:
Ladies and gentlemen,
bonjour à tous. Welcome to the 37th meeting of the Standing Committee on Industry, Science and Technology.
Of course it won't be on this record, but I think it's appropriate to say to the members here.... I wanted to say it, but I thought the standing ovation was probably more apt, and then your personal words, Mr. Dicerni.... But certainly, his capability, his competence, his wide range of knowledge and wisdom, and his diplomatic ability at the committee—which he referred to a bit—and his limited vocabulary—
Voices: Oh, oh!
The Chair: —will be sorely missed. I know as well that, with his capabilities, he will be sorely missed by the minister.
That said, we'll turn to our witnesses.
Thank you very much for your flexibility in how we worked this morning. I'll just follow the orders of the day, and we'll follow this order for the witnesses as well.
We have before us, from Communitech, Avvey Peters, vice-president of external relations; from the Consortium for Research and Innovation in Aerospace in Quebec, we have Clément Fortin, president and chief executive officer; from Sustainable Development Technology Canada, an organization that I know very well, it's good to see David Harris Kolada here with us, who is the vice-president of corporate and market development; and from Mitacs, we have Rob Annan, director of policy, research, and evaluation.
I'll give all of you—I believe the clerk has warned you—about five to six minutes for your opening remarks. I'll start with Ms. Peters
Would you like to go ahead right now?
Good morning, everyone. Thank you very much for the invitation to join you today.
I'm Avvey Peters, and I'm with Communitech. We're the technology organization in Waterloo region, Ontario. I also have the pleasure of working with Communitech's national initiative, the Canadian Digital Media Network—our effort to connect Canada's digital media industry clusters together.
At Communitech we work at the front lines of Canada's tech industry, serving a network of close to a thousand tech companies. It generates more than $25 billion in revenue. Our work connects us to companies at all stages of growth, from more than 400 active start-ups that employ fewer than five people, through to Canada's largest software company, OpenText, and Canada's largest tech company, Research in Motion. The Waterloo region tech sector employs more than 33,000 Canadians.
I'm sharing this background because it's the vantage point that gives us insight into how jobs are created and also into what tech companies need to be successful.
I want to begin by telling you how pleased we are that you're choosing to explore the relationship between intellectual property and innovation in Canada. To us, IP is more than patents and copyrights and protections against counterfeiting; IP is a Canadian asset that drives productivity. Our goal should be to help companies do a better job of strategically managing their intellectual property as a business asset.
The OECD's recent report on Canada's economic performance highlights several barriers to Canadian productivity. Specifically, it references some original research that was conducted by the Canadian International Council for its report entitled Rights and Rents: Why Canada must harness its intellectual property resources.
There's one item from that report that I'd like to highlight for you. The CIC found that of 137 venture-capital-backed Canadian firms whose ownership changed hands between 2006 and 2010, nearly 60% of those companies were sold to foreign buyers, mainly for their valuable intellectual property, which meant they were taking Canadian-educated talent out of the country.
In other words, what we're seeing is that Canadian start-ups generate a great deal of intellectual property that's attractive to investors, but rather than exploit that IP to the fullest extent in Canada, a lot of these start-ups are acquired before they have the opportunity to grow. That makes Canada a great source of cheap IP that can be exploited by the acquiring entity, and any resulting job creation from the commercialization of that IP happens in countries other than Canada. This is the lost opportunity of our current intellectual property regime.
Today I want to focus on just two things that I think are ways in which Canada could reap the benefits of intellectual property for the purposes of fostering Canadian productivity. The first is to help small and medium-sized enterprises do a more effective job of leveraging IP as a key business asset. The second is to help companies and universities collaborate more effectively to commercialize intellectual property.
Small and medium-sized enterprises are widely acknowledged as engines of job creation in Canada. In Waterloo region we're blessed with a strong start-up ecosystem, more than 400 early-stage companies. But as innovative as these companies are, they generally do a really poor job of strategically managing their intellectual property assets.
The reason is twofold: Canadian SMEs typically don't understand the full range of the strategic advantage of their IP, and they don't understand the enormous risk of IP management done badly. In the latter case, that often means they become targets of patent litigation and aren't aware of how it can damage or destroy their company and its prospects.
Better education can play a big part in overcoming this barrier. Organizations like mine can help companies understand the importance of IP strategy and how to maximize the value it brings, as well as highlight the potential for the possibility of crippling litigation if IP is not effectively managed. Universities in Canada can offer more in the way of education about IP management. Companies need education to understand their risk management tools and strategies.
From an industry-academic collaboration perspective, Canada continues to view university research as a leading producer of intellectual property and the commercialization of university research as a leading source of innovation. In our experience, this is not really the case. While our universities and colleges are an important producer of IP in Canada, they're by far the minority source of commercial opportunity.
At Communitech, we work with more than one new start-up a day. They come through the door and they ask us for help. In our experience, fewer than 12% of them are university spinoffs. It's more likely that a start-up is being led by a current industry professional with a deep understanding of the market they're trying to serve.
Now, industry-academic collaboration is a good thing. It leads to new ventures and new partnerships and more research and more commercialization. But a lot of our companies are struggling to find the best way to work with academic partners. There are complex ownership agreements to negotiate, often with a multitude of partners.
I think there are better ways that Canada could be doing this. Consider the approach of Israel, where research institutes take a simplified approach to IP licensing. Any joint project with industry that receives government financing has to sign a standard agreement. There is no negotiation. This speeds up the time to execution on collaborative projects and provides clarity to the partners involved.
While there's a divide in the understanding between universities and industry around IP, I think it's one of communications and culture; it's not one of productivity. Both parties need to learn how to work more effectively with one another.
In conclusion, I think Canada can produce IP-rich tech companies with the potential for driving tremendous productivity gains, but we need to support companies and their efforts to better leverage their IP and maximize it as a business asset, and we need to focus on industry as the key producers of intellectual property for Canada's benefit and help them to be more effective.
Thank you for your time this morning. I look forward to your questions.
:
Good morning. I am pleased to be here today.
CRIAQ has been around for 10 years and carries out collaborative research projects with businesses, universities, research centres and so on. We have done over 100 of them. I have prepared a document in French and English to help you understand the generic intellectual property agreement.
I fully agree with Ms. Peters. As is the case in Israel, we have a single agreement that covers large and small businesses, as well as universities and research centres. For us, this agreement is a strategic tool for developing the aerospace industry.
[English]
If you look at the document, you'll see the fundamental principles of the intellectual property agreement, which is a generic document signed by everybody. It's been in place for 10 years. Our mission at CRIAQ is to increase the competitiveness of the aerospace industry and enhance a collective knowledge base through a better training of students. We have a double mission of competitiveness and training, and the two are closely related, of course.
We do this through a number of collaborative projects. We have more than 100 in our portfolio, and the value is estimated at about $110 million. We have full IP coverage for all projects, and we have training of students—graduate students and research. We do the promotion, and we have national and international collaboration. We have about 15 international projects, a number of them with India, as an example, and some with Europe.
The principles are easy to understand. The principle is that the background IP belongs to the original owner. It will always be that way, should it be an SME or a large company.
The background IP has to be declared up front. What we recommend...and we have more than 50 industrial members, of which 32 are SMEs, and we have 30 university institutions participating in our projects.
On the background IP, if it's required for the project it's put forward, but it still belongs to the owner at the end. These are the principles.
The foreground IP is owned by the project partners. The key item now is that the universities have agreed to give the industrial partners—you see it there—an exclusive worldwide royalty-free licence for aerospace applications, or, more accurately, applications in the field of interest of the industrial members, which are mainly aerospace.
This is a key item. We don't negotiate a new IP agreement. SMEs and everybody else is agreeable to this; NRC is part of it. The universities keep the intellectual property for teaching, for internal research. There are rights for publications, but they have to be agreed by industry. Publications have to circulate before they are published.
[Translation]
The principles are fairly simple. This 29-page agreement is relatively complex and is the result of a significant compromise between industry and universities, but that is productive. We have projects that are patentable and others that are leading to applications on products that are currently on the market.
I think this is entirely possible. We are realizing this more and more, at CRIAQ. We are working closely with NSERC and MITACS, which is currently one of our main partners in most, if not all, of our projects. One of the important aspects of our approach is that it is possible for the same project to have both excellent science and results that are applied widely in the industry. So it involves both stressing marketing and finding this combination of both factors to make Canadian industry more competitive and at the forefront of everything being done globally, especially since the global market is stronger and stronger.
Thank you very much.
:
Good morning, Chair, members of the committee, and thank you for the opportunity to represent Sustainable Development Technology Canada, or SDTC, an independent, arm's-length foundation founded and funded by the Government of Canada to help commercialize innovative clean technologies through financial and non-financial support. Our mission is to act as the primary catalyst in building a sustainable development technology or clean tech infrastructure in Canada, with a funding allocation from the government to date of just over a billion dollars, which we operate through two funds. They are complementary, operate close to the market, and address gaps in the innovation chain, most notably the pre-commercial funding gap otherwise known as the valley of death, which I understand the committee discussed at some length last week.
When we talk about clean technology, we mean innovative products or services that simultaneously reduce financial and environmental costs while driving better performance. They have a beneficial impact on the economy, on the environment, and society as a whole. They translate into economic opportunities, both rural and urban. They drive exports, job creation, health, and quality of life for all Canadians.
The clean tech industry is global. It's an export-driven industry. In fact, if you looked at clean tech SMEs, you would find that they are nine times more likely to export than SMEs, generally speaking. It is a large market that's growing quickly, from $100 billion in 2006 to $1 trillion in 2010, and it's expected to triple to $3 trillion by 2020. The Canadian share of that market, currently at about $9 billion, is expected to increase more than sixfold to $60 billion by 2020, at which point our market share would have increased from just under 1% to 2% and direct Canadian employment would go from 44,000 jobs to 126,000 by 2020. In 2020, the clean technology sector would be the third largest global industrial sector. It's a large market, growing fast, and a very lucrative opportunity for Canada.
As the market has grown over this period of time, the amount of intellectual property that's been developed has similarly been increasing, which is reflected in the chart on slide 5. You can see the number of patents that have been filed in key clean technology sectors, which from 2001 to 2009 have tripled. That's a 14% compound average growth rate during that period, which is double the growth rate of patents, generally speaking, throughout the world during the same period of time.
Intellectual property and clean tech are very important issues, and as a result we're very encouraged to see the Canadian Intellectual Property Office introducing a program to foster investment and expedite commercialization in clean tech, joining countries such as Australia, the U.K., the U.S., and other countries with similar programs. As export-based companies, Canadian clean tech companies generally patent their technologies abroad first, usually in the U.S., sometimes Europe, and then in Canada. The patent prosecution highway, which was introduced in Canada, has been very helpful in terms of expediting applications that have begun elsewhere, in other countries. Similarly, the Patent Cooperation Treaty, or PCT, of which Canada is a signatory, has also been very helpful for clean tech companies in terms of filing international patents.
Lastly on this topic, all SDTC companies must have their IP secured before we fund them. It's a very important issue for us in our due diligence, and it's also something we help them with through our funding of their projects.
In preparation for the committee, we went to a number of our portfolio companies, which now number over 220. I asked their views on this topic, which we wanted to reflect to the committee. I wanted to highlight six points. The first is that clean tech companies are indeed taking advantage of the patent prosecution highway. Second, the new CIPO clean tech program has limited awareness, but it is growing in the clean tech community. Third, the strong IP protection that is in place here in Canada has helped companies compete abroad. Fourth, most companies register their patents in the U.S. first and Canada second. Fifth, universities have inconsistent IP licensing rules, which are quite difficult to navigate, and that has inhibited the commercialization of clean technologies out of those environments. Lastly, the cost to patent and defend the IP, regardless of its origin, is high and the timelines are lengthy.
That brings us to our recommendations, sourced from the SMEs we have funded—over 90% of the companies we funded are SMEs. The first recommendation is to make it easier and cheaper for these SMEs to enforce their patents and to efficiently deal with infringement issues.
A couple of mechanisms that could be helpful are non-judicial administrative procedures, rather than having to go to litigation. Secondly, if litigation is necessary, have litigation caps to reduce the cost. This could include expanded financial support and advice for SMEs as they obtain their patents in a provincial program. One model to consider is the Alberta vouchers program. Thirdly, increase awareness of the CIPO clean tech program. Four, work to simplify university and government lab IP rules. And lastly, reduce delays in the prosecution and granting the patents, and if there are delays, implement a version of the USPTO's patent term adjustment calculation.
Thank you very much for the opportunity. I look forward to your questions.
Good morning, honourable members. Thank you for giving me the opportunity to present to the committee today.
My name is Rob Annan, and I am the director of policy, reporting and evaluation at Mitacs.
Mitacs is a national research organization that supports Canadian innovation through collaborative research projects linking Canadian businesses with leading experts at Canadian universities.
Our flagship program, Mitacs-Accelerate, supports two-way knowledge transfer through industrial research internships that place graduate students and post-doctoral fellows in industrial research settings where they apply the skills and expertise they have gained through their studies to industry-focused research needs.
This program supports increased R and D at Canadian companies and represents an effective research model that leverages the strengths of the industrial and academic sectors to the mutual benefit of each, with the effect of building long-term innovation into the Canadian economy.
Accelerate has grown from 18 internships in 2007 to roughly 2,000 internships this year, delivered from coast to coast in every sector and academic discipline. The program is supported in part through Industry Canada's industrial research and development internship program, but also through the support of nine of our ten provinces. P.E.I. is just about to join, I think. Nearly 2,000 Canadian companies have collaborated with our universities through the program, and roughly 60% of those are SMEs.
Mitacs has several other innovation programs, but they're all built on the same general model of bringing together industry and academia in research projects to the mutual benefit of each.
The challenge, of course, and the reason there's so much discussion around this area, is that Canada suffers from a lack of productivity related to poor innovation. We have below average BERD spending, we're in the bottom third of PhD graduates per capita, and we're 14th out of 17 OECD countries in terms of patents produced per population.
But we do have exceptional output from our research universities. We're 10th in the world in per capita academic publications. We're even higher in some areas; we're world leaders in things like life sciences. Our universities are among the highest ranked in the world.
Canada's education landscape is shifting increasingly towards sponsored research, from around 13% of university research budgets in the early 1990s to over 25% by the mid 2000s. This process is continuing, including the reallocation of some tri-council funds towards sponsored research in the most recent budget, yet we have not witnessed a commensurate increase in the output of innovation or commercial products.
Nevertheless, last week's OECD economic report about Canada recommends greater integration of our universities and colleges with industry and says this is a key opportunity for boosting Canadian innovation. The challenge, of course, is how to do it effectively.
Currently the model for collaboration largely focuses on the commercialization of university discoveries through licensing or other IP transfer agreements. This generally occurs through tech transfer offices marketing university-produced IP to businesses. This research push approach creates challenges, especially where inventors and businesses may disagree over the value of early-stage research discoveries.
Mitacs' programs employ a demand-driven industry pull approach to research, where companies with a specific research need can seek to access academic expertise, which may involve some university IP. But the application of IP in this case is more clear and its value to both parties is easier to determine, posing less potential for disagreement.
Commercialization of university IP from the research push side can be supported through skills training for graduate students, post-docs, providing them business and entrepreneurship skills so that inventors are better positioned to commercialize their own discoveries.
From Mitacs' perspective, Mitacs takes no stake in IP. We leave it to the parties to navigate, often through agreements like CRIAQ's, but we also have some boilerplate agreements where we're able to facilitate where there are challenges. Generally, commercial rights that are directly related to the project are retained by the company, and academic rights and commercial rights not directly related are retained by universities.
Of over 4,000 projects Mitacs has supported to date, only a handful have had IP issues. We find in many cases it's not even worthwhile to have an IP allocation. For instance, in IT the shelf life of some of these inventions is so short the technology is outdated before the patent is actually granted. In these cases we suggest that companies will put in a small delay of publication and incorporate the invention into the products within that timeframe.
The Mitacs model also involves the highest industry contribution among collaborative research programs. For this reason the company is actually paying for something, and it often makes IP negotiations easier to handle.
Finally, the demand-driven industry pull model Mitacs employs means definitions are generally clear. Our projects often involve either one of two cases: either companies are applying pre-existing university-generated IP to a specific company problem or a company is applying university expertise to pre-existing industry IP. It is relatively rare for our projects to involve the creation of novel IP. This is because we tend to initiate collaboration a little further down the innovation pipeline, after that invention and discovery phase but before the strict commercialization phase.
In conclusion, we believe that collaborative research between industry and universities and colleges represents a valuable opportunity to boost innovation. Intellectual property is clearly an important component of this collaboration. But focusing on a demand-driven approach to research collaboration will help mitigate the challenges and will provide ample opportunity for all to benefit.
Thank you.
:
Thank you for the question. I think the reason we and others suggest a focus on SMEs is that we know they are a driver of job growth. They grow more quickly than their start-up counterparts or their multinational counterparts. In our context, we think of them as the gazelles, those that are on a large growth trajectory.
The challenge they often have is the lack of a sophisticated understanding of their IP as an asset and of how to manage it creatively. Often, as soon as they cross the border and try to start doing business in the U.S., they're surprised, shocked even, by patent litigation. They are caught flat-footed often.
I think organizations like ours can certainly play a role in helping educate the SMEs and the individual entrepreneurs. I think there's not a lot of education in place at the university level to help companies understand what happens when their IP strategy goes awry. I think there's an opportunity for us to act as partners as we try to seek a solution to help small-sized and medium-sized enterprises.
Two of the largest issues that companies say they have in patent protection—my colleague from Mitacs referred to them—are the cost and also the speed with which they can obtain these things. If there are measures we can take to alleviate those two items, I think that would go a long way toward helping mid-sized companies really protect their IP.
:
I think IP certainly does have an important role in that. In some ways that issue is more one of access to capital, and I know there are other conversations happening about how to increase access to capital for early-stage companies.
As you're building your start-up you're trying to figure out if you can grow it to a billion-dollar company in Canada, or if you can grow it to a certain point, at which time you need to figure out what your exit strategy is. So if I am acquired by another company, my intellectual property will go to that buyer. Often that acquiring entity is not inside Canada. And that's the real risk, in our view. If we're not growing a strong enough crop of mid-sized companies, our start-ups are acquired and their assets, including the IP that they've generated, end up leaving Canada, and any commercial exploitation of that IP results in job creation somewhere else.
I don't know that it's just an IP challenge; there's certainly a large capital aspect to it. But with those two pieces together, if we can grow our companies to a larger footprint and have them anchor here, that means the job creation and the consequent productivity will happen in Canada.
:
It is important to remember that CRIAQ is a network. For each project, there are at least two industrial partners and two research partners, in this case two universities or research centres. The project is developed within a team. On average, the projects include three or four small or large businesses, as well as three or four universities or research centres, if not more. The intellectual property that is developed is shared, but since the needs are expressed mainly by the large businesses, whereas the SMEs have access to this intellectual property at the end of the project, the results are gathered and used by the medium and large businesses, with the goal being to become more competitive on the market.
As for challenges related to intellectual property, it is always good to define things properly at the outset. That is why our intellectual property agreement enables us to lay the proper groundwork. There was no significant debate. There always is when the project is in development, but once the project is done, there aren't any problems.
Universities are first in line to request the patent. If they do not wish to, the business can. Even if the university does do it, the businesses have a licence that is free, universal and so on. So there is no debate over determining who owns the patent or intellectual property.
I'll give you a concrete example. A business recently requested a patent in relation to one of its projects. After one year, since the deadline was nearing, someone from the university called me to say that those participants would like to get the product back to eventually continue to develop it. I phoned the president of the SME, who told me that they did not intend to push the technology any further. So the university will continue to develop it.
I think it is important to specify that the relationship isn't bilateral, but multipartite. In fact, several partners share the intellectual property. An SME that is part of a project will be able to fully benefit from it, just like the large and medium businesses and all the other participants.
:
CRIAQ was created based on an open model of innovation. Every two years, we have a research forum, and businesses are asked to present project ideas before the whole group. We had one recently in May, and 600 people attended. The project ideas are relatively simple. At the start, there are three slides, then, afterwards, a discussion is held. People look for industrial partners and research partners. The project is developed jointly by the two parties. There are always surprises.
I'll give you a very concrete example. Two years ago, Bombardier proposed developing a new research theme on the inside of aircraft. We're talking here about interior design. At the time, we were told that no university researchers were interested in the interior design of aircraft, especially the interface between wood and polymer, in the case of corporate aircraft. There were 10 researchers. I was director of the mechanical engineering department at the École polytechnique at the time.
One day, a young researcher I knew very well came forward. He said that, while he was doing his doctorate in England, people had developed a technology for measuring the surface finish of Aston Martins, the type of car James Bond drives; they have a very fine surface finish. He suggested using that technology to measure the quantified finishes, the original finishes of Bombardier aircraft, when they leave the factory. That way, measures can be established when they come back. Bombardier would never have found that researcher and the researcher would never have found a business to promote his research.
The advantage of open innovation is that it gives rise to plenty of surprises, to partnerships that we didn't expect. At our last forum, the SMEs were strongly encouraged to put forward project ideas. Some of them did. The large businesses joined the SMEs, saying that they were going to develop this technology with them. Of course, the SMEs are well positioned to benefit greatly from these technologies.
:
Yes, that's a very good question. It's hard to answer that quickly.
There's an inherent conservatism, we believe, in Canadian industry in regard to adopting technologies early—to avoid taking the risk. That's number one.
Number two—and this is being addressed by the new government program around this issue—some of the large potential adopters and deployers of technologies are governments, and there hasn't been, until recently, an organized program and funding to bring in these technologies and to be the first adopter of some of them.
But we are seeing some promising signs in that regard, and also in some of the leading companies globally that are headquartered right in Canada. We are seeing some progress there as well, but we are behind—it's true.
First of all, I think it's pretty obvious that the common theme coming through here is collaboration: collaboration among you as partners and also between industry and the post-secondary institutions.
I'm from the Waterloo region as well. With my colleague, Peter Braid, I'm very proud to have worked with maybe all of you, or almost all of you—I haven't met Mr. Fortin.
Communitech has a great record in the Waterloo region, and one of the things I would like Ms. Peters and Mr. Kolada to comment on is the whole issue of IP as it relates to the university. The University of Waterloo has a regime that is a little different as it relates to intellectual property protection. You've given us the example of Desire2Learn. We know about RIM and the fact that these companies were started by students before they graduated.
There's some support for the idea that because of the freedom of intellectual property ownership following the producer, it would create more opportunities for commercialization, yet I noticed that in Mr. Kolada's comments he said that universities have “inconsistent” IP licensing. He went on to say that it creates some challenges.
Ms. Peters, could you just comment on your experience working in an incubator setting with many emerging high-tech companies, a number of them coming from the University of Waterloo and that regime, and how, in your view, that has affected commercialization? Maybe Mr. Kolada could comment from the other perspective. We had witnesses here—I believe last week—who commented on the fact that there are some areas internationally where there is a common IP regime across the university spectrum, and I don't see that happening quickly here.
I just wondered if you could follow up on those points. Thanks.
:
Sure, and thank you for the question.
I think you're absolutely right. Every Canadian university has its own method of IP ownership, its own policy. The University of Waterloo's policy is a creator-owned policy, which is quite different from other university IP policies.
The challenge I think goes to the theme that I think we've been exploring. Collaboration is really the key, and finding ways to reduce the hurdles for effective collaboration is the important piece, so organizations like Mitacs that can broker those good, solid partnerships between a business and a university and help make those connections are good ways to advance IP. The collaborative model that Monsieur Fortin has described again is a great way to do that.
I think the challenge that many universities have in thinking about IP and in negotiating agreements with industry partners is that if you're making a complex product—a BlackBerry, for example—the number of individual patents and licensing agreements for all of the parts and all of the software...it's a very complex item. The number of agreements with individual patent owners would be quite complex.
What often happens, especially if you are a smaller company, is that you're faced with this very challenging landscape of how many agreements, how many university partners, how many individual researchers, and what other industry collaborators need to be negotiated with, so is it worth it, how quickly can it be done, and how much is it going to cost? Those are the things that I think are top of mind for companies.
:
Certainly, and thanks for the question.
To clarify, this view comes from our portfolio companies, the SMEs that are trying to commercialize these technologies. Of course, we work very collaboratively with universities—they are members of our consortia—and we encourage that going forward.
What we hear about is how complex and difficult it is for the entrepreneurs. It seems that every time it's a one-off, so while we agree that it would be very difficult, given the history, to sort of standardize and harmonize the procedures across Canadian universities, efforts to make it simpler and more efficient, I think, could be implemented on a case-by-case basis, and we would encourage that.
Part of that, potentially, is around the incentives, around the tech transfer offices within the universities. It's sort of like a “no one got fired for buying IBM” type of thing. Similarly, no one got fired for putting the can on a potential technology that didn't get spun out.
If it does get spun out and the university doesn't get their fair share, and it ends up being a big winner, then it looks as though someone hasn't done their job properly. If there were more of an incentive to get these technologies spun out more effectively so that there was a portfolio approach—if there were some winners and some losers, and that was part of the accepted procedure—maybe these could happen a bit more efficiently and there could be a bit more volume, because, as I think Rob mentioned, sometimes by the time you get these things spun out and patented, the market's moved by.
:
Do I have another minute or two?
I'll just go on to Mr. Annan, then, with regard to Mitacs.
You indicated that your partnerships have grown. I think you said you went from 18 in 2007 to 2,000 in 2012. That's an amazing record of growth. Have you seen a corresponding increase in the number of IP applications, and then, more importantly, in actual examples of commercialization?
I know that's probably going to follow the growth of your partnerships by a few years, but are you seeing the corresponding movement as well?
:
Thanks for the question.
Yes, absolutely, we are seeing it. You point out rightly that there is a bit of a delay. We are very much still a research organization, so we don't tend to work very close to the commercialization end. We're really more in the middle, not right at the very early discovery end, so we're seeing things sort of moving through the pipe as we move forward.
There are certainly examples where bringing in researchers.... For instance, we had a small company in Ontario—SideStix, I think it's called—that was developing prosthetic devices to assist with walking, and they really needed just to do some quality control research on some of the materials they were using in order to put some of the final pieces together for that commercial application. That was completed and rolled out.
What we often see, as I said in my presentation, is that companies have intellectual property that needs some expertise, perhaps, not to develop brand-new IP but maybe to refine it or to get more information around it. That's a key part of that commercialization process, but it isn't necessarily geared towards the creation of brand-new IP. We're certainly seeing commercialization happening through our companies. There's no doubt.
:
Yes, it's fraught with a number of issues.
The principal issue is really just a matter of the risk/reward at that stage from an investment perspective and also from a customer adoption perspective.
Taking the customer's perspective for a moment, the risks from deploying a technology that has not been, in their view, sufficiently proven or de-risked are so great that they could jeopardize their business or people's lives. For example, in a wastewater treatment plant, a clean water drinking plant, or a multi-billion dollar facility where something gets implemented that has not been correctly scaled up, the loss, potentially, of business and opportunity would be massive. That's a big obstacle to adoption.
The key issue there is being able to get it demonstrated to the point where these issues are identified and worked out prior to commercialization. That takes money. There's no two ways around it for these capital-intensive industrial technologies.
Where the government can play a role, as I mentioned earlier, is in being a guinea pig, in some cases. They could use the assets the government owns to demonstrate in a controlled environment, and get some of these bugs worked out and the scalability issues addressed. If it's a lighting technology in some of the built environments, such as in some of the buildings the government owns, for example, it doesn't necessarily mean writing a cheque. But it could mean utilizing their assets in a novel way.
From an investment perspective, the venture capital community, which is the prime funder at these early and mid stages.... Certainly with clean tech, which is the perspective we bring, it's very difficult to make money in this valley of death stage. The amount of time between when they invest and when they can see an exit is long. And the amount of money required to get to that next valuation point and a potential exit is high. To the extent capital can be brought to bear, such as SDTC, in a situation where you're doing that de-risking and are providing the private sector some capital that matches theirs—it's a partnering process as opposed to just throwing money at things, which may or may not work—we find it to be very effective. In fact, we think it's a model that could be replicated in other high-capital-intensive industries beyond clean tech.
:
Absolutely. I have a couple of thoughts on that point.
First, on that adoption and piloting type of scenario, I think there are ways that.... If you set up things like the CANMET lab, for example, in Alberta, which is specifically for oil sands-related technologies, it's built; it's there specifically for those kinds of technologies at that phase. You're not picking winners. You're bringing them in and allowing them to use the facilities to scale up the technology. If you're getting a little bit downstream on that, certainly there would need to be fairly tight criteria in terms of which technologies could be brought in and demonstrated or piloted.
In terms of funding and the model that we use, I think it's very important that we're an arm's-length entity, and we do pick winners. That's our job. We're a policy instrument of the government. We operate within a very well-defined environment. Within that, we only fund the best technologies that we find.
So we think it's important that this kind of following the private sector money and matching it...but also being able to intelligently determine which technologies get funded and which ones don't is critical.
:
Thank you for the question.
It varies. We deal with companies, as you are aware, or projects that are in the development and demonstration phases—so completing the development and then doing a demonstration project. Depending on where in that spectrum they fall, the answer will vary. Obviously, the earlier they come, the less buttoned-down their IP typically is, but that's not always the case.
So when we say that the IP must be secured, we mean appropriate for that stage...and also to have a defensible plan. When we're doing our due diligence—I'm participating in a round of due diligence this fall—often what we're looking for is that they have started to do the work in terms of searching for prior art, making sure they have a path to market and a freedom to operate. It may be that it's using trade secrets, and not patents at all. It's to have a strategy that makes sense and that is appropriate for their sector.
Thanks to the witnesses for all their information today.
From my perspective, you all seem to be pushing for closer ties between universities and industry. That seems to be a theme that's emerging here, and I'm asking you to help me understand the balance that you're seeking or what might be appropriate. In terms of just focusing a bit, I'd like to think about a single professor in a university and how they are supposed to use their time.
Traditionally it's been that the professor teaches or publishes in academic journals, essentially, and all that information that they publish in academic journals is open for public consumption and for companies and other academics to look at and evaluate. A lot of this is built into the tenure structure, which is, of course, very hard to renegotiate. In fact, it's one of those sacrosanct parts of a university. We've had presidents and vice-presidents in here saying that they don't want to touch it with a ten-foot pole, because first of all, you would have faculty leaving, especially the high-priced faculty, who would leave if you messed with their tenure structure.
Research grants traditionally were established to maximize academic freedom, and this, in a way, attracted high-priced talent to universities. They could get big grants, they could look at whatever they wanted to, they would publish that and make it open to the community. And this may or may not have had a commercial application. That wasn't necessarily something they cared about that much and it wasn't essentially their job. Their job was to teach and to publish. So it was very much focused on the choice of the researcher.
But now the granting system is changing a bit. It's moving away from that. We see a decline in discovery funding, which encourages academic freedom, and it's more toward pushing academics toward collaboration with industry.
If we're thinking about a single professor in a university who has to decide between teaching and publishing in journals, and now is looking at industry collaboration, which is going to take time away from one of those two core functions, I'm just wondering how you see what should be sacrificed. Should it be the teaching side or should it be the open publishing side? Because that's what's going to happen.
I will leave that open to all of you to decide.
:
I can speak just a little bit about the Mitacs experience with that. What you say is correct. There are a lot of demands on a professor's time. In addition to teaching and research, there are administrative duties; there are all sorts of duties. So there's no doubt....
We have found a lot of success in employing graduate students and post-doctoral fellows as that bridge. They're able to bring a lot of the expertise from the university system, have access to the supervisor for consultation, but then also move into the industrial space. It benefits the student, who gets this experience in networking, but it also serves as a link between them. That's really effective.
I'll also just suggest that not only is the funding system changing, but academia is changing. I come from academia, and even when I was there you could see that professors were much more ready to work with industry; they see it as a positive, generally. They're just pressed for time. In the same way, companies, especially start-up companies or small and medium enterprises, are also pressed for time, and I think the lack of time and ability have been a real pressure point as well.
That's where we have found that by having people who actually go out and try to match.... We have a matchmaking service, effectively, and we're very proactive about it. Everyone is keen. We have very few people who tell us no. But we actually help put them together; they don't just find each other.
:
From my experience as a university professor for 30 years, as a global picture my recommendation is that 40% should be teaching, 40% should be research, and 20% should be administrative. With regard to that 40% on research, one has to realize that discovery grants are very small. A starting discovery grant is about $20,000 per year, and the highest is around $50,000—sometimes it goes to $70,000. You would be able to support two graduate students with this.
With collaborative research, our average project at CRIAQ is about $1 million, and the highest one is $1.8 million. With the amount of money we bring to professors for doing good research, as I was saying earlier, you have to balance it between....
You have to see that the professors there have very good science; they publish in good journals. One of them from McGill was telling me recently that he went to a conference and people from Boeing and Airbus were there. It was a plenary session and it was full, because he was talking about real industrial results from his projects. His graduate students are superb and doing very well.
I don't see a contradiction, a dichotomy between research.... Of course, you need to keep a balance between push, which means ideas that come forward from the university system, and pull. That balance, to me, would be in the range of 80 to 20, or something like this. That would be a very helpful research system.
:
I don't have specific statistics I can quote to you at this time. We do track companies that are ultimately exited down the road. Typically that's well downstream from us. We invest at a fairly early stage, pre-commercial. Most of the companies that would be acquired would be acquired later on, several years past our funding.
As I mentioned in answer to Mr. Braid's question, we believe that in clean tech the likelihood of the companies and the assets and the employees staying in Canada is higher. We have seen that. We also see more of these companies going public on the TSX, so they remain independent, trade on the Canadian stock exchange. I believe 30% or 40% of the clean-tech companies listed on the TSX are SDTC-funded companies. That's an available financing mechanism that allows them to stay and to be independent.
We've seen very good success in terms of our companies being able to ensure the Canadian shareholders and the Canadian government reap the economic benefits through the funding to SDTC. Of course, the environmental benefits are global benefits, so whether they're commercialized by an independent company, all of whose assets and employees stay in Canada, or acquired by a foreign company and deployed, we believe those benefits continue to accrue.
Of course, the shareholders do benefit through M and A; that's an important part of the life cycle. If investors and founders can't get some exits, then they won't be able to start up the next company and start over again.
Thank you, everyone, for your presentations this morning. It's given me lots of questions. I think we've caught some valuable information.
I'm going to start with one quick yes or no question for the entire group. Of course, Mr. Carmichael and others have mentioned that keeping companies Canadian and the work happening here is incredibly important, but recently we've seen a change to the Investment Canada Act threshold for review. Before, a review would be triggered if a company was worth $300 million or more. That threshold has now been raised to $1 billion.
A voice: In four years.
Mr. Dan Harris: Yes, in four years, but it's going up.
Does anyone in the group here think that's going to help keep companies Canadian? Just a quick yes or no.
We have some serious concerns about the changing of the threshold, because now when we talk about the disappearance of small and medium enterprises, these are all smaller groups, but when you get past that valley of death, when you start to grow and start to hit large evaluations, changing from $300 million to $1 billion, a lot of companies could fall prey to foreign takeovers without there being any review for net benefit to Canada. We find that troubling, especially when the government has repeatedly promised to define net benefit and has yet to do so.
Ms. Peters, on a similar topic, of course, we're studying intellectual property here right now. Intellectual property itself is not subject to review by Investment Canada. So if you take a situation like Nortel, their intellectual property was sold at a higher value than all the bricks and mortar assets. One of the questions we're raising here is whether we think perhaps intellectual property should be, or at least be considered to be, part of the review process. Do you have a comment to make on that?
:
I'm sorry, but I am going to answer you in English.
[English]
I think researchers are all a little bit anxious because of this pull, which Mr. Fortin mentioned as well, between discovery research and sponsored or industry-focused research. I'm not exactly sure where that balance is, and it will be different across the different disciplines. Some disciplines, such as engineering and physics, the sort of harder sciences, are often a little bit more attuned to working with industry. We're working proactively with other academic associations to try to also reduce the anxiety among other disciplines, such as humanities and social sciences even.
Once people start working with industry, they see it, in a way, as almost an addition to what they're already doing. You absolutely need a foundation of basic research, with the freedom to explore and have new ideas that no one can imagine. But supplementing that with an industrial application can actually benefit even the discovery side. It provides outlets for the students. There are any number of advantages. I think as people get more and more experienced with it, that tension is disappearing.
:
Anyway, as our economy gets stronger relative to the rest of the world, we are going to attract foreign investment. Many of us would think of that as a good thing.
I did want to follow up on that line of thought a little bit. When we talk about small and medium-sized companies being bought or pursued by foreign entities—and we've had a little bit of conversation about that—to what extent is that a positive?
Someone starts a company. They have a really good idea, they build it up a little bit, and a buyer comes along who offers them the opportunity to cash in, in a sense, and maybe use the money they make from that sale to start a new company.
I think this concept of serial entrepreneurship is a concept that's really important to the success of the tech sector particularly, but of many sectors. I see a few of you nodding. Maybe I'll start with David and then hear from each of you on it.
:
Thanks for the question. I'm glad to come back to this topic.
I have just a couple of things to bring forward. The first is that we're great at creating companies in Canada. We're a prolific creator of small companies. In fact, when I was a venture capitalist in the late nineties, some research I did showed that in the greater Toronto area there were more tech start-ups than in Boston and Austin, Texas, combined, and they are two very large tech hubs in the States, outside of California. So that's not the problem in Canada.
The problem is twofold. The first is killing off the underperformers. That's just part of the life cycle. Some companies should not proceed. They should just shut down early because they don't have a winning technology in the global marketplace.
The second thing is that we don't put enough money behind our winners. This is part of the issue in terms of companies getting bought too early. It's that we don't fund them to the point of a sufficient value threshold where they can attract a significant offer that is going to really deliver benefits to the shareholders and to the economy in Canada, or for them to be able to go it alone for an extended period of time—to be public, to be independent.
So there are a couple of things to consider in terms of that issue.
I agree that M and A by foreign or Canadian buyers is a good thing. It's absolutely necessary. But M and A too early is not a healthy thing.
:
At SDTC, I think we've shown over 10 years that supporting technologies that are good for the economy and good for the environment is not a contradiction in terms. They're actually synergistic. If you're developing a technology that saves money, that takes something that's a waste stream and turns it into a valuable commodity and a revenue stream, that creates a very strong business case.
We look at only those technologies that have a very strong business case, those that the market is pulling through. We talked about push and pull. It's appropriate in an academic setting to have the pull and the push. But when you get to the stage where SDTC is playing, we're looking for market pull. If there isn't a strong market pull for something, we won't back it.
So there's a natural synergy, because we have the customer or a supply chain partner in our consortium putting money behind this technology and saying, “This is strategic to our business. We're going to put our money into it to make sure it gets to market.” Well, how is that bad for the economy? And at the same time, we have measurable benefits to the environment. It's a core part of our program. So everything we back, we believe has both attributes.
:
I apologize. I'm glad you're wrapping up.
[Translation]
Mr. Fortin, I would really like to ask you some questions about MDA and RADARSAT, but I have unfortunately run out of time.
[English]
As such, Mr. Chair, I believe now would be the time to restart the debate on RADARSAT, in having MacDonald, Dettwiler and Industry Canada come to the committee to report as to what problems exist and why the program seems to be frozen in time.
We've heard time and again here from the government and from the parliamentary secretary that there is a commitment on their side. This debate was started nearly a month ago. We still have not seen any movement from industry or any public signs that funding is going to be allocated for the program.
In the context of Investment Canada and in the context of the IP study we're doing, this is a tangible area where a Canadian company has a lot of intellectual property and where we feel currently the government, through their inaction, is risking the health and the future well-being of that high-tech strategic asset, which was blocked from being sold to an American company to protect our interests.
I apologize to the witnesses for taking this opportunity to start this debate again, but this is a tangible area where we can have an impact, and as of yet we have not got agreement from the government side to bring MDA and Industry Canada, as well as, thanks to Mr. Regan, the industry minister, to come and explain what the delays are or to establish a timeline to see what we can do to move this program along.
:
Montreal no doubt would.
Let me read something to you, Mr. Clément.
[Translation]
I will read you a paragraph from a report that was drafted recently.
[English]
Dr. Richard Hawkins at the University of Ottawa, in Looking at Innovation from a Uniquely Canadian Perspective, wrote:
...there is a significant risk that too many of our policies and public resources for innovation and industrial diversification will be directed inefficiently to markets in which we have little or no comparative, positional or competitive advantage. This creates a high risk that too few resources will flow to promoting productive and sustainable development in markets with immediate growth potential and in which already we enjoy considerable and even potentially exclusive opportunities and advantages over the long term.
He also talks about the concern that we're overly dependent on natural resources and financial services.
Do you see that as a concern, and how would you respond to it?