Science and Research Committee on April 27th, 2023

[The Chair, Liberal, Lloyd Longfield]

I call the meeting to order.

Happy Thursday morning to everyone. Welcome to meeting number 40 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.

I'll give a special welcome to Sébastien Lemire from the Bloc, who is joining us this morning as a sub. It's always good to see you in the room.

We are going to continue our study on support for the commercialization of intellectual property.

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

Please wait until I recognize you by name before speaking. For those participating by video conference, click on the microphone icon to activate your mike, and please mute yourself when you are not speaking.

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

For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function. The clerk and I will manage the speaking order as best we can. We appreciate your patience. We'll try to keep our eyes on members who are on Zoom.

In accordance with our routine motion, I'm informing the committee that all witnesses have completed the required connection tests in advance of the meeting. Thank you to our interpreters for helping us through all of that.

I'd like to welcome our witnesses. We have—

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

I have a point of order, Mr. Chair.

[The Chair, Liberal, Lloyd Longfield]

Let me welcome our witnesses, and then I'll take a point of order, if you're okay with that. Thanks.

We have three groups being represented this morning.

We have, as an individual, Neil Desai, senior fellow, Centre for International Governance Innovation. As an individual, we have Anne-Marie Larose, former president and chief executive officer of Aligo Innovation. From Copibec, we have Christian Laforce, executive director, and Gilles Herman, vice-chair.

We now have a point of order from Mr. Mazier.

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Thank you, Chair.

I'm still waiting on responses from the University of British Columbia and the University of Calgary from March 21 in reference to revenue licensing for intellectual property and the percentage of intellectual property.

I'm informing the committee. I don't know how to get that. We would like that by the weekend.

On March 23, we also asked the department for tracking on patent data, and data from the technology transfer office. Could we get that by the end of the week? How does this all work?

[The Chair, Liberal, Lloyd Longfield]

We'll make the request. The clerk can see what we can do. Thanks for the reminder.

I know the analysts are preparing reports in the background. We want to make sure we have all of the information available that we're expecting. The clerk will check into that for us.

Thank you.

[Dan Mazier, Conservative, Dauphin—Swan River—Neepawa, MB]

Thank you.

[The Chair, Liberal, Lloyd Longfield]

We now have three openings statements of five minutes each.

We'll start with Neil Desai, please.

[Neil Desai, Senior Fellow, Centre for International Governance Innovation, As an Individual]

Mr. Chair and members of the committee, thank you for the invitation.

You've already heard from the chair of the Council of Canadian Innovators and the CEO of the Innovation Asset Collective. These are organizations with which I'm affiliated, so I'll aim to make my comments additive.

It's worth framing our discussion by stating that we're at an important juncture for Canada's economy vis-à-vis the global economy. Canada's competitiveness has dwindled for multiple generations, while our cumulative public investments in “innovation” are among the highest in the OECD. It would be easy to chalk these results up to inferior researchers and entrepreneurs or to a culture of complacency, but these would be gross oversimplifications. I'm a firm believer that we must understand and evaluate the incentive structures if we're truly to tackle this matter, which is so important to maintaining Canada's standard of living.

Canada's innovation economic incentive structures, largely driven by our public investments, have not been focused on commercializing Canadian inventions by Canadian-headquartered companies to the benefit of all Canadians. Let's look at some of the largest innovation investments Canadian taxpayers make: our university research granting councils, the scientific research and experimental development tax credit, and the industrial research and development program. These multi-billion dollar annual investments are highly focused on discovery, research and development. We also have to count the subsidies to our universities and colleges since talent is so fundamental to the development of new technologies and growing innovative companies.

These investments and our other vast public innovation investments have led to incredible scientific discoveries and technologies. However, the widespread economic benefits to Canadians haven't resulted, and I ask why.

Again, I point to the structural considerations. Their program guidelines do not enable commercialization activities such as intellectual property strategies, demonstration pilots, clinical trials, and global sales and marketing activities. An innovation ecosystem that focuses so heavily on the upstream investments in R and D without back-end commercialization focus from Canada, and that has an economy open to foreign direct investment, is ripe to having those investments leak out to the benefit of foreign firms and jurisdictions. While I'm supportive of an open economy, I have to question the logic of our public sector using taxpayers' dollars to attract FDI in Canada's tech sector without ensuring those foreign investments will lead to commercialization activities from within Canada and contribute to our bottom line.

For Canadian firms that still choose to commercialize their inventions from within Canada, we also have to consider the structural barriers to scaling. I would especially highlight tax disincentives to scaling Canadian technology companies, such as the jump from small business taxes to corporate tax rates, personal tax rates and the taxation of stock options—an important, long-term incentive tool used by growth companies.

Beyond these general considerations, I would have you consider some of the subsector-specific challenges and opportunities.

In my sector, cybersecurity, leading jurisdictions realize that a growing domestic industry is not only a driver of prosperity but also integral to the security and sovereignty of their citizens and country. As such, they get to know their innovative firms intimately and in a structured fashion. They leverage non-tariff barriers such as national security considerations to ensure their domestic firms understand the acute threat landscape. They leverage their procurement regimes strategically to co-develop solutions with their vetted companies to address the challenges domestically that can subsequently be exported. They do this in a fashion that is compliant with their international trade obligations.

I believe we learned through the pandemic that domestic capacity—in both R and D and commercialization in strategic sectors like vaccines—drives security, sovereignty and prosperity concurrently. However, this takes foresight, meaningful public-private engagement and the leveraging of public resources in a strategic fashion. I believe Canada's cumulative public investments in innovation are sufficient to achieve this. The structures need to be aligned to incentivize Canadian companies investing heavily in R and D to start, scale and operate from within Canada.

I thank you for this opportunity and look forward to unpacking these remarks and drilling down into specific recommendations throughout our conversation today.

Thank you.

[The Chair, Liberal, Lloyd Longfield]

Thank you very much, Mr. Desai.

We'll now move to Anne-Marie Larose, former president and CEO of Aligo Innovation.

[Anne-Marie Larose, Former President and Chief Executive Officer, Aligo Innovation, As an Individual]

Hello everyone, members of the Standing Committee on Science and Research.

I am delighted to meet with you this morning to discuss a subject I am passionate about and a sector in which I have worked concretely and actively over the past 20 years: support for the commercialization of intellectual property, or IP, that is the product of public research.

I was the president and CEO of Aligo Innovation, one of the three companies working on the commercialization of public university research before the creation of Axelys. Aligo was owned by ten of the 18 universities in Quebec.

The thoughts and information I would like to share with you this morning are found in a brief I co‑wrote with Brigitte Lespérance. That brief, in 2020, proposed a reform of the structure for commercializing research in Quebec, based on two of the four commercialization companies having successfully united by creating Aligo, in a context in which the universities and the Quebec government had initiated discussions for reviewing the model for commercializing university research in Quebec.

I would like to talk to you this morning, more specifically, about the commercialization of intellectual property, or IP, free of third party rights, also called "orphan IP". "Free of third party rights" is understood to mean that the IP is not subject to commercial rights granted to companies, which is generally the case when the research is funded or co‑funded by private partners. In that situation, the commercial development partner is already present.

In these brief remarks, I would like to highlight a few issues, obstacles and factors for success in maximizing the socioeconomic benefits of IP.

An initial point concerns the technology transfer process, which is long and complex. It calls for a vision and long-term measures, and patience and resources that universities do not necessarily have.

We have to recall that about 10 to 15% of invention disclosures will be commercialized by transferring the IP. Seven to ten years, or even more, may pass between an invention disclosure and the first royalties from a transfer.

The example of Stanford University is instructive. With 500 invention disclosures a year, it had to wait almost 20 years before seeing its royalty revenue increase substantially. Stanford now finances itself with that revenue, in particular thanks to a few successes, like Google, although fewer than 1% of its licensing agreements bring in significant amounts in royalties.

My second point concerns the need to make business decisions at all stages of the transfer process. This means that there must be a dedicated, seasoned team with multisectoral competencies, agility, and the collective intelligence to assess and carry out commercialization plans proactively, with independence and a capacity to make good business decisions.

My third point concerns the need to reduce the technological and business risks of the innovations, which are generally at stages that are too early to attract strategic or financial partners. This means that apart from a budget to fund the patent applications, it must also provide an internal funding capacity to mitigate the risks of the technologies.

My last point proposes a paradigm shift in the way we look at commercializing IP free of third-party rights.

The commercialization activity has to be dissociated from other forms of exploitation and transfer, including open and collaborative research, since the dynamics and orientations of the activities are different.

As a result of their obligation to support research and research infrastructures, universities therefore generally prioritize activities that generate revenue in the short and medium terms.

However, in a technology transfer process, the intellectual property must be treated as an asset with an economic value, and all activities and decisions concerning the asset must be market-oriented, with a clear transfer and socioeconomic impact objective.

The purpose must not be to fund research, but rather to create new products and new services. Decisions must be base on commercial and business imperatives. This dynamic is oriented not toward the needs of the universities, but toward the market.

In conclusion, since the purpose of the commercialization of IP developed using public funds and free of third party rights is to create socioeconomic wealth, it would be wise for the government to directly support all of these activities and require a return from them.

Thank you for your attention, and I am available to answer your questions.

[The Chair, Liberal, Lloyd Longfield]

Thank you very much for your testimony. It's on time.

Finally, we have a representative from Copibec for five minutes.

Go ahead, Gilles Herman.

[Gilles Herman, Vice-Chair, Copibec]

Hello. Thank you for inviting us to this committee.

My name is Gilles Herman. I am the CEO of Les éditions du Septentrion and the vice-chair of Copibec. With me is Christian Laforce, the executive director of Copibec.

Copyright is enshrined in article 27 of the Universal Declaration of Human Rights. However, striking a balance between access to knowledge and respect for the work done by the people who produce it is a delicate operation. This is no trivial exercise: freedom of expression can only exist when authors are able to make a living from their work. In some fragile democracies, the creation and development of copyright collective societies is one of the structuring levers that contribute to ensuring political stability.

A collective rights society is a not-for-profit organization that is responsible for administering the rights assigned to it, collecting royalties based on various models established, and redistributing that money to the rights holders. Copibec is the Quebec collective rights society that operates in the print media sector and represents authors, publishers, journalists, newspapers, magazines and visual artists. Copibec also manages agreements with over 30 foreign rights societies, thereby ensuring reciprocity in the protection of works in all those jurisdictions.

The copyright regime is the cornerstone that for over two centuries has enabled this sector of the economy to grow. Today, Canadian publishers generate a gross domestic product of approximately $750 million and employ almost 10,000 people. The copyright regime enables creators to make a living from their work, and publishers to find new outlets for the works for which they are the agents. In 2018‑2019, the export market for Canadian titles amounted to almost $100 million, $7 million of which came solely from sales of rights.

Copyright is also an engine of social development. People have the right to access works in which they see themselves. Students have the right to access works throughout their education that refer to their immediate environment. In return, creators have to be able to make a living from those works. The educational world has always been a major consumer of cultural and intellectual content. It is intrinsically connected with the development of the print media sector. As access to education has improved, the needs of the schools have grown. This means that growing numbers of creators are able to make a living from their work, thanks in part to the royalties they are paid by rights societies.

In 2012, when the Copyright Act was modernized, Parliament added a number of exceptions under which intellectual property could be circumvented, in particular by introducing the concept of fair dealing for educational purposes, but without specifying limits on its application. Since then, educational institutions have withdrawn in large numbers from the copyright regime. The financial losses directly attributable to this gaping hole in our legislation, on the order of $200 million in ten years, threaten an entire sector and interfere with its sound economic development.

What entrepreneur today, whether Canadian or foreign, would want to invest money in a field in which one of the main outlets is now without the legal protection that does exist in a vast majority of our economic partners? The damage caused by Canada's Copyright act is in fact a cause for concern in numerous countries, and voices of international players have often been raised to criticize it.

In their mandate letters, the Minister of Canadian Heritage and the Minister of Innovation, Science and Industry were both given the mission of remedying this unfairness. The 2022 federal budget also mentioned the government's commitment to ensuring fair remuneration for creators and copyright holders. Still, nothing has happened.

Knowing full well what it is doing, the Canadian government has shown itself to be negligent in this matter. It is time to take strong and courageous action and to put an end to this injustice. The legislative framework must be changed to encourage the commercialization of copyright, ensure that the book and publishing industry is sustainable, and, at the same time, protect Canadian culture.

Thank you for listening. Of course, we are prepared to answer your questions.

[The Chair, Liberal, Lloyd Longfield]

Thank you, Mr. Herman.

We're going to move to our first round of six minutes each. We will start with Ryan Williams.

Go ahead, Mr. Williams.

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

Thank you very much, Mr. Chair, and thank you to our witnesses.

Ms. Larose, I was really interested in your comments about orphan IP. We all know on this committee that we can't commercialize something we don't own.

How much orphan IP is there in Canada, and how do we help make that orphan IP non-orphan IP?

[Anne-Marie Larose]

That is an excellent question.

In Quebec, for example, we invest over $2.5 billion in research, most of that from public funds. A large portion of the intellectual property generated is considered to be orphan IP, since it was created using public funds with no commercial partner involved. That is how orphan intellectual property is defined.

This involves a slightly different process. Because there is no partner, you have to seek out the right one. In Quebec, in nearly 50% of cases, a spin-off company will be created to commercialize the orphan IP, if it is worth doing that. Otherwise, in the other cases, the intellectual property is transferred to existing companies to make them more competitive.

The number of orphan IPs in Quebec is a good question. I don't have figures on that, but I would say that about 500 invention disclosures a year are made in all Quebec universities combined and a large majority of them constitute orphan IP.

I hope I have answered your question.

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

Completely. Thank you.

How do we help, in general, intellectual property holders find partners? This is probably the hardest position. It's almost like matchmaking—a bit like forming a good relationship or a great partner.

What recommendations can you make, based on your knowledge, on how we can help intellectual property holders find interested business partners to commercialize this and vice versa?

[Anne-Marie Larose]

That is another excellent question.

There are various structures inside and outside Canada's universities. In Quebec, there is a commercialization company that does the work now. For eight years, I was the president and CEO of a commercialization company with precisely that mandate. First, the usefulness of the IP has to be assessed, to determine whether it should be commercialized and consider a technology transfer. In fact, we should not wait for the phone to ring, we just need to be proactive in finding partners in Quebec or Canada or internationally that will see a benefit in acquiring this IP.

So this is work that calls for a critical mass of internal competencies. The small universities with few resources are at a bit of a disadvantage. Grouping this orphan IP for commercialization purposes is certainly an important avenue. You need to be proactive and make a commercialization plan. As I said, you also need to make business decisions all throughout the commercialization process. If you think at the outset that there are a commercial avenue and a potential partner, but ultimately, when you talk to the companies, you realize there is no longer a commercial avenue, for one reason or another, you have to be able to stop the process.

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

Thank you so much.

Mr. Desai, you talked about changing our tax credit system to ensure that we benefit and about FDI and other measures. Can you please expand on those comments? What do we need to be doing for tax credits to ensure we are able to protect and commercialize our IP?

[Neil Desai]

Thanks for that question.

I'll just very quickly preface my answer by saying that while I was introduced with an academic title, my day job is within a company called Magnet Forensics, a cybersecurity company out of Waterloo, Ontario. We're exporting to over 100 countries. I just wanted to give that context. We're an IP-intensive business.

Very quickly on your last question, I don't want to oversimplify this, but a catalogue would be helpful. Federal labs and university researchers are doing work in our space, a subset of cybersecurity called digital forensics. We've come across individual researchers in the federal lab system who tell us about incredible catalogues of digital forensic research, but you have to find the individual person. In our case it was in a lab in rural Quebec. It's very hard to evaluate them and, as a Canadian company, to put investments in to evaluate them when you don't know, practically speaking, what's out there. I think we could look at simple investments in catalogues of the extremely expensive IP that we've generated publicly in this country.

To your question about taxes, there's long been discussion of SR and ED reform in this country. Let's just look again at the incentive structures. Let's not be emotional. Let's be hyper-practical. Today we incentivize companies that are not profitable with a better tax credit than we give to those that are successfully commercializing the technologies they are developing through the SR and ED credit.

If I were incentivizing someone, I would pick those who have demonstratively been able to commercialize their technologies to create positive flywheels. In fact, the SR and ED tax credit today is the opposite. That's one example.

[The Chair, Liberal, Lloyd Longfield]

That's great. Thank you so much.

We're a bit over time, but we appreciate the answers and the great questions from Mr. Williams.

We'll continue with our questions from Valerie Bradford for six minutes.

Go ahead, Valerie.

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

Thank you, Mr. Chair.

Welcome to all the witnesses.

I was particularly interested in hearing about Copibec. This has been a fairly lengthy study so far. I don't believe we've had many witnesses dealing with copyright issues and things like that. I'm interested in exploring that a little further.

Can you please describe the specific services and products you provide?

[Christian Laforce, Executive Director, Copibec]

Certainly.

When the users at the various schools, universities and CEGEPs use publications that are part of our catalogue, based on the statements received, we redistribute the money paid to the publishers and authors. We also have other mechanisms, including services we offer to rights holders. There is even work done upstream in connection with signing licences with the Quebec ministère de l'Éducation, cities and other ministries, and with postsecondary institutions. Those are the services we offer.

We do awareness raising and data collection, and we redistribute the money received through our various licences.

[Gilles Herman]

If I may clarify something.

In very concrete terms, when a work or an excerpt from a work is used in teaching, in particular, but in any context, the licences that Copibec offers allow people to use the excerpts of works entirely legally, in exchange for financial compensation. Copibec collectively manages the collection of those payments and redistributes them directly to the rights holders, that is, the publishers and authors.

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

My next question is, can you describe your collective management approach? How does it support content creators and copyright holders?

[Gilles Herman]

The income of rights holders in relation to the publication of texts, whether they are book or newspaper publishers, which we have heard a lot about recently in other contexts, is derived from two things: the sale of the finished products, for example subscriptions, in the case of newspapers, and the use made of the works in various contexts. The money that Copibec or its English-Canadian counterpart, Access Copyright, pays to rights holders is a major part of those people's income. Most importantly, this allows a national market for creating works, that also reflect the individuals who want to access them, to be created. The national market also enables works to be created that can be exported.

We have to understand that we are not talking just about works of fiction. These are not just novels, poetry and things like that; they are also newspapers and textbooks in science, administration, economics, computer science, and so on. All forms of intellectual creation that is in text form will be subject to copyright. This is a very significant source of income for creators. Publishers travel all over the world, year-round, to encourage translations, but also to sell adaptation rights for cinema, video games or whatever you can imagine.