foreign firms.

Today the knowledge-based economy is in its fourth decade, the data-driven economy is in its second decade, and the age of machine learning capital is emerging, yet Canada's deficit on IP payments and receipts is widening at an alarming pace, a position we now share with developing nations.

This is why the OECD recently projected that Canada's economy will be “the worst performing advanced economy over 2020-2030” and the three decades thereafter.

The arrival of the knowledge-based economy in the 1980s transformed a world previously based on knowledge sharing, open science and a patent system designed to reward genuine inventions into a world of closed science and the monopolization of knowledge and information. Over the past 30 years, we've seen a dramatic rise in IP ownership around the world, especially in critical technologies such as machine learning and clean tech.

Under current strategies, Canadians are contributing to the development of intangible assets but not sharing in the ownership or exploitation of these assets.

A small example of Canada's approach to IP commercialization is best embodied in the quotes I've provided to you from Google and Tesla.

In my appendix, I have included a chart that shows how technology firms organize their innovation activities, specifically by continuously monopolizing knowledge by owning the IP while outsourcing the innovation steps to unwitting firms and publicly funded research institutions. Simply put, Canada must start focusing on the ownership of IP if we want to improve our poor commercialization record.

A critical step is to build capacity inside our policy community for the contemporary economy, including how IP is generated and commercialized. In the short term, Canada can, one, invest in IP collectives, which are co-op-like structures that provide professional, centralized resources, including “freedom to operate” strategies, to Canadian companies.

Two, Canada can broaden the mandate of the Innovation Asset Collective, which is currently focused on only later-stage clean-tech companies.

Three, Canada can centralize commercialization expertise and services for Canadian universities, as Germany has done for the Fraunhofer Institutes. The Government of Ontario has recently created Intellectual Property Ontario, IPON, an agency that provides IP management alongside expert advice and services to companies and academic institutions. The federal government should do the same.

Four, Canada can experiment with publicly owned data trusts and collectives to protect public welfare and support domestic innovation in the data-driven economy.

Paying attention to the ownership of IP does not require material or new funding; it's about a reorientation of our current strategies, which overwhelmingly ignore IP ownership and thus create a system of IP philanthropy for foreign economies. Canada's history of research and education funding deserves better domestic economic outcomes.

Thank you.

[The Vice-Chair, Conservative, Corey Tochor]

That was a record. We have one minute to spare. Thank you so much for concluding your remarks on time.

We will now move on to the next witness.

Dr. Gaffield, you have five minutes.

[Dr. Chad Gaffield, Chief Executive Officer, U15 Group of Canadian Research Universities]

Thank you.

Good morning, Mr. Chair and members of the committee.

Thank you for inviting me to appear before you.

I really want to emphasize the importance of your serious engagement with the challenges and opportunities for building a better future based on research and innovation.

In contributing to your work on these challenges in the commercialization of IP, I want to add to your previous discussions that have consistently emphasized the essential role of Canada's universities in leading to the successful commercialization of IP.

Witnesses have repeatedly described how brain circulation from campuses to companies is key. Speakers have highlighted how highly qualified, talented people are the essential precondition for Canadian enterprises to undertake advanced R and D activities.

Witnesses have repeatedly emphasized the importance and extent of research partnerships involving those in the private sector. They have emphasized the number and frequency of campus-supported start-ups, despite the challenges that are faced in moving these efforts from pre-commercial to commercial viability. In other words, there are now increasingly fluid connections between leading research universities and their host societies across the private, public and non-profit sectors. Canada now ranks third among OECD countries in the percentage of all private R and D done in partnership with post-secondary institutions. Indeed, it is hard to find any innovative company in Canada that is not closely connected to at least one university.

One additional suggestion for your report would be to emphasize that while IP is often associated with new technologies, the expression “the commercialization of IP” reflects social, cultural and economic considerations that companies must understand in detail if they are to be successful. For this reason, the connections in Canada between universities and communities now reach across all disciplines.

A second suggestion would be to highlight in your report the efforts that are being made to increase the ease with which information about researchers and their research projects, as well as information about IP, can be accessed by non-specialists.

I want to give the example today of Cognit.ca. It is a new digital tool developed by U15, with multiple sponsors, for anyone who wants to access information about the experts, facilities and intellectual properties related to university research across Canada. This new digital platform harvests the federal research agencies' awards databases, while also including information about current licensing opportunities as well as a listing of patents filed by Canadian post-secondary researchers and institutions and their partners. Please do not hesitate to request more information about this important digital tool, which in fact has been mentioned previously in this committee.

Finally, let me address two recent documents.

This week's federal budget contained no new investments in research funding for universities, as offered by Canada's four research-granting agencies. This is the second consecutive year of frozen research funding.

While governments internationally are fighting inflation, peer countries like the United States, Germany and the U.K. and so on are making game-changing investments in research. Over the next five years, the CHIPS and Science Act in the United States will essentially double the base budget of the National Science Foundation. Along with the Inflation Reduction Act, the ambition is not only to repatriate the semiconductor supply chain or accelerate the transition to the green economy in the Untied States; in addition, these investments will enable American companies, as well as universities, to recruit our best and brightest, the highly qualified, talented graduates of our leading research universities whom Canada needs in order to carry out our own green transition and digital transformation in the changed 21st century economy.

Canada already ranks at the bottom of G7 countries in those with graduate degrees and only 28th among OECD countries in the proportion of our population with graduate degrees. In other words, the Canadian model of university-connected research and innovation is at risk.

At the same time, the potentially good news is the new “Report of the Advisory Panel on the Federal Research Support System”. The report compellingly recommends how an updated structure of governance and program delivery can enhance support for interdisciplinary as well as disciplinary research and for small and large projects, including cross-sectoral partnerships. However, the report emphasizes that if underfunding continues, the future is inevitably bleak. The report makes an urgent call for new federal investments of 10% per year for five years.

Overall, the conclusion is that we must urgently respond to the rapidly increasing international competition that threatens our domestic capacity and national security and thus our prospects for a prosperous, resilient and just society in the 21st century.

Thank you very much.

I look forward to your questions and comments.

[The Vice-Chair, Conservative, Corey Tochor]

Thanks so much for that.

Now, for our last witness, we have Mr. Vincent-Herscovici.

[Jesse Vincent-Herscovici, Chief Executive Officer, Axelys]

Good morning, Mr. Chair and members of the committee.

My name is Jesse Vincent-Herscovici, the Chief Executive Officer of Axelys, a non-profit organization established by the Government of Quebec whose mandate is to support the entire province by optimizing the transfer of public research findings for stakeholders, particularly through intellectual property.

I would therefore like to thank you for your interest in this extremely important subject. We are, of course, keen on this initiative, and very pleased to be able to support it.

I'm going to switch to English, since it's the language most of you speak. I will naturally be happy to answer questions in either language.

Quebec was not satisfied with the economic impact nor, therefore, the societal benefit derived from the majority of investments made in publicly funded research. This mirrors the Canadian paradox of having heavy investments in government and public R and D, yet relatively low declarations of inventions, patents and transfers compared to countries like the United States, which have mechanisms that require technologies stemming from federally funded research in universities to be declared to government.

Canada does not have such requirements, yet companies that can obtain capital, scale, export and compete globally, as was well put by my counterpart Mr. Balsillie, are clearly the ones that have been able to create intangible assets, especially and specifically via IP portfolios.

A large portion of the IP that was developed in Canada ended up being owned by international companies, notably in fields like AI, which are of crucial importance to our survival [Technical difficulty—Editor]

[The Vice-Chair, Conservative, Corey Tochor]

We might have to suspend here for a minute until we figure out our technical difficulties with our witness.

[Jesse Vincent-Herscovici]

My apologies. I have been booted off of the meeting a couple of times. Hopefully you can hear me okay and the audio is back.

I was saying that a large portion of the IP that's developed in Canada ended up being owned by international companies, notably in fields like AI. We fund the effort, but our economy and society often don't reap the greatest benefits.

Quebec invested heavily in a strategy for R and D investments and innovations through SQRI2 strategy. These are research and innovation investments whereby hundreds of millions are being strategically invested to support proactive growth and maximize impact from our strong research foundations. Quebec created the position of a chief innovation officer to work in tandem with the existing chief scientific officer and created the Conseil de l'innovation du Québec to generate tools like Baromètre de l’innovation du Québec to actively track key indicators in order to inform decision-making.

In 2021, the Quebec government consolidated what were historically fragmented technology officers throughout universities in order to consolidate efforts. This is Axelys. Yes, Ontario developed their agency, but Quebec has a similar, though slightly different, approach in Axelys.

We were mandated to identify high-potential inventions regardless of where they came from across the province—since of course, innovation is everywhere—support them with appropriate IP tools and mature them to a point of being de-risked towards a transfer to an entity that can deploy them. Of course, that is where invention becomes innovation: It's only once that invention is deployed.

This has allowed us to consolidate expertise and pool resources, mainly legal and financial, to support IP stemming from all publicly funded research institutions across the province, avoiding many of the redundancies that led to a lesser capacity of support. Of course, that maximizes impact across the province and, I dare say, in the entire country.

Our solution, which is found in the SQRI2, had three major objectives.

One was to raise the awareness and socialize the importance of IP and its tools. Of course, this is to catalyze or further a culture shift that's happening already across the ecosystem.

Second, we wanted to create a team of experts on the ground to accompany each role across the spectrum of key players to support their specific IP strategy across research and industrial fields.

Third was to bring specific financial resources to generate more and better-quality IP, and then find appropriate parties and transfer it to them.

Our key recommendations to this committee are these: First, bring awareness and education on the importance of IP. Second, create specific tools to better utilize it and align messages and interests across research entities to provide proper incentives. Third, provide tools to accompany specific initiatives and work with provincial governments that are most advanced and organizations that are most advanced here.

We don't need to reinvent the wheel, as was also said by Mr. Balsillie. We should be supporting, strengthening and aligning efforts here. The more resources, tools and alignment of these efforts that can be provided while leveraging regional strengths across the country—which is obviously a cornerstone of a strong innovation ecosystem—the more Canada can turn the innovation paradox into the innovation powerhouse. It has so many of the key ingredients required to achieve it.

I apologize for being 23 seconds over, but it was the time it took me to get off and back on to this call.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much for that, and for working through some of the technology issues we've had today.

Opening our six-minute round, we have Mr. Ryan Williams for six minutes.

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

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here. This is a very exciting study, and it's always great to have you here in Ottawa.

I'm going to start with Mr. Balsillie. Given this talk about IP protections, patents, copyrights and trademarks, is there anything in our IP protection that's putting our innovators at a competitive disadvantage compared to innovators in other countries?

[Jim Balsillie]

Yes, there are structural elements that put us at a disadvantage.

Number one, we do not educate to the expertise and scale that's necessary to understand how to play the chess game of freedom to operate. Two, we do not service to the level that other countries do to help their firms play the appropriation game or prioritize libraries and expert advice. Three, we do not have an institutional mechanism, as my colleague from Axelys said, to do the appropriation and coordination of the freedom-to-operate assets, the IP. We don't educate for it. We don't service for it. We don't pool and govern for it.

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

Can we make any changes to our IP protection here in Canada to keep innovators here in Canada? As a second part of that, what are other nations doing that is maybe attracting IP away from Canada? How do we copy that or how do we be more innovative to keep that in Canada?

[Jim Balsillie]

As my colleague from Axelys said, in the U.S., when you receive funding, that gets assigned to the state. Germany does the same thing, as do other nations. You don't give away your best ideas. I gave examples of how we have foundational technology in Canada worth tens of billions of dollars, if not hundreds of billions, and we give it away.

It's the institutional keeping of the ideas and then the education and the service at the firm level so that these promising young companies have the IP expertise and freedom to operate, to grow into 50-billion- or 100-billion-dollar companies. That's what drives your prosperity. That's what gets the wheel turning. If you do not have the appropriation structures, you do not get the economic outcomes, and in a changed world, if you're not getting those economic outcomes, you fall to the bottom of the OECD.

We've been at the bottom of the OECD for the last 40 years in productivity and we're forecast to be there for the next 40 years, and that's why middle-class Canadians are having trouble making ends meet.

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

From other witnesses we've had before, it seems that first-stage innovation is where we fail in Canada. Dr. Gaffield talked about applied research funding being frozen here, but in the U.S. they go even a little further, with organizations like DARPA doing massive first-stage innovation on behalf of companies, and with U.S. EnergyWorks, which has a program called Earthshots, providing the actual tangibles for green energy, from solar to geothermal.

Is that something we should be looking at again? Do you have any advice or recommendations for applied research or first-stage innovation for Canadian companies and how we would merge that with developing our IP?

[Jim Balsillie]

If you look at figure 4 in the document that I submitted to you, you'll see that our ownership of clean-tech IP is negligible compared to that of other countries, so if we want to invest in clean tech, absent an appropriation strategy, we're simply transferring the wealth to foreign countries.

People don't want to invest a dollar to turn it into 10 cents. That's a bad investment, but if you get the right appropriation structures up front, then you turn a dollar into 10 dollars. I never say invest more or invest less; I simply say, how can we get 10 dollars out of our dollar, rather than 10 cents?

Of course, if you fix the return models, it makes an overwhelmingly compelling case to invest more, but it's all about the upstream appropriation, institutions and capacity. If those are missing, you're building a house without a foundation.

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

Let's talk about incentivizing risk.

In Canada we have the SR and ED tax credit. When we look at the United States and other nations like Germany, we see that they seem to have a few more ways for companies to invest into their own companies but also to get firms like venture capitalists and others to actually invest in their companies.

Are there any recommendations you can make in terms of new tax credits or maybe some other initiatives that would incentivize risk and encourage Canadians to invest in companies for IP and for companies to invest in themselves?

[Jim Balsillie]

I think we do a reasonable job of availing capital. We just don't do a reasonable job of creating a system that creates returns on capital.

You will not create incentives if you get 10¢ on the dollar or the government pays 90% of it and then you get $1 back on your dollar. Germany has appropriation structures through their courts, through their education and through commercialization institutions like Fraunhofer Institutes, which I talked about. It's all about those upstream appropriation structures, so then, at that point, you're now talking about fixing incentives, more talent and helping people market more internationally, but our economic strategies have been focused on the downstream elements, never managing the upstream appropriation structures, so you build a castle in the sand.

I like to say that it's a two-legged race. There are two legs. You need talent and you need capital. You need all these things, but if you don't have the upstream ownership, you're playing with one leg. One leg is strong and one leg is atrophied, so you're hopping instead of running.

I'm not saying that IP appropriation is everything, but in its absence, it's everything.

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

I think I have time for one last question.

Could you spend a little bit of time on the patent box tax incentive, just a little bit more? I know you have it in some recommendations, but what specifically can the federal government do to make sure that this is a reality?

[Jim Balsillie]

I think we have to look at it, because what's happened is that the ideas economy works on absolute advantage, not comparative advantage. In comparative advantage, it's always relative, and in absolute advantage, you can be the owner ten out of ten times—the landowner or the property owner.

The U.S. and other countries are becoming what is called “mercantilist” in their approaches, and they became mercantilist in tax boxes with the U.S. Tax Reform Act. With a stroke of the pen, the IP is going to leave Canada to a lower tax jurisdiction.

If they can move that quickly, I think you do have to do it. I'm never one who says, ”Just lower taxes, because that's our answer”, but that's a case when it can move things, and it's mercantilist behaviour by our economic competitors. I think that you have to meet what they've done. I know many companies that are moving their IP because it's at 12% or 13% for an IP box. You just do the math, and then the board says to do it.

I think we want to keep it here, but I hesitate to encourage tax strategies, because it's not a cut-taxes world in these games; it's an appropriation world. However, in this case, I think you have to meet the market.

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

Thank you, Mr. Chair.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much.

We'll move on to MP Bradford for six minutes.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for being here today, two of whom are doing repeat performances. Thank you so much for coming back.

I want to start with you, Mr. Gaffield.

On March 9, Professor Karim from the University of Waterloo stated:

Challenges such as a net-zero economy, climate change, sustainable health care, inequality and food insecurity continue to exist despite decades of strong economic growth. Private enterprises do not take on these challenges because the financial returns are modest and the time to returns can be very long. However, sustainable social enterprises founded on university campuses like Waterloo can take on these societal challenges and they do.

What advantages do universities have that allow them to innovate in areas that have been neglected by private companies?

[Dr. Chad Gaffield]

This is a really important question, and thank you for posing it, because it suggests the extent to which innovation is really needed across society in all our sectors.

It's interesting the extent to which the last few years have changed the game in terms of pressure to innovate. I think the pandemic, for example, in a kind of unexpected way, really accelerated the digital transformation, even though it's been going on for decades. In fact, with the new pressure to be digitally enabled, to be able to service and so on, all of a sudden expressions that are 30 years old, like telehealth, are now really happening. I think that is one really important change.

The other one is how extreme weather events have really accelerated the climate change debate. I think that there is a social licensing phenomenon now. People are very aware now, so whatever your business is, whatever your activity is, you're now expected to be sustainable. Citizens, clients, customers and so on expect that.

It seems to me that universities have to play a key role in this, because, as you know, how we can move toward a sustainable way of living in our communities and how we can move toward a digitally enabled way in our community and so on is really dependent on that kind of expertise and knowledge that I think come out of our institutions.

That's why I emphasize the extent to which all our disciplines are involved in this. It's because, at the end of the day, these are really individual choices, societal choices, decision-making, and what does that mean? That means human thought and behaviour, and technology has become really important—or not, depending on whether people decide to use it. I think that trying to understand that kind of constellation is key, and I think our research universities are really important in supporting those efforts.

[Valerie Bradford, Liberal, Kitchener South—Hespeler, ON]

I agree that there is nothing like a crisis to focus our attention on priorities, and COVID did that for us in many areas.

I have a second question for you, then.

How do universities balance a shift to open science and the desire to protect intellectual property spun off from the work done by their researchers?

[Dr. Chad Gaffield]

This is such an interesting question. In fact, Jim and I were talking about it earlier in many ways.

I think that over the last 25 years, or maybe more, there has been a really active debate in terms of how, on this planet, we're all going to coexist or not.

You can remember—it wasn't that long ago—that nationalism was really seen as going down. We were all going to be in this world together—globalization, citizens of the planet and so on, but we know, in fact, that geopolitical borders have become perhaps more important than ever along the way. I think that we're now attempting to come to grips with that belatedly. I think Canada lost focus a little on the extent to which where you live and the regimes and institutions under which you are living matter a lot now .

One of my concerns in recent years has been the extent to which Canada has lost sight of its dream of being a nation, its dream of national sovereignty and domestic capacity. My fear now is a new kind colonialism in the intangible economy and the knowledge economy of the 21st century.

Somehow we have to reconcile, I think, the theoretical wonders of “open”—we like open science, and we want to share, we want to advance knowledge, we want a healthy planet and we want all societies to advance—with the other side, which is that geopolitical borders matter and that if Canada does not stand up for itself and ensure our citizens a place in the 21st century, this could go very badly.

I think a new sense of ourselves as a country that we must build in terms of a solid foundation is really coming to the core again. I think some of that energy that we had in the 1960s and 1970s in terms of building a strong Canada we need now in terms of the 21st century. We need to find the balance between open as possible but protected as necessary, given the geopolitical context we are in.