Science and Research Committee on April 18th, 2023

[Jim Hinton]

I work with Canadian companies. In the software space especially, you will be infringing on somebody else's patent because there are so many patents out there. Up until last year, IBM was filing 9,000 patents—more than all of Canada's combined. There's this upward trajectory.

Now the Chinese are filing millions of patents annually as well. There's no bottom to intellectual property generation. You just keep filing more patents.

Canadian companies aren't capturing at the same scale. They're not meeting the same pace. The IP deficit is growing and getting worse. When you factor in intangible assets like data, it starts to dramatically increase because of the value and opacity of how data can be commercialized and used.

[Gerald Soroka, Conservative, Yellowhead, AB]

Obviously this government realizes this, and that's why they're starting to change so many things.

One of our colleagues brought up about women, indigenous and under-represented people having funding available. Is there anything in there where they have to patent it to have long-term stability, or is that just a quick job creation to make it look like they're doing something?

[Jim Hinton]

On the IP initiatives, yes, but they're significantly subscale. You can't give $40 million to Nokia and then, in the same breath, give $10,000 through NRC IRAP's IP assist to a Canadian company. You're increasing the asymmetry rather than trying to catch up. You're putting wind in the sails of the foreign companies and then you're putting anchors on the Canadian companies.

[Gerald Soroka, Conservative, Yellowhead, AB]

Yes. There are a lot of restrictions and a lot of problems that this government is doing...or their lack of it.

What other areas do you think they need to improve upon?

[Jim Hinton]

When you look at the strategic innovation fund, if a Canadian company wants to get this, there are IP retention terms in there. If you leave, then you have to either pay it back or leave the IP behind. That doesn't happen with Nokia. Finland gets the IP immediately. The patents have Nokia Finland's address on them.

We give Canadian companies a worse deal than we give these big established players. Those are the ones we want to insert into that value chain and capture some of that value, and we're doing the opposite.

[Gerald Soroka, Conservative, Yellowhead, AB]

Would you say that these foreign companies are well aware of how easy it is to get research done at our expense? Knowing that they're going to profit highly from it, are they intentionally coming here to work with us?

[Jim Hinton]

Yes. There's a reason that Ohio doesn't want southwestern Ontario's Volkswagen battery manufacturing facility. It's not economic. There are no spillovers happening. If there were 100 jobs in a factory 10 years ago, then there are 10 now, and eight of those jobs are coming from Volkswagen Germany. There are two people pushing around brooms in a factory.

I used to work in southwestern Ontario for a heavy truck manufacturer. These are parking lots. The Mexicans took the jobs. Canadians don't want these jobs. Nobody wants these jobs, but we're funding companies to create the atmosphere of jobs.

We gave $30 million to the Michelin plant. Michelin has 10,000 patents. It's an IP game. It's not about jobs.

[Gerald Soroka, Conservative, Yellowhead, AB]

Okay. It's more looking like we're doing something than actually doing anything.

Can you give us other opportunities where this government should change the direction, and how it could do that to make sure that the patents stay with us?

[Jim Hinton]

It's simple. It's about prioritizing Canadian companies and doing whatever you can through tax policy, innovation policy and competition policy to increase Canadian companies' freedom to operate globally. It's putting the wind in the sails of the Canadian company using domestic markets. Strategic procurement is another example. There are a lot of levers.

The Americans do it. Certainly, the Chinese and Koreans do it. You see the Scandinavians doing it, as are other European countries. We're not doing it. We're just being taken advantage of.

[Gerald Soroka, Conservative, Yellowhead, AB]

That sounds very....

Okay. That's it for me then.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much for that.

We're moving on to MP Lauzon for five minutes.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

Ms. Gagné, today, we heard how the transfer of patents to other countries gives rise to national security concerns. The Minister of Innovation, Science and Industry introduced a certain number of measures to address national security concerns, which we've talked a lot about in the past year. Among those measures are working closely with universities to make them aware of the risks associated with the transfer of intellectual property, as well as developing new national security guidelines for research funding to help post-secondary institutions better identify, assess and mitigate the risks.

What's more, under the Investment Canada Act, foreign investors have to undergo a review, including enhanced scrutiny for all sensitive sectors, such as universities. I'm not sure whether you know this, but the government introduced Bill C‑34, an act to amend the Investment Canada Act. Can you talk about the importance of that scrutiny in protecting Canadian intellectual property?

[Marie Gagné]

Having sat on a number of committees and worked with universities, I have a slightly more nuanced view than Mr. Hinton.

Universities are increasingly sensitive to and aware of the importance of having mechanisms to analyze the potential national security risks of partnering with foreign companies. I think the progress is well-paced. Quebec is even establishing practices to limit risks associated with research and innovation investments through strategic industrial research networks. Things don't change overnight, of course.

Nevertheless, things have changed dramatically in the past two years. How do you assess the risk of working with an industry partner? The controls are becoming tighter and tighter. Where it gets complicated, and Mr. Hinton talked about this, is figuring out who is behind the main company. That can be very challenging. If there were people dedicated to that and if there were a central office to help us determine whether the prospective partner posed a risk, that would provide added value.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Very close to my riding, I have education-based research centres, so colleges and universities. The Saint‑Jérôme CEGEP is one example. Those institutions have been pursuing innovations, doing a lot of work on plastic-based materials and working closely with universities and the private sector. Businesses play a crucial role because they are the ones that create demand for the technology.

Yesterday, I was at Lion Electric, a company that opened the first battery manufacturing plant in Quebec. A thousand feet from the plant, a research centre is being set up, and it will work with universities.

Mr. Hinton, do you think funding industry partners that work with universities and the private sector is a good way to ensure that Canada produces cutting-edge intellectual property?

[Jim Hinton]

Yes, as you mentioned, the strategic alignment is key: to make sure that we have Canadian universities that are generating the IP and then Canadian companies that are around that to be able to be the receptors. Then, from a value-chain perspective, from critical mineral batteries to electric vehicles and even self-driving vehicles, there are Canadian companies across the value chain that own intellectual property and that are inserted into the global value-chain end of commercializing. We need to make sure that the Canadian company that is receiving that IP gets wind in its sails and is going to be able to commercialize and expand its market opportunity.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Thank you.

Do we have more time left?

[The Vice-Chair, Conservative, Corey Tochor]

You have four seconds.

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Okay, let's ask another question.

[A voice]

Oh, oh!

[Stéphane Lauzon, Liberal, Argenteuil—La Petite-Nation, QC]

Thank you, Mr. Chair.

[The Vice-Chair, Conservative, Corey Tochor]

Thank you so much.

With that, we are now on to a two and a half minute round. We have MP Blanchette-Joncas for two and a half minutes.

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

Thank you, Mr. Chair.

Ms. Gagné, I have a quick question for you, and I'd appreciate a quick answer. How can we further support the development of emerging technology companies?

[Marie Gagné]

I'm going to speak for my own bailiwick.

Applied research centres can help emerging companies get to a minimum viable product quickly. Those start-ups need help when it comes to fast-tracking the development of the first version of a product that can be commercialized.

That is why it is incredibly important to bring applied research players and start-ups together. The first version of the product has to be commercialized quickly so it can be improved quickly to arrive at a second, better quality, version. Bringing those two together is extremely important because start-ups have very limited research capacity and little money for equipment. Giving those companies access to cutting-edge infrastructure in applied research is immensely valuable.

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

Thank you, Ms. Gagné.

I'm glad you're here, Mr. Hinton. You said something very important. Only 7% of the IP generated under the pan-Canadian artificial intelligence strategy is owned by Canadian interests. That's very worrisome, I must say.

Other experts who appeared before the committee said that Canada was at a crossroads. Do we want to be a net consumer of innovations invented and produced elsewhere, or do we want to be a net exporter of homegrown solutions?

Tell us, if you would, about the tangible risks and consequences of doing nothing—of not having a real strategy and not turning things around to fix this. What could happen to Canadian business, to Canada's economic prosperity?

[Jim Hinton]

Yes. If you look at the makeup of the Canadian economy, if we don't have our global champions, then our prosperity is going to continue to erode. We're always going to continue to pay more and more for the world's IP. Even from a tax perspective, we're going to have less and less of a tax base with companies offshoring their IP, so we won't be able to pay for the social programs that we need and want. It will continue to erode.

We need to turn into Canadian companies that are commercializing globally and bringing wealth back into the country, instead of really doing the opposite. It's existential. This is generational wealth transfer that we're losing now, and it takes decades to catch up. It takes 20 years for the patent to run its course. We have to put pieces in place, as the Chinese did 15 years ago for generating, capturing and then expanding their IP strategies.