Science and Research Committee on April 18th, 2023

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

[The Vice-Chair, Conservative, Corey Tochor]

Now we are on our last round of questions, our last MP questioning.

MP Angus, you have two and a half minutes.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you, Mr. Chair.

We've seen Joe Biden's IRA. When I talk to people in industry, one of the things that they're so invigorated by is this whole-of-government approach, a whole larger economic strategy, not just sprinkling tax credits. They are in a global IP war with China as to who's going to be the innovator, who's going to control that market, so they incorporated all these facets in order to make sure that green technologies are going to advance America's economic, social and climate targets.

Now we've just seen in the recent budget of the Trudeau government that we have $85 billion in green investments, which is great. We've managed to secure a number of commitments to ensure jobs and apprenticeships. However, do you see Canada actually tying these investments to a larger IP strategy so that we actually benefit and are not just the traditional hewers of wood and drawers of water?

[Jim Hinton]

No. The recent budget and budgets before it.... Just on the upstream side, if you fund so everybody buys an electric vehicle, that doesn't ensure there is any economic value happening. We saw with wind turbines in Ontario that it's a massive wealth transfer to whoever owns the IP on those wind turbines, such as Samsung, Siemens or Korean companies.

It doesn't necessarily mean there's going to be any economic benefit. A lot of that demand side means that we're going to end up buying American cars, electric vehicles, and there will be nothing left here. We're going to be doing the hard work of physically assembling the pieces that the robots won't do, but we're paying for everything else. It's backwards. It's missing the IP capture part. Insert Canadian companies into the electric vehicle value chain. Do that.

The Americans are doing it. The U.S. Department of Energy has been doing it for 15 years—systematically. Any time a Canadian company files a patent for a battery, they're getting called up by Chinese investors who are saying they want to invest in their company because the Chinese want to own that piece of the value chain. We're not doing that.

[Charlie Angus, NDP, Timmins—James Bay, ON]

We can do that without being on the wrong side of our global trade agreements, as the Americans are doing.

[Jim Hinton]

Absolutely. These are all standards, approaches and playbooks that other countries have taken. We've modelled the Innovation Asset Collective off of the French, the Korean and the Japanese approach to being higher performing on intellectual property.

There's nothing offside of trade agreements in ensuring that Canadians are participating in the global economy.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Thank you.

[The Vice-Chair, Conservative, Corey Tochor]

We are ahead of schedule a little bit, so we're going to squeak in two rounds of four-minute questioning.

Now we have MP Lobb for four minutes.

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

Thanks.

Thank, Mr. Hinton.

One question I wanted to ask you is about the net benefit test. The net benefit test for 2023, indexed, is just under $2 billion, but most of the small tech start-up companies don't IPO at $2 billion in Canada. They have an enterprise market value of many multiples less than $2 billion.

Do you think that Canada needs to take another look at the net benefit test? We are investing so much here at the university level, and through SR and ED and IRAP, only to see, when it's about to blossom, a U.S. private equity firm come in, take it out and consolidate the market that it has created.

Do we need to look at the net benefit test?

[Jim Hinton]

Countries are going further and further upstream to acquire companies that are going to fill those links in their value chain. If we say we want to be good at electric vehicles or critical minerals—or you name the sector—there needs to be a coordinated effort to make sure we retain those companies. Companies are going to come and go, and they get bought and sold, but we want to retain as many of them possible. If they go under because they're bad companies, we make sure that happens as well.

We need to be able to keep filling the pipeline and then accelerating those companies to scale. It's all about scale. You can't scale if the foundation you're built upon is already owned. That's what happens when you own 1% of the clean tech IP, for example. Generally speaking, we own 1% of global IP across all sectors.

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

I don't want to be a conspiracy theorist, but when Magnet Forensics sold in Kitchener-Waterloo, I noticed it was just under the threshold that would have required a net benefit test. I'm not saying the industry minister would have decided against that sale, but I thought it was a little interesting that it did come in under that amount.

BlackBerry recently sold 32,000 of its older patents, which it says are non-core, to a U.S. private equity company—whatever it was. There had to have been tens of millions of Canadian taxpayer dollars invested in SR and ED and IRAP and all these things to come up with some of these patents—not all, but some.

Do you think the Canadian government or the taxpayer has any right at all to any of those dollars when they are sold, or is that just part of government business?

[Jim Hinton]

It's way too late to be looking at it now.

When we fund this Nokia deal with $40 million of public funding, where are the terms in there? Start today, but not after the tree has already been cut down and it's gone.

From my understanding, a lot of the IP and the value in the BlackBerry portfolio has been extracted. They've licensed it out, and now it's just about converting the stack of patents in the corner of the office into a pile of money. The commercialization—

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

I have a last, quick question before my time runs out.

We had the Canadian IP Office appear a month ago, and they said that everything is great and that they are faster and more robust than ever. I know you don't want to get on the wrong side of them with your applications, but without shooting yourself in the foot, is that the sense? Is there the sense that they're doing better, or is there more work to be done yet?

[Jim Hinton]

They were set up to fail to a certain extent. It's three years to get a trademark examined. A trademark is a one- or two-page document. It's a relatively simple thing. There is a significant backlog, so they need support from an administrative perspective in processing these documents.

From a strategic perspective, how do we use the Canadian Intellectual Property Office to empower Canadians to better file domestically but also, predominantly, where the global markets are?

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much for that.

Madam Bradford, you have four minutes.

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

Thank you, Mr. Chair.

Thank you, Madam Gagné, for appearing before our committee again.

Mr. Hinton, welcome to Ottawa. I believe the last time we met was in December when we made the announcement about ElevateIP and the $90-million investment the federal government made into accelerators and such incubators as Communitech, which got $38 million of that. That will help companies in Ontario, Manitoba and Saskatchewan. Of course, you were at that announcement. Here's a quote that you gave us at that time. You said that, without protection, “IP is going to flow out of the country. Then the value from that IP being commercialized is lost forever and then we're going to have to pay to use that technology, even though we built it.” It was similar to what you said in your opening comments this morning.

As the founder of Own Innovation, you'll be directly involved in advising start-ups through the ElevateIP program. Can you tell us how you and your company are benefiting from that and how this ElevateIP program will help address some of these problems that you've been identifying in your testimony this morning?

[Jim Hinton]

Yes. ElevateIP is a relatively brand new program. I think a number of different aspects have been working and consulting with Communitech to help frame this, supporting them on how to best frame it for Canadian companies. I think education is a key piece, making sure that companies know the rules of the game but also at a sector-specific level—within different sectors and how they manage intellectual property there. I think that's table stakes, and we need to be doing that. People need to know how to manage IP.

In terms of the next piece, to me, I'm hopeful and optimistic that a lot of the funding will flow into the companies to be able to generate IP and retain IP and get the patents they need or any other intellectual property protection they need.

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

Right. It seems that it will help address the issue that 90% of the value is in intangible assets like IP. Can you tell me how you're utilizing this through your company, Own Innovation, in the companies you're working with so that they can leverage this program?

[Jim Hinton]

It's from the education side but then also from the resourcing perspective so that they can get the patent they need. These early-stage companies talk about the valley of death, or going from an idea to commercialization, making sure you get that patent in place. You need to file it most times before you're commercializing. That oftentimes is the spot where you need the resources the most. Then, as the company grows in scale, it's managing that freedom to operate the risk that's out there and using IP intelligence and IP landscaping to understand who the players in that market are and who you'll necessarily be bumping into, and then building a position, starting today, that you will need five to 10 years from now.

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

In your opinion, then, this ElevateIP program will help address some of these long-standing issues that you've identified.

As well, I was interested and actually kind of alarmed to hear in your opening statement that universities are involved in helping to sell to foreigners the IP that's being developed on their campuses. Do you know why this is happening? Why would they do that?

[Jim Hinton]

It's because there's no incentive otherwise. They're happy to work with these global companies. It's really a photo op. Universities in Canada are mandated with two things: basic research and education. In countries like Finland, economic development is one of those priorities. If that was priority, a mandated priority with checks and balances for Canadian universities, then we'd be able to see economic development.

Right now, Canadian universities have oversold. They're not doing innovation. It's Canadian companies that do innovation, and we should be supporting them. Canadian universities should be supporting the Canadian companies—not us trying to find ways to get higher performing out of Canadian universities.

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

Right. I think a lot of the Mitacs programs and the colleges do more applied research, where they actually partner up with existing companies to help solve actual problems. It's not theoretical research but it's to solve a problem that they're facing. I think that's kind of a more direct approach sometimes than the theoretical research we get.

[Jim Hinton]

Canadian colleges are chomping at the bit—

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

Yes, they are.

[Jim Hinton]

—for more resources on intellectual property. They've been neglected. They need more resourcing and support. IP Ontario is relatively new and is starting to fill some of that gap, but it's significantly subscale. Even with ElevateIP, you talked about $90 million and four years spread across the country. Two days later, you're down the street and Nokia's getting $40 million. A bunch of small companies can get picked off very easily and then major companies get significantly more resources to be able to continue to accelerate away.

It's the scale, and we need to bring that scale up. A start-up strategy is okay, but we need a scale-up strategy. Start-up companies are going to come, they're going to fail and they're going to grow. The ideas aren't that great, but once they're in the market and they already know where the next dollar is going to come from, we want to be putting more resources behind those, because the most valuable form of IP, I would say, is knowing what people are willing to pay for and then continuing to go down that line.