I call the meeting to order.
It is exactly 3:30 p.m. Welcome, everybody, to meeting number 25 of the Standing Committee on Industry, Science and Technology.
Today we're going to hear from Michel Gérin, special adviser with the Intellectual Property Institute of Canada, and Jeffrey Astle, past president. From the Quebec Furniture Manufacturers' Association we have Pierre Richard, president and chief executive officer, and Réjean Poitras, vice-president, board of administration. Finally, we have Confection 4e Dimension.
A voice: They're not here.
The Chair: Oh, they're not here?
A voice: They were going to be by video conference, but they were bumped back for technical issues.
The Chair: Skip that last one. There's a technical issue. They're not here today.
All right, we're going to get right into it. Thank you, gentlemen, for coming in.
We'll start with the Intellectual Property Institute of Canada. You have 10 minutes.
Good afternoon. My name is Jeff Astle, and I'm a member and past president of the Intellectual Property Institute of Canada, or IPIC. I am a patent agent, a trademark agent, and a lawyer, and as such, I work as intellectual property counsel at Pratt & Whitney Canada in Longueuil. With me is Michel Gérin. He was our executive director for 14 years, and he is now an adviser to IPIC and an honorary member of the institute.
IPIC is the professional association of patent agents, trademark agents, and lawyers practising in all areas of IP law. Our membership totals over 1,700 individuals from across the country, and we have been supporting innovation for 90 years.
I want to thank the committee for inviting IPIC to appear today. We will be making some recommendations to help ensure that Canada's IP system functions well, is competitive, and supports the manufacturing sector.
Before we go further, I would be remiss not to take this opportunity to speak about an important improvement to the IP system that came into force in June. The Patent Act and the Trade-marks Act now include sections that protect confidential communications between clients and their patent and trademark agents from disclosure in court by a privilege akin to solicitor-client privilege. These enactments bring Canada's laws into line with other jurisdictions and will promote full, free, and frank communications between manufacturers and their innovation professionals.
Although I'm not speaking on behalf of Pratt & Whitney, I will say that our company and other innovators had sought these amendments. Congratulations to the previous government for putting the legislation forward, to the current government for ensuring that it came into force, and to the officials at Innovation, Science, and Economic Development Canada for their diligent work on this issue.
The natural progression to these changes is now to modernize the regulatory framework for patent and trademark agents. I will come back to that in a moment, but I will first ask Michel to speak about some other recommendations.
The Intellectual Property Institute of Canada, or IPIC, proposes that the federal government create a first patent program. Such a program has existed in Quebec since 2015 and offers financial assistance to help businesses obtain a first patent or an industrial design. The assistance can cover as much as 50% of eligible expenses, up to a maximum of $25,000. Such a program at the federal level would offer assistance to inventors and SMEs at a critical point when they have developed an idea to be protected, but may not have the necessary financial resources to obtain this protection or may not understand the importance of doing so. It is estimated that the program cost would be approximately $25 million a year.
Second, the federal government should adopt an innovation box model that provides favourable tax treatment for income derived from intellectual property, or IP. The expression "innovation box" comes from the checkbox provided on tax forms to identify revenues eligible for a reduced tax rate. The expression "patent box" is also used.
Tax incentives related to research and development activities, or R and D, support the invention process, while innovation boxes support the commercialization of these R and D activities. These incentives are complements and not substitutes. They work together to improve both R and D activity and commercialization activity in Canada.
and it is important that the government and Parliament continue to devote resources and time to ensure that IP laws remain current and competitive. We hope that you, the members of the industry committee, will be busy during your term in examining more changes to IP legislation.
Jeff will now speak about a recommendation that would require legislation.
As I said, I am not speaking on behalf of Pratt & Whitney Canada, but I am happy to share my experience as someone who works in IP within a manufacturing company. Literally, my office is 30 feet from the heart of our manufacturing operations.
Our company designs, develops, and manufactures gas turbine engines for airplanes and helicopters used around the world. Competition in this field is fierce and relentless. The company invests over $400 million a year in R and D and has close to 1,500 employees working in that area. For example, we are constantly striving to improve our products through innovation in performance, weight, and cost. Any development in one of the components that go into an engine can give us an advantage that in turn helps to keep and create jobs in Canada.
Let's take, for example, a replaceable component in a jet engine. An innovation in that component can make a significant difference in engine performance. We can have a patent on the component that protects its shape, its material, or its coatings, for example. We can also have a patent on the manufacturing process for the component if we invented the way to produce it.
We rely on the patent agents with whom we work to ensure that we obtain patents suitable to prevent our competitors from copying our inventions. If we didn't, we would lose the advantages that we achieve through our investments in research and development. For the agents to do this successfully, they must understand the technology and, more importantly, know all the intricacies of patent law, the rules, and the processes. I put a lot of faith in those patent agents, and they have the pressure to deliver. For example, when there is a patent dispute, trials can hinge on a word in a patent claim. I lived through one in the United States in which the stakes were in the tens of billions of dollars.
This is why we need a modern regulatory framework for patent and trademark agents, a framework on which innovators of all sizes can rely to ensure that agents are competent and that they are keeping current. They should see a system that is the same as the one they are familiar with for the regulation of other professionals that they hire, such as engineers, accountants, and lawyers.
Currently, we have only part of a system. The Canadian Intellectual Property Office, or CIPO, administers qualification exams with the assistance of IPIC. This requirement has contributed to the excellence of the profession. However, there is no mandatory code of ethics, no clear discipline process, and no mandatory continuing education. Therefore, we need to complete the regulatory framework.
In this regard, IPIC is pleased that ISED recently held a consultation about the governance framework for agents. A question is whether CIPO should continue to regulate agents or if the profession should be self-regulated.
For the manufacturing sector, the choice of the model is very important because the IP system needs balance.
CIPO has examiners in its patent office who decide if an applicant gets a patent or not. CIPO has an important public interest role in preventing patents from being issued if they are not warranted. It represents the side of the equation that restricts the scope of patents and trademarks and industrial designs so that we maintain a healthy and competitive marketplace.
CIPO has a budget of about $150 million and employs close to 1,000 people to perform its side of the public interest equation. For the system to work well, to protect and thereby incentivize innovation, we also need the other side of the equation. Agents therefore play an equally vital public interest role in seeking those patents.
Obtaining a patent is a back-and-forth process. I endeavour to seek protection that is as broad as possible for the company. A patent examiner may respond that protection of the scope that I am seeking is not allowable in view of the state of the art. Remember that we're dealing with cutting-edge technology, and things are, by definition, not obvious. Through this process, we isolate the invention.
That is where the agents come into play. Patent agents help clients craft patent claims in response to such examiners' feedback. To help properly protect the client's invention, an agent helps assess the validity of those claims and what would infringe those claims. They level the playing field for all applicants, whether big or small; ensure that there is balance in the system; and represent that side of the public interest equation.
I think we can all agree that given this role, they must be competent, must act ethically, and must keep up to date.
If CIPO sets the rules and training requirements and administers discipline and all other functions, it will have a conflict between its primary role of IP gatekeeper and its secondary role of ensuring that the innovators are well represented. The inherent bias in CIPO removes the balance in the system if it regulates agents.
My interests as an innovator are not well served if I can't rely on the independence of my agents. This was stated 20 years ago by a public administration expert, Professor Bruce Doern of Carleton University, in a report commissioned by CIPO in which he said,
|| ...there is no convincing rationale for the patent and trade-mark profession to be so directly supervised by an agency of the federal government in matters of its professional qualifications.
|| As the federal agency involved, CIPO should focus on its more complex mandate tasks and should not be so closely regulating one of the client groups that it must interact with in other vital public interest ways.
Mr. Chair, committee members, ladies and gentlemen, good afternoon.
My name is Pierre Richard, president of the Quebec Furniture Manufacturers' Association and president of the Canadian Furniture Show. I am accompanied by Mr. Réjean Poitras, president of Amisco, a large furniture manufacturer in Quebec. He is also the vice-president of the board of directors of the Quebec Furniture Manufacturers' Association.
I am going to read our presentation, but Mr. Poitras will have very direct responses for you, due to his experience as president of a manufacturing company.
We wish to thank you for inviting us here today. We're pleased to present to you an overview of the Quebec reality, but also of the Canadian reality in furniture manufacturing. We have tabled a brief that gives you quite a bit more detail than what I will be presenting in the next few minutes.
Let's begin by presenting an overview of the Canadian furniture industry.
This industry is composed of manufacturers of residential, office and institutional furniture, related products, and kitchen cabinets. Canada is the world's eighth-largest furniture producer. It is distinguished by the superior quality of its products, components, finishes and assembly, their comfort, design, customization, customer service, and the great value-for-the-money aspect.
The Canadian furniture industry employs 63,300 workers, almost the same number of workers as the aerospace industry. The industry is largely composed of SMEs, with 97% of manufacturers having fewer than 100 employees. It is also the country's second-largest consumer products industry. Quebec and Ontario are the main furniture-producing regions: 36% of Canadian producers are in Quebec and 36% in Ontario.
In recent years, the Canadian furniture industry went through a difficult period due to three main factors: first, the proliferation of products imported from countries with low production costs; second, the rise of the Canadian dollar; and third, the economic and financial crisis of 2008-09. The furniture manufacturers who went through this period showed resilience and creativity by enhancing and increasing their efficiency.
Before I go further, allow me to say a few words about the Quebec Furniture Manufacturers' Association.
The QFMA was founded in 1942. We will be marking our 75th anniversary in 2017. It includes residential, office and institutional furniture manufacturers, as well as manufacturers of furniture components and industry suppliers. Most of the businesses are Quebec-owned.
The QFMA is also the owner and producer of the Canadian Furniture Show, created in 1972. This annual show is held in Toronto and, with more than 7,000 participants from Canada and other parts of the world, it is one of the five largest trade shows in the country.
Let's take a look at the impact of Quebec furniture manufacturing on the Canadian economy.
The Quebec furniture industry is a significant engine of prosperity. It generates annual revenues of $3.4 billion. Looking only at the sectors represented by our association, annual production expenditures total $2.3 billion. This amount generated close to $1 billion in wages, about $220 million in revenue for the provincial and federal governments, and $207 million in parafiscal revenue.
We note also that the Quebec furniture industry is the top client of the Canadian hardwood forestry industry. It accounts for 24,000 jobs, making it one of the seven-largest employers in Quebec's manufacturing sector.
We will now present a brief overview of the main issues and challenges in our industry, as well as our recommendations.
I will speak first about research and development.
As you know, R and D costs are extremely high, with no guarantee of success. For our industry, R and D activities include new product development as well as manufacturing innovation, and are seldom accompanied by the obtaining of patents. We suggest enhancing the accessibility of assistance programs allocated to R and D and ensuring their availability to guarantee ongoing innovation within our industry.
In terms of jobs, the furniture industry realized employment growth from 1997 to the turn of the millennium, peaking at 117,000 jobs in 2000. Since that time, there has been a significant drop. As of 2014, there were only 72,000 jobs in the industry, including self-employed workers. This represents a drop of 39% during that period.
The industry is also facing a shortage of specialized labour. This shortage has been amplified because of a negative perception fuelled by plant closures, which have drawn considerable media attention. Among our recommendations, we suggest that the government organize major promotional activities to create awareness of the industry and careers in this field.
I would like to say a few words on the subject of e-commerce.
Our industry is lagging in this area. Furniture manufacturers, which are mainly composed of SMEs, simply don’t have the means to develop tools to allow them to either work with the major online retailers or directly manage online transactions and relationships with consumers, in addition to marketing their products.
We suggest subsidizing the acquisition of the necessary equipment, providing financial support for the training of employees, and lastly, offering tax relief measures on the profits derived from e-commerce for manufacturers getting into this area for the first time.
Let us now move on to safety and environmental issues.
Public safety and environmental standards are continually going through a revision and updating process here in Canada, as well as in the countries to which we export. The QFMA and its members are obviously in favour of any measures aimed at improving public safety and environmental protection. This being said, we recommend ensuring that the implementation of new Canadian measures is done in collaboration with the industry and within a reasonable time frame and that, in certain cases, this implementation is accompanied by transitional measures.
Let us address exports, a very important field for our industry.
The United States is the favoured market for Canadian furniture manufacturers. In fact, for Quebec, 94% of our furniture exports are shipped to the U.S. In addition, furniture manufacturers have to constantly innovate and develop new products. They rely on Canadian and American trade shows, which are their main showcases to reach the major buyers.
Among our recommendations, we propose devising a furniture export strategy based on Canadian and American trade shows and providing financial support to take part in these shows.
With all these changes, it is clear that the Canadian furniture manufacturing and retailing industry has been transformed and that it is important to draw a precise profile.
The development of the industry, in Canada and internationally, requires a thorough knowledge of all of the stakeholders, which no one seems to have. To ensure the success of activities at the international level, the furniture industry needs to be able to develop a better understanding of its market and of the U.S. market. We suggest preparing a profile of Canada's furniture manufacturing and retailing industry, as well as conducting market intelligence, including analysis of the competition, the clientele, decision-making processes, and selection criteria.
In conclusion, the Canadian and Quebec furniture manufacturing industry has gone through a very difficult time. It had to enhance and increase its efficiency. The future shows modest signs of optimism with the emergence of new opportunities. Our manufacturers are now well-positioned to take advantage of these opportunities and continue to contribute to the wealth and prosperity of the country.
However, in a context of constant change and a highly competitive global market, we remain vigilant, since nothing can be taken for granted.
Ladies and gentlemen, thank you for affording us the opportunity to present to you the realities of our industry and some recommendations to consider. We offer you our full co-operation in the context of the development of the Canadian and Quebec manufacturing sector. We will be very happy to answer all your questions.
This has been developed in many countries, this innovation box. Among the most recent is the U.K. They went to a very generous program. That prompted other countries in the EU and the OECD to study this idea. The OECD has actually come up with guidelines on this type of tax incentive. I say “guidelines”, but I don't know how much they can enforce them. They probably can't enforce them. I think the EU has agreed to them.
In the guidelines, you need to tie the income, for example, to R and D activity that has taken place in the country. There's a formula whereby the company that is claiming this tax credit has to show that it actually spent its own money on R and D to some extent. It doesn't need to have done all the R and D itself—it may have outsourced some of it—but a formula on that will affect the patent credit.
One thing I don't think we mentioned in our paper is that Quebec has also launched a program that's starting in January. Their criteria are that it has to have a patent, the R and D must have been done in Quebec, there has to have been some tax credits for R and D, and the manufacturing has to be done in Quebec as well. The idea is that it's not just getting IP but it's getting IP and also your manufacturing.
In our case, we're proposing that it be in Canada. For manufacturers, the incentive is therefore to do R and D and then, if you commercialize it, there will be a reward at the end, an incentive to do so, but you should be manufacturing and doing your R and D here in Canada to some extent.
There are probably different formulas to look at—how much of the manufacturing, how much of the R and D, whether you can outsource some of it, whether it can be done in other countries, and so on—to arrive at a number.
We talked, for example, about the innovation box that exist in a number of countries—China, the U.K., France, and so on. They're incentivizing commercialization, getting the IP, commercializing the R and D, and so on. That is one aspect.
China also has a broader range of grants in terms of IP. It's also developing the culture. Jeff mentioned the importance of teaching about IP in high schools, universities, and so on. That's part of it too, developing that culture of innovation and a basic knowledge of IP.
That's why we see in the United States that there's a tremendous amount of patenting, and in China as well. In China, at first it was just the manufacturing, and more and more they have realized that they should own their IP as well. They're doing that much more.
It's a question of incentives, culture, legislation. We mentioned at the outset, for example, the privilege to protect communication with agents. On this, Canada was behind. It existed in other countries. That's part, as well, of building that culture and that framework wherein inventors and innovators are comfortable in thinking they should go get a patent or a trademark and hire an agent. They think that's what their neighbour is doing, that's what others are doing. They're comfortable that the system will work for them, that they won't be disadvantaged in court because they don't have that privilege while their American counterpart has it. It's things like that.
Those are things that we have been discussing over the years. Many improvements have been made. More could be done.
With regard to the framework, make sure it works, that it serves the innovators. Make sure people understand the importance of IP, of innovation, and then have the incentives to further encourage it. In those countries that are ahead, it's a combination of those elements.
You're right that the Canadian brand represents quality.
Branding in this world is difficult and costly. We have attempted to raise that through the Canadian Furniture Show, which we own. We have a website that lists about 70 Canadian manufacturers, and we get a lot of hits on that because people are looking for quality Canadian furniture. The site refers you to the websites of the companies, and there you can find the furniture.
There is a tendency in the States of reshoring in furniture manufacturing. It's perhaps more an intent at this point, as opposed to a reality, but many consumers are experiencing what you have just said. They thought they were getting a deal, but three years later it's on the sidewalk. That's not a deal. It's a deal for the person who sold it to you, but not for you.
How do we get around that? Consumer needs have changed and consumer desires have changed. Perhaps the youth of today don't want to buy a bedroom furniture set that will last 38 years. Perhaps they want to put their money elsewhere, so it's finding this in-between.
As far as branding Canadian is concerned, there is an opportunity to raise that profile. How do we do it? It's not something that can be done individually as a company or as an association, but only as part of an overall government effort to promote “Made in Canada” and manufacturing in Canada.
What I'm saying about furniture being representative of quality is not just true about furniture; for most of the manufacturing in Canada, if it's not quality, it's not surviving.
Yes, I think there is something that can be done about raising our profile. When you see that something is made in Canada, that means it is good and you're getting value for your money.
This is another example.... To be quite honest, Alex has a few new names of people to appear at the committee, which is perfectly reasonable. I'm sure other members may want to bring up new people to provide some insight into this study at any time, yet here we are, in an open forum, and Mr. Nuttall's witnesses are not even being considered at all. It's just a straight-out “no”.
What's ironic about the whole thing is that the thought enough of these are people to appoint them to a panel or a committee. We should have them in here and let them provide their thoughts.
I'm not sure how many meetings Mr. Nuttall thought it would take for them. For example, today we had two groups here. You can make it for two hours or you can make it for one hour, whatever works out, but really, in an hour we could have learned everything we needed from these two groups, and in the second hour of this meeting we could have had two of Mr. Nuttall's people here.
I'm not criticizing the chair or the clerk here. That's not my intent. I'm just providing an option to allow for more witnesses to appear. Doing that would make sense and would not take away from what we're trying to do.
It's an opportunity for my Liberal colleagues to show the independence they were granted. I can't remember if they had their mandate letter from the directly or if it was generally speaking, but it's an opportunity to show their independence and say that they've already shot Lobb's motion down. That was probably a direct action from General Leslie, and now we have another series of motions to bring speakers in to provide good comment, and General Leslie doesn't think we should hear them either.
I don't know why we're hearing this now. There are still many witnesses that I've put forward, and I don't think any of them have appeared yet. I think some of them have been invited, which is great, but I can't remember our putting a time limit on this study. Maybe there is one. However, if the Liberals are going to vote down the opportunity to have two meetings to hear the most relevant bit of news that's come through here on Stats Canada—
I am just tying it all together, Mr. Chair.
They are saying no to Mr. Nuttall and they are saying no to this; it all ties together. It's all relevant to the data that helps manufacturers and other people make decisions. It helps—or it should help—policy-makers in this country make the decisions.
What are we seeing from the Liberals so far? In short, they are breaking the promises they should have kept and they are keeping the promises they should have broken. That's really a one-year summation of what we are seeing here.
I have a list of other things I had to say, but I'll save them for later.
For heaven's sake, a few more people could come to a committee and could either be tacked onto the end of an existing panel or be on a separate panel. Some of these people probably live in Ottawa or Toronto, so it wouldn't cost much to get them here, or they could appear by video conference, and there really would be no cost. Perhaps some good points can be made. I'll leave it at that for now.
When you look at the intent that the Liberals had in the early part of November last year in regard to the independence of committees.... There is no independence of the committee. This is a whip-driven system, the same as it was before. We saw last week that when the going gets tough, the Liberal whip's office comes right down here lickety-split and starts providing advice to the Liberal members.
In an independent system, the members have complete autonomy in their committee, and the only time you should see the whip's office in here is when they are providing a sheet for substitution. That's another point you should bring out.