Thank you for giving me this opportunity to speak with you today.
I will speak, I think, for a little less than eight or nine minutes, simply to give you the background and key points in the review on IP issues that I conducted for the U.K. government. That review was commissioned in October 2010. It reported in May 2011, so just over one year ago. The government broadly accepted the ten policy recommendations of the review, and has subsequently been engaged in detailed pre-legislative consultation, which is not yet complete. The parliamentary aspect of the carrying forward of the review's recommendations remains before us, and therefore subject to the usual uncertainty of that process.
The review itself was commissioned by Prime Minister Cameron, who said that he wanted a review of IP issues that specifically addressed the interface between IP law and its effects on innovation and growth in the economy. So it was a relatively tightly focused review, which we were given six months to complete.
The main points arising from the review were at the cross-cutting level, as it were: the observation that a good deal of decision-making on IP matters in the U.K. has, in my judgment, not been based upon the best evidence available for those decisions and to urge government in the future to avoid that being the case.
There were recommendations in the review on the unitary European patent. That is making very laboured progress through the system in Europe. There were recommendations on the access of smaller firms to IP law advice and systems to support their effective podification in the IP-based economy, and there are some recommendations around the issue of design rights, which the review suggests, in the U.K. context at least, has been a relatively neglected area in IP. But the aspects of the review that have caused most public discussion, because these are the aspects of the review where the conclusions are strongest, are that, in my judgment, U.K. law on copyright no longer fits the purpose, it last having been redrafted prior to the Internet era and therefore, not suprisingly, now showing significant signs of unfitness for purpose in what remains a very boisterous digital age.
The specific sets of recommendations around copyright involve urging the U.K. government to take more advantage than it has in the past been inclined to in terms of activating exceptions to copyright coverage available in the framework of European law within which U.K. law sits. That's one set of recommendations, a set of recommendations designed to release the very substantial buried treasure of orphaned works in different media and various ideas at different levels of legislative difficulty in terms of seeking to find ways of both making copyright law in practice more readily adaptable to further technological change, but also seeking to ensure that copyright law itself is able to be actioned satisfactorily by rights holders whose rights are being infringed through breach of copyright.
The argument that I used on the latter score is that I don't think we are going to get to a position again where copyright infringement ceases to be a major problem, unless and until we also address the respective working of markets in digital content, and to that end, I suggested a major change in approach that actually doesn't require any legislative action, which I called the creation of a digital copyright exchange.
That idea is simply to build upon the very considerable amount of work that is already being done to ensure that in the world of digital content across different media there are interoperable databases that will make it easier, quicker, and lower cost to find out who owns rights, and on what terms they may be licensable, and then to move from that to a database-based trading system. That already exists in some parts of these markets, but it would be to seek to accomplish this on a thorough and cross-media market basis.
The argument of the review is that if these changes are carried forward there will be measurable benefits for the U.K. economy. The economic impact assessment that was done at the time of the review by a small group of economists who were invited to do that estimated that the effect on the U.K.'s gross domestic product will be to add between 0.3% and 0.6% per year of growth to the British economy. This is a set of figures that of course has been much debated. It's a range. It's based on economists' assumptions. But I don't think there has been any serious challenge to the idea that reform of this kind would be economically positive if successfully carried through.
That concludes the remarks I wanted to make before inviting questions from your committee, sir.
Good morning, Mr. Chairman and honourable members of the committee.
Thank you for the opportunity to appear here on behalf of Dalhousie University. As you mentioned, my name is Erica Fraser, and I have the longest title in the world, manager of technology commercialization in engineering and sciences.
The industry liaison and innovation office is part of the research services office at Dalhousie University in Halifax, Nova Scotia. Our role at Dalhousie is twofold: we do both industry liaison and outreach as well as technology transfer. In technology transfer ILI works with researchers at Dalhousie and our affiliated teaching hospitals to protect, manage, and commercialize intellectual property developed at the university. In its industry liaison role, the office develops and manages research and development collaborations between industry partners and the university, including the negotiation, protection, management, and licensing of any resulting IP.
I believe that in your meeting of May 17 you received a good description of the role of technology transfer offices in Canadian universities. As such, I would like to address three challenges that we face in maximizing the innovative impacts of university research under the current IP regime.
The first challenge is that at Dalhousie, as with most universities, there's an inherent tension between the goals of academia and the culture of publication and the need to patent inventions to maximize the innovative and economic productivity results from our research. This disconnect results in the need to submit patent applications very early and often in a rushed manner. This can result in patents of a lower quality, either due to rushed drafting or the fact that the technology is not sufficiently developed with as much supporting data as would normally be desirable. While U.S. provisional applications offer a method of putting protection in place prior to a publication that is relatively cheaper, although not inexpensive in absolute terms, and sometimes, but not always, more expeditious, there is no such method available for filing in Canada. As a result, our first filings are done almost exclusively in the U.S., and Canadian applications may or may not follow 12 or 30 months later in the case of a PCT national base application. This depends on the potential for commercial partners and their potential markets.
A second challenge faced by our office, as well as the SMEs with whom we work closely, is the limited availability of registered patent agents outside major centres such as Ottawa, Toronto, Montreal, and Vancouver. Further, the legal fees associated with obtaining legal services through lawyers and patent agents from these centres are higher than legal fees in smaller centres. I would submit that if more patent agents are distributed across the country, accessibility would be improved. I believe that this happens in part because of a lack of awareness of both the possibility of becoming a patent agent as well as the process for becoming one, as well as the lack of local support and mentoring available to those attempting to become qualified patent agents. I also believe this can be ameliorated through outreach and education, perhaps by CIPO, the Canadian Intellectual Property Office, to people with a technical background regarding the option of becoming a patent agent as well as the provision of support for those attempting to become qualified across Canada.
I would like to draw this committee's attention to the final challenge, the ability of universities to protect their patent portfolio. As our budgets are very tight and patent litigation is very expensive, it is a challenge to enforce our patent rights. As such, we would welcome alternate enforcement options that would expedite and reduce costs, such as, for example only, a specialty division of the Federal Court, as was referred to in one of your previous proceedings.
I believe all these issues boil down to the larger issue of accessibility to high-quality patent protection and enforcement. With this improved accessibility to the level of protection, universities and our private sector partners can gain the maximum economic benefits from our innovations.
Good morning, Mr. Chairman and members of the committee. Thank you very much for the opportunity to appear here and discuss the experiences of our company with regard to intellectual property protection and exploitation.
I'll begin with a few words about our company. Bubble Technology Industries was founded in 1988 and is located in Chalk River, Ontario, just a couple of hours west of Ottawa. We are an innovative, 50-person company, Canadian-owned, which provides products, services, and contract research primarily in the areas of radiation detection and explosives detection. We have over 400 customers in 25 different countries, and we've conducted over 100 research programs for customers around the world and here at home.
Our technology has been used to protect people and infrastructure at major events, including the U.S. Presidential Inauguration, the Super Bowl, the World Series, and the Olympics. Our technology has flown on over a dozen space missions to support research aimed at protecting astronauts from radiation hazards and is also used to protect nuclear submariners while they are deployed at sea.
We have a creative, highly skilled staff. Our cornerstone of success is the ability to generate innovative ideas and then carry those ideas through all stages of research, development, production, and deployment.
As a small company entrenched in R and D, our approach to protecting intellectual property is a balance between costs and benefits of protecting a good idea. We generate many ideas that could lead to a patentable invention, but we only file patents for a small fraction of them.
This decision to patent or not to patent is a business decision. There are many costs associated with the patent process. We start by preparing an invention disclosure, which includes researching other patents and published literature to ensure that the invention is novel. We then engage with a lawyer to prepare the patent application. There are fees associated with filing the application, and those fees increase as you increase the number of countries in which you seek protection. There are often iterations with the Patent Office to define the scope of the patent. And if the patent is granted, there are annual maintenance fees for the lifetime of the patent, typically 20 years. All of those steps simply get you a patent.
If someone infringes upon your patent, you are then facing significant legal fees to enforce your patent, and those costs are not well bounded. As a result, a small company like ours must be selective about which inventions are protected by a patent. We patent inventions that have a clear and significant potential market and where holding a patent will provide us with a meaningful competitive advantage.
Aside from patents, we employ other approaches to protect our IP. It's worth noting that in the patent process, your application, which includes a detailed description of your invention, is laid open for public review after 18 months. This means that if your application is rejected, the IP continues to reside in the public domain and anyone can then use that knowledge. As a result, in some cases we rely on trade secrets to protect our IP or we choose to proactively publish the information to prevent other entities from filing patents for similar inventions.
Presumably one of the key reasons this committee is studying the intellectual property regime is to determine how best to promote the development and exploitation of intellectual property in order to benefit Canada. It is relevant to recognize that there is a technology development continuum. The continuum must start, of course, with high-quality research at the front end to generate new ideas. These ideas then get transformed into inventions through applied research and development, after which patents and other IP protection can be implemented.
However, at this point in the continuum many organizations encounter what is referred to as the technology valley of death. This is the point where a technology has reached a prototype stage, so it is too mature to qualify for R and D support, but the technology is still too immature to be launched commercially. This is the stage where the technology may need a few engineering refinements, product testing and certifications need to be done, marketing and training materials need to be developed, and production lines need to be set up. All of this must be done before the technology can be successfully commercialized.
When a technology fails to cross the valley of death, the value of the invention dies, and no benefits--economic, societal, or otherwise--are realized.
The government currently promotes research in Canada through a number of important programs, such as the SR&ED tax credit program and through NRC-IRAP. It is important to continue funding these programs in order to generate new inventions. In addition, the government has recently started the Canadian innovation commercialization program, which promotes testing and adoption of near-commercial technologies. This will hopefully help to transition some technologies into the commercial market. However, further focus on supporting small and medium companies to bridge the valley of death will ensure that Canada reaps the benefits of IP developed in this country.
In addition, in our experience there is one other notable area where the government can support the exploitation of IP. The current Treasury Board policy on IP arising under crown procurement contracts stipulates that the title to IP created by the contractor while performing a government contract shall rest with the contractor, in order to promote commercial exploitation. This is a good policy to promote commercialization, but there are exceptions to the policy that are often invoked. For example, a national security exception is often used in defence contracts. While it is critically important to ensure that national security interests are prioritized, the exception, in some cases, has become almost the default policy. This can create a barrier to commercialization.
In Canada, the defence market can be relatively small for certain technologies. However, if the contractor owns the IP and can readily commercialize and sell the technology to other allied nations, it can increase the market size and therefore reduce both the unit cost of the technology and the time to market, which benefits everyone. Thus, a more limited application of these policy exceptions would be beneficial to Canada.
Thank you for the opportunity to speak today. I'm happy to answer any questions you may have.
If it is okay with everyone, I'm going to present in English. I think it will be easier.
I'm going to be discussing policies to encourage innovative R and D in the Canadian pharmaceutical industry and basically show how these innovation policies right now are very costly and also very ineffective. I'll give just a brief overview of the political economy of the sector and then a better understanding of these innovation policies in terms of costs and benefits.
In terms of the overview of the political economy, we have to keep in mind that we have core companies, basically, what's called “big pharma”. They represent two-thirds of world market share. At the same time, two-thirds of the Canadian market is controlled by 15 companies. I think the focus must be more on these companies.
Over the last 30 years we have seen that in terms of increasing profitability, there has been an important increase in profits for these companies. If you compare them to dominant companies in other industrial sectors, you'll see a differential accumulation, so basically an increase in the gap in profits for the pharmaceutical sector. Now, this could be normal, but the problem is that when you look at what has been going on in the pharmaceutical sector in the last 20 years or so, everybody agrees that we have this huge innovation crisis. In terms of therapeutic innovation, right now the situation is a bit of a catastrophe. So how can we explain this paradox of having increasing profits while at the same time decreasing therapeutic innovation?
We need to understand that basically the dominant business model of the pharmaceutical sector right now, not only in Canada but globally in the pharmaceutical sector, is way more focused on promotion, for example, than on real innovation. The patent system right now allows these companies to focus more on promotion, because they have large protection for the very little innovation they bring to the market, for example, with metered drugs.
The dominant business model is based on heavily promoting new medications that are insignificant in terms of therapeutic innovation. The existing financial incentives encourage large-scale promotion, not innovation.
On the question of innovation policies specific to Canada, we must keep in mind that patent policy is one of them, but we do have other innovation policies that are important for the sector. First, there are tax credits and the SR&ED program, but we have other tax credits as well. More or less, companies benefit from a 48% tax credit on R and D expenditures.
We have a system in Canada with the Patented Medicine Prices Review Board that sets the price for patented medicines in such a way that we always aim to be the world's fourth or fifth most expensive country, which is very problematic. This is something that is very costly. There is just no reason, for example, that when we compare ourselves to France or to the U.K., we spend 10% to 15% more for patented prescription drugs. The overall cost of that basically is that if we had a price comparable to that in France or the U.K. we would save around 12%, or $1.5 billion.
We have other innovation policies, such as the 15-year rule in Quebec and also some direct subsidies in Quebec and Ontario. If we do the math on all of this, basically, if you look at pharmaceutical R and D in Canada, the total gross private R and D expenditures are $1.2 billion, but if you take into account the tax credits, it means the net private R and D expenditure to the pharmaceutical sector is $640 million that is being spent by the companies.
If you add up the amounts, a conservative estimate of the cost of direct and indirect subsidies is $1.7 billion. So right now we have a system where Canadians pay at least $1.7 billion in different direct or indirect public financial subsidies to the pharmaceutical sector in order to generate a total of $614 million, for a rate of return of negative 65%. If you were running a company with this type of result, you would be fired on the spot, but this has been going on for at least the last 20 years.
In terms of innovation policy, the problem is that it's not working. The common measure to look at R and D intensity in the pharmaceutical sector for a country is the ratio of R and D to sales. It has been declining since the mid-1990s. It was 6.9% in 2010, and in 2011 it was still declining.
When we compare ourselves to other countries, we're not part of the leading countries in terms of the ratio of R and D to sales. We're more on par with Cyprus and Romania right now.
How can you solve the problem? My take on the issue is that we must not plow more money into the system. I have three very simple recommendations.
First, we need to change the way we set prices, for example, to aim at countries like the U.K. or France in terms of prices, so it would save us at least $1.5 billion.
There's discussion with the CETA agreement right now, Canada and Europe. My take on this is that you need to scrap the patent linkage regulations. This is costly, it is ineffective, it is a waste in patent litigations, and it creates real insecurity for brand-name companies in terms of the length of market exclusivity.
Finally, if we want to go for a patent term restoration--for example, the delay for approval--to get it back in terms of extended patent protection, it's not a problem. It's just a patent. It's not a right. It's a privilege granted by the state, and the state can require specific conditions to grant this privilege. The idea would be to impose the condition that a significant portion of these additional revenues because of patent term restoration be reinvested in Canada. I think you would really create a knowledge-based economy.
Many academic institutions face the same challenges.
As we study this as an issue, obviously innovation is something we're clearly focused on, our government is focused on. We want to find a way to better assist or enhance the opportunity for innovation to ultimately commercialize, so how do we pave that road a little more smoothly so that we can assist in that, or at least take the objections or the hurdles out of the way?
I had a question to you specifically. Do certain IP policies increase incentives for business to invest or partner in research projects with university researchers? I understand the issue, for example, of the undeveloped technologies, the rush to market, and maybe we'll talk later about the valley of death—I'd be curious to hear more on that. I wonder if you could just address that as a question.
I think within certain applied research grants these days there is provision for IP funds for filing. For example, the NSERC I2I is a great example of having funding available for patenting. I think that's great.
I think where there is a little bit of a disconnect is perhaps with a lot of funding available through NSERC—and we love this funding, don't get me wrong—such as the Engage grants, the Interaction grants, and the CRDs. All of these are ways of connecting industry with the university and promoting that collaborative research. But there is no IP funding at the end of it. One of the things we often hear from companies is that it's great that this has been developed, but they don't have the money to protect it either.
If there were IP funding available to help with the protection of those technologies and those innovations developed through collaborative research, I think that would go a long way to helping companies work with the university even further to bring those innovations to market.
Thanks to our witnesses for being here.
I would like to follow up with Ms. Fraser on the IP policies across the range of Canadian universities, the evolution of those policies, and the continuum of policies that I know exist across the different universities. For example, at the University of Waterloo there's a policy that gives a large degree of freedom to the professor and the graduate student to retain ownership of their intellectual property.
I'm wondering, is there any appetite across Canadian universities to somehow standardize that IP policy? I'm sure there's a large degree of desire to retain autonomy at that level, but I'd like your input on that.
Secondly, how do we compare to other international partners in terms of the university regime, as far as it relates to protection of intellectual property?
Thank you. That's a very interesting comment. I think it touches on the fact that in all the things we do here our goal always has to be to find the right balance.
I think that's one of the main purposes of this study. It's to look into intellectual property to actually discover and find the right balance between patents and trademarks and everything else we're talking about, so that we are incentivizing innovation and not stifling it through the rules.
Now, on that, I'm going to go across to Monsieur Gagnon.
My comments will follow up on Mr. Regan's comments. You said that a total of $1.7 billion in subsidies goes to the pharmaceutical sector, which gives us approximately $640 million in return.
At the same time, compared to countries like France and Great Britain, at the end of the day, we spend an extra $1.5 billion on the pharmaceutical sector. I cannot believe that we have to spend more money although we have subsidies. We are spending an extra $3 billion to get a return of $640 million.
Do you have a suggestion? You said that we should perhaps consider lowering the prices to be in line with France and other comparable countries? Do you think we should decrease or increase subsidies for the pharmaceutical sector? Do you think that this would be useful? Or would it be possible to invest that money more specifically in innovation?
Thank you to all the witnesses today.
I'm going to zero in, Ms. Ing, if I could, on your reference to SR&ED and your reference to concerns you have about shipping costs to direct funding mechanisms of some sort. But one of the things that was interesting was that you seemed to have had a really good experience with IRAP.
I would note that in the most recent budget, the budget we're going to be voting on for hours and hours over this week, one of the measures we've taken is to modify SR&ED. We have maintained significant portions of it but have modified some of it. Part of that transition, in terms of the dollars, has been to double the IRAP program, for example. I think what you're saying is that you like that program, because it's available to everybody. It doesn't pick one sector over another. It's available to everybody. I don't know if you want to elaborate a little bit more on that.
We definitely do outreach to our researchers—we being the industry liaison and innovation office. We do outreach to our researchers, making sure they're aware of what programs are available.
We do matchmaking with industry partners if there's somebody in the same field. Oftentimes it's push and pull. We often have researchers coming to us with their ideas, but we also have industry coming to us saying that they need help and asking us who we can suggest.
In both of those ways, we try to make those connections.
As for the other way, oftentimes when a discovery is made without an industry partner, then that discovery or invention is disclosed to our office, and we attempt to commercialize it by finding industry partners for it. So while it's not always linear, such that you have this sausage machine, I would say that there are various mechanisms by which, at any point, that interaction can be made.