OTTAWA, Wednesday, April 20, 2016

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to study foreign relations and international trade generally (topic: bilateral, regional and multilateral trade agreements: prospects for Canada).

Senator A. Raynell Andreychuk (Chair) in the chair.

[English]

The Chair: The Standing Senate Committee on Foreign Affairs and International Trade is meeting this afternoon but, before we start our first panel, I should tell you that the second panel has been cancelled. The minister was to appear before us but there is a vote in the House, apparently, at 4:55, and that would get her down here at 5:05, 5:10, but then there is another vote at 6. We cannot delay our meeting due to the fact that there is another committee after ours. As we wish to hear the minister's presentation and be able to exchange points of view and question the minister, it has been agreed that we will defer that meeting to another time. We've decided that it will be in the Thursday morning slot so that we don't have any problems with votes.

We're very pleased, however, that we have our first panel here. The committee is, at present, authorized to examine such issues as may arise from time to time, relating to foreign relations and international trade generally. Under this mandate, the committee will continue to hear witnesses today on the topic of bilateral, regional and multilateral trade agreements: prospects for Canada. To date the committee has held several meetings on this topic and heard from academics, experts and government officials. During the hearings some witnesses raised the importance of innovation as a key element of the trade system.

The committee is pleased to continue our study and hear from representatives of Innovation, Science and Economic Development Canada, and they will speak to the innovation strategy as it relates to trade agreements and negotiations.

I'm very pleased, on behalf of the committee, to welcome, from the Strategic Policy Centre of the department, Mr. Paul Halucha, Associate Assistant Deputy Minister, Strategic Policy Sector; and Mr. Mark Schaan, Director General of the Marketplace Framework Policy Branch. He might even explain what all of that means.

Thank you both for responding quickly to our request. The interest is there on the topic of innovation and trade agreements. I think that has been explained to you. We are not, at the moment, studying any particular trade agreement, but we are getting ready as we may receive some legislation to do with trade agreements. But we are taking this opportunity to reflect on existing trade agreements and existing policies, and the word "innovation'' keeps coming up as something different from research and development. Of course with the new prospectus we want to hear the department's views on this. Welcome to the committee. Your opening presentation, please, and then we'll go to questions.

Mark Schaan, Director General, Marketplace Framework Policy Branch, Strategic Policy Sector, Innovation, Science and Economic Development Canada: Thank you so much, Senator Andreychuk and honourable senators, for your welcome. We greatly appreciate the opportunity to discuss how marketplace frameworks in the Canadian intellectual property system, which I know you've spent some time on, aim to foster an environment through trade agreements in which creativity and innovation can generate prosperity.

While there are many inputs necessary to fuel innovation, one important and often overlooked contributor is the role of marketplace frameworks. Marketplace frameworks can provide firms with clarity and predictability; facilitate growth, trade and scale, especially when harmonized with leading global norms; increase the ease of innovating; and act as critical enablers to innovative firms, sectors and markets.

[Translation]

Intellectual property is a backstop for many creators and innovators. IP-intensive industries are central to the Canadian economy, fuelling important research and development, and stimulating significant economic activity. For example, Canadian IP-intensive industries contribute 25 per cent of the Canadian GDP, are responsible for two million jobs in Canada, and contribute 40 per cent of Canada's total exports.

In playing this role, Canada's IP regime has three main objectives. The first is to support innovation by allowing innovators to extract value from their creations and recoup investments. The second is to ensure Canadians have access to a wide range of innovative products, new technologies and aesthetically-pleasing goods and services. The third is to promote consumers' confidence in the marketplace.

[English]

With these objectives in mind, IP policy in Canada attempts to find the right balance between the rights of IP holders and the interests and freedoms of the public. Canada's policy agenda remains focused on supporting Canadian innovators and creators and the knowledge economy while allowing for the free flow and exchange of ideas.

[Translation]

Over the past few years, Canada has greatly modernized its IP frameworks. For example, in 2012, Canada enacted the Copyright Modernization Act to fully modernize our regime. In 2014, Canada became a member of two WIPO Internet treaties. Also in 2014, Canada amended its IP laws towards implementing five other international IP treaties on trademarks, industrial designs and patents. In 2015, the Combatting Counterfeit Products Act was passed to address the problem of counterfeit goods. And finally, just recently in 2016, legislation was tabled to implement and accede to the WIPO Marrakesh Treaty to facilitate access to published works and persons with perceptual disabilities.

[English]

In each of these modernization initiatives, we sought that critical balance that incentivizes innovation while allowing for a marketplace of ideas and creativity. As you can see, honourable senators, we have been quite busy.

I would like to now discuss the setting of international norms. The global economy has shifted from being primarily based on manufacturing and exporting tangible goods to a world where IP plays an increasingly critical role in the generation of wealth from both the making and exporting of tangible and intangible goods.

IP policy is shaped in a global context. It promotes innovation through providing a predictable environment for Canadian companies to commercialize and trade their innovations internationally. This involves the negotiating, building and, finally, the adoption of global IP standards.

Large Canadian companies like BlackBerry, Bombardier and Magna have significant foreign, patent and trademark portfolios. These companies benefit directly from a predictable global environment. NAFTA, WTO TRIPS and, most recently, the TPP are examples of building blocks for such standards.

It was important for Canada to be at the TPP negotiating table to influence the potential of this treaty in the event that Canada eventually wishes to join this agreement.

[Translation]

Honourable senators, Canada is part of the global market, ensuring our firms can grow to scale and that Canada remains internationally competitive in the quest for investment capital. This necessitates common rules agreed upon with major trading partners.

There are benefits to aligning our domestic IP policies to international standards: It saves money for Canadian businesses engaged in commerce in foreign countries; it encourages foreign and multi-national companies to invest in Canada, knowing their innovative goods and services will be well-protected; and it puts Canadian companies on a level playing field compared with foreign competitors when enforcing their IP rights abroad.

[English]

In negotiating these emerging international IP norms, Canada has maintained a certain level of flexibility in their implementation so that made-in-Canada solutions remain possible. Examples of this flexibility are evident in both CETA and TPP. The CETA is largely consistent with existing Canadian law and policy.

There are two main IP changes that Canada will need to make: one to our regime regarding geographical indications or GIs; and, two, to our pharmaceutical patents regime.

Canada agreed to offer protection for GIs without prejudicing the use of generic terms or the validity of existing Canadian trademarks. Border measures will also be adjusted to extend to goods bearing counterfeit GIs.

With respect to pharmaceuticals, Canada agreed to lock in the current Canadian practice of providing eight years of market exclusivity and to provide an additional period of protection for pharmaceutical products protected by eligible patents in Canada.

[Translation]

Many of these changes will support innovation. For example, the additional period of protection will encourage pharmaceutical companies to bring their innovative and life-saving drugs to Canada, and to make Canada a home for investment, building off our scientific strengths in this area. This system also allows for the most current innovative thinking to come to bear on the approval process for new medicines.

[English]

Like CETA, the TPP does not require dramatic changes to our regime, as Canada's IP framework already meets or exceeds its standards for the most part.

Canada would need to make three changes to our current copyright regime. It would need to extend the term or protection of original works from life of the author plus 50 years to life of the author plus 70 years, implement criminal measures for unlawful use of rights management information and provide national treatment to foreign music performers and record labels.

Alongside these obligations, the TPP also allows for exceptions and limitations in implementing term extension: for example, maintaining our "important notice'' and "notice'' regime, providing access to copyrighted material that is no longer commercially available and preserving our existing set of important users' rights.

With respect to patents and pharmaceuticals, the only change Canada would have to make on top of those required in CETA is to implement a new regime for providing patent term adjustment for office delays.

As is the case with additional periods of protection in CETA, the patent term adjustment underpins a system that supports innovation in Canada.

[Translation]

In summation, honourable senators, since Canada depends strongly on global trade for its economic health, international IP norms will always play a role in the development of domestic policy. This does not mean that Canada does not have a certain amount of flexibility when implementing these international norms in order to maintain an innovative made-in-Canada solution.

[English]

Although IP is an important aspect of the innovation agenda, it is one aspect amongst many. Our IP regime, working together with all of these other key inputs, facilitates Canada's ability to grow in the knowledge economy, encourages global trade and promotes firms growing to scale.

Thank you. We will certainly be pleased to take any questions you have.

The Chair: Thank you. Mr. Halucha, you are here to answer questions, correct? You have no separate presentation?

Paul Halucha, Associate Assistant Deputy Minister, Strategic Policy Sector, Innovation, Science and Economic Development Canada: I have no separate presentation. I am also pleased to be here and look forward to the discussion. Thank you.

The Chair: Thank you. We have a long list of questioners, which is good. A lot of territory was covered in your paper.

Senator Dawson: I appreciate it. I was going through the list of made-in-Canada solutions. You talked about the changes in 2012-14, 2014 implementing, 2015 on combatting and so on. We're basically keeping up to date on that challenge, and I congratulate you on that.

Canada has made innovation a priority, and we have been doing a pretty good job. Intellectual property laws are key to successful innovation working well. Property laws reward and spur innovation while, conversely, weak laws that are rife with exceptions, no licence or permissions required have the opposite effect.

Using our current copyright law as an example, how would you characterize it? Would you say its exceptions are seen as too broad or too far-reaching? I'm thinking about our fair dealing exception as an example.

Mr. Schaan: I think that the 2012 Copyright Modernization Act aimed to strike exactly the balance that you refer to, which is that of spurring innovation and rewarding creation, while allowing for the free transmission of information and users to be able to access that.

When we look at the exceptions that we provided, particularly with respect to fair dealing, I think the goals of the overall act were to ensure many things. One was a sustainable publishing industry that allowed for multinationals to find Canada a lucrative-enough market to be here, set up shop and create content that is generated for the use of Canadians in a format they appreciate.

The second was to ensure that our domestic publishing industry was sufficiently sustainable and could continue to serve Canadians through the generation of unique materials. The third was that, through those two mechanisms, producers and creators of content could be remunerated for their works. The fourth was that we had an effective and efficient mechanism to allow for the clearing of rights for users.

When it comes to fair dealing, I think the creation of the act sought to ensure that education had a space to provide brief excerpts and allow for the continued use of those works in an educational context, recognizing their fundamental role in the educational process and the pedagogy for Canadian students. We are continuing to study the issue as to whether or not those outcomes that I just mentioned are continuing to be met and whether or not those outcomes are being implemented or being seen in a way that potentially is being exacerbated by the exemptions that we put in place in 2012.

Mr. Halucha: I will add a couple of points. In terms of some of the user exceptions brought in under the Copyright Act there was a clear period of time around the early to mid-2000s where the digital age started before the legislation changed.

You might think about some of the products that were hitting the marketplace in 2004, 2005, like devices that allowed people to move music from their record or tape collections onto digital. There weren't digital services at the time, and there was clearly a strong push from consumers to be able to do things like that, where they had paid for their music and wanted to enjoy in a different format. That was a type of user exception that we think was extremely important and actually enabled an important industry to grow and prosper.

It was the same thing with things like PVRs. Personal video recorders didn't exist before, and there was a point where laws were out of date with what had become regular consumer practice.

As well, though, the point that Mark made is really important: fundamentally, the Copyright Act has to be there to incent creation and remuneration of investments that people make, whether it's their time, money or efforts. That has to be something that you can remunerate, otherwise you effectively have hobbyists and don't have industry anymore.

From the perspective of fair dealing, we are consistently looking at how business practices are evolving. We're looking at how courts are making decisions on specific cases, because that's typically what happens. You bring in legislation, and then you watch carefully to see what is happening before the courts and how things are being interpreted. I think that would be the point that we're really focused on: the extent that fair dealing impacts on the ability of creators to earn a living and continue to thrive. This is what we all want through copyright and intellectual property law.

Senator Dawson: I know that Quebec is a bit of an exception because they continue to pay at the university level, and particularly in college, while the rest of the country seems to be satisfied that it is giving them an exemption that they seem to be enjoying.

Since you are announcing it, and Canada will need to make these changes, I will put it to you. You're not legislators or the government, but what is the timetable you expect for the extensions and the implementation of criminal measures? When do you expect that to be put forward?

Mr. Halucha: All of those provisions will be tied to the government's decision on whether to move forward with a ratification of the TPP which, as you know, is very much a question that the government is consulting on right now.

Senator Dawson: It would be included in the —

Mr. Halucha: Absolutely.

Senator Dawson: Not sent to industry or something like that. So it could arrive here?

Mr. Halucha: I'm only basing it on previous experience, and I don't know exactly what the Minister of International Trade's plans would be if and when a decision is made to implement. Typically legislative provisions travel together in a single piece of legislation, so there is no incentive to move more quickly than the agreement requires.

Senator Ngo: I would like to continue the questions raised by Senator Dawson.

In your department, you say that you will play a very important role in the ratification and implementation of the CETA and TPP. Could you tell us exactly what your role is in the ratification and implementation of the CETA and TPP? Second, what are the consequences if one of Canada's trade partners fails to comply?

Mr. Halucha: In terms of ratification, we previously were the Department of Industry and we are now the Department of Innovation, Science and Economic Development. We effectively have the knowledge expertise around intellectual property in our department. Principally, it is shared in the federal government between us and the Department of Canadian Heritage, which has a dual responsibility for cultural policy including the Copyright Act, and the Department of Justice, obviously, which has significant intellectual property expertise.

During the negotiations we had a team that was resourced internally and effectively supported the chief negotiator, who I know appeared before this committee a week ago. We are effectively part of her virtual team. She would have had a team within the organization, Global Affairs, and she would have had a supplemental team. We certainly provided experts to participate. To the extent that there was a policy implication for our department, we would have played an important role in terms of determining and supporting our minister and cabinet and making decisions about what was in the mandate.

In terms of the ratification, this would be a decision made by the Minister of International Trade. I would expect there would be, again, a cabinet process around that, and our minister is a member of cabinet. Our role would be, effectively, to support Minister Bains, our minister, and our other two ministers, Minister Duncan and Minister Chagger, as they participate in that discussion around that decision. That's really our role.

Mr. Schaan: The only thing I would add to Paul's comments is with respect to the ratification and implementation of CETA. Because our minister is responsible for the Patent Act and shares responsibility for the Copyright Act — with respect to CETA, it would be the Patent Act — obviously, as we think about the specific legislative changes and the specific regulatory changes that we would require to be able to accede, there is considerable consultation that happens with stakeholders and those impacted. That's part of our natural core business, in that we are regularly consulting and engaging with all of the stakeholders that have an impact and an influence within our legislative mandate but, specifically with respect to ensuring that we get those regulations and the legislative amendments right, there is a considerable process that would go into ensuring that we're there.

With respect to CETA, those conversations are ongoing and we continue to work with impacted parties to ensure that those amendments are as clear and effective as possible.

Senator Ngo: That's for CETA. How about the TPP? In the TPP, those countries, the implementation is not always there. What do you think the consequences will be? I'm talking about the TPP, not CETA.

Mr. Halucha: Like CETA, the TPP and NAFTA — currently, obviously, in force — these agreements have dispute resolution mechanisms that permit states and, in some cases, companies to bring forward cases if they feel that their rights have been violated in foreign jurisdictions.

Senator D. Smith: I don't have a total handle on all of this, but I've been going through the stuff. To the extent that we are on track, where aren't we on track? What do you think this committee should be saying to wherever they need to hear it, "This is a priority that we think should be expedited''?

Mr. Halucha: In terms of the intellectual property chapter? I think the committee is doing a tremendous job.

I had an opportunity, in preparing to appear here today, to read the testimony. I think you've had a wide variety of really important and influential witnesses come forward and are continuing to be part of the public debate. There was a long period of time where the TPP was effectively happening behind closed doors. Now that the text is fully public and the government is fully encouraging and actually playing a role as catalyst in bringing people together to talk about what the agreement means for the future of Canada, this committee has done a tremendous job.

Senator D. Smith: I wasn't thinking so much of the committee as the various parts of the government.

On page 4, you used the phrase, "Finally, just recently in 2016, legislation was tabled to implement and accede to the WIPO Marrakesh Treaty. . . .'' I could read the rest of it.

Is everything pretty much on track?

Mr. Halucha: I think that if you asked me that question five or six years ago I probably would have not answered "yes,'' because we were frankly quite far behind in a number of jurisdictions.

I do a lot of international outreach on behalf of the government and Canada talking about our intellectual property regime. For a period of time we were viewed as quite far behind, in particular I would say around the mid-2000s.

The copyright modernization effort took roughly 10 years, and it kind of sucked a lot of the oxygen out of intellectual property. I'm sure there are a lot of politicians who weren't anxious to move forward intellectual property provisions precisely because it can lead to very contentious, technical debates. I think having done that provision we moved quite quickly, as Mark outlined, to ensure that we had a regime in place that not only met our international obligations but provided the type of protections that, frankly, would allow Canadian companies to protect their investments in Canada, as well as foreign investors.

I'm also responsible for the Investment Canada Act, which gives me a really privileged opportunity to see a lot of big investors coming into Canada and talk with them and understand what types of factors influence the decision about where to invest capital, where to put a plant and where to purchase a company. Obviously, they want assurances they can get their money back out. That's basic. But they also want to have a good understanding of how our framework policies function. Mark outlined a lot of them.

Intellectual property laws are laws of general application. We don't design them for one part of the economy or one sector; they have to apply across the board. They are like the operating system of a modern economy.

When investors are looking at jurisdictions like Canada, seeing that there's a close alignment, and they understand where there are differences and what they mean, it's really important to give them the confidence to invest here.

From the perspective of our own firms, I think it enables them to grow up in a legal framework, in a context where when they move to export, they will effectively understand what the rules of the game are with most of our trading partners. That's really been the operational focus and the policy agenda behind the need to catch up.

Mr. Schaan: The one thing I would add, I just came back from a trip to the United States meeting with our counterparts in Washington, D.C., and it's very rewarding to be a Canadian in D.C. now talking about our intellectual property record and our marketplace framework record. It's a gratifying conversation, because there is recognition that we have done an awful lot of work, never mind the fact that there's quite a bit of buzz about Canada in this sphere.

The thing I would say is that it's less about what we have to do, but it's something we have to be very mindful and considerate of, which is we have made very important changes to law and we've continued to modernize. The technologies in the world around us continue to evolve and shift.

As we were talking earlier about the fact that we're monitoring and analyzing and working with stakeholders, we are increasingly moving into a digital world that has new technologies, platforms and applications that we didn't conceive of. While we've generally tried to ensure our modern laws are in fact modern and have the ability to adapt, we're constantly watching to ensure that they are being applied in a way that was consistent with what we imagined when we first designed them. That's certainly something we're mindful of.

We're also mindful of the capacity for laws to be able to impact some of those outcomes. Many of those are in the hands of firms, so we continue to work very closely with firms about things like the enforcement of their intellectual property where it's increasingly easy for them in some ways to be able to help the process of ensuring their rights are enforced and not infringed upon, as opposed to some of the enforcement mechanisms that we have, which are very blunt and big, as Paul says, laws of general application that are aimed at that operating-system level as opposed to the very pointy end of the stick on the more applied side.

Senator D. Smith: In a nutshell, it sounds like we're on track. If we aren't, this committee likes to hear what pushing needs to be done and with who so we can get on track. It sounds like we're in pretty good shape.

Mr. Halucha: We have a bill that we introduced and Minister Bains tabled in the House of Commons a couple of weeks ago to implement the Marrakesh Treaty, which is a World Intellectual Property Organization treaty.

Our hope, in terms of getting it into the house and hopefully getting it into law, is to be one of the countries that actually bring it into force. It will take 20 countries to bring it into force. It will basically create an international network where countries have adopted the same exception to allow works to be adapted for the perceptually disabled. It's really important for southern countries, where we still have a book famine and they don't have access to those types of works. In Canada, it will also increase the amount of works that are available and the ease with which works can be adapted for the perceptually disabled.

It's an important piece of legislation. It will support the inclusive growth agenda that the government has, and it's in the house right now. I would encourage you, when it comes, to expedite the study. It would be much appreciated.

Senator D. Smith: That's fine. I can't resist pointing out that I've been to Marrakesh and it's a fascinating city. Maybe we should all go.

Senator Poirier: Thank you, gentlemen, for being here and for your presentation. I have a couple of questions.

I'd like to quote from the 2016-17 Report on Plans and Priorities on the intellectual property selection:

The increase in Planned Spending for 2017-18 reflects planned investments in information management and information technology projects to modernize CIPO's operations.

Can you give us more detail on these modernizations? How beneficial will it be to us?

Mr. Halucha: The Canadian Intellectual Property Office is a standalone organization. We work very closely with them, but probably to get a fulsome answer you may want to ask them directly.

However, what I can say is that CIPO has been working very hard to modernize their IT infrastructure. Right now they still have a lot of paper in the system and, as you know, the world has moved to digital. They still have a lot of investments they need to make to modernize their system. This is to really allow a streamlined review of trademark applications, patent applications and to better serve the clients who are the businesses in Canada and internationally trying to get their IP protected in Canada.

I would also note that the five treaties that were approved by Parliament two years ago are still in the process of being implemented. If you take these to a practical example, the most practical are the Madrid Agreement and Singapore Treaty. What these will do is allow Canadian businesses looking at filing new trademarks to get protection with one form, not only in Canada but in another 60 or 70 countries that are also members of the treaty countries. Basically you pay one fee, you go to a lawyer in Canada or an agent in Canada in either English or French, submit your application and then you get protection throughout the entire system of countries that are part of the Madrid System. That means having the information technology that allows us to effectively plug into this global system.

It's all focused on efficiency improvements and then, from the perspective of linking into the international system, allowing us to implement those treaties.

I hope that's helpful. I don't know the exact details around what dollars pay for what.

Mr. Schaan: The only thing I would add, also having read the testimony of previous people who have appeared at your committee, there's been some discussion about the degree to which Canadian firms are able to leverage the trade agreements and the opportunities to export and become global firms. One of our considerations at Innovation, Science and Economic Development is the relative IP savviness of Canadian firms and the degree to which they understand the intellectual property system.

While not necessarily specific to the IT upgrades that CIPO is pursuing within its own mandate, they are also doing an extensive amount of outreach with Canadian firms to improve IP awareness. That includes efforts such as embedding CIPO personnel inside our incubators and accelerators to be able to allow new innovators and young start- ups to understand and determine their IP strategy so they can effectively leverage these trade agreements, move into international jurisdictions and grow to scale.

Mr. Halucha: That's exactly on the point the committee heard when Jim Balsillie participated about the importance of having an innovation strategy that is linked closely to the intellectual property system. This was exactly what we were trying to do with CIPO, and they are doing an excellent job educating outwards.

We're also doing similar efforts through the National Research Council and through the BDC. Basically, any points where we were able to assess that there are points of contact with Canadian businesses we tried to work with the officials who are doing that interaction to sensitize Canadian businesses about the importance of protecting their intellectual property and developing and thinking through the strategic considerations of the use of their IP.

This comes back from the diagnostic, particularly when you have companies that are growing quickly in the high- tech sector. Often they're moving quickly and their focus is to get to market. If the intellectual property issues aren't raised with them, they are not necessarily the top-of-mind issues. They are worried about financing and getting into the market as quickly as possible.

The Chair: Mr. Balsillie was saying that what you've done isn't sufficient. You're saying you're meeting his question of how far we've gone. You said that's exactly what Mr. Balsillie said. He didn't say that. He said you're not doing enough and that you're not meeting the demands. How do you respond to that?

Mr. Halucha: I have huge respect for Jim Balsillie. He's obviously a great Canadian and tremendous innovator, and he's been generous with us in terms of providing the department with advice and meeting with us around specific initiatives. We have taken on a lot of his ideas. He's a visionary and his role is to challenge and to provoke thought, and he does that extremely well. I listen very carefully to what he says.

I think what he's telling us is that the work is not done and the challenge is still there. I would not disagree with that.

On the specifics of the TPP and the provisions, he's obviously been very critical about that. We've been careful and looked closely at what actually are the legal requirements and the changes that we would need to make should Canada make a decision to ratify the TPP in the future. We're quite comfortable that the provisions are not as dramatic as had potentially been represented. We feel they are quite modest. Actually, Mark ran through those in his presentation at the beginning.

Jim is somebody that we follow very closely and will continue to.

Mr. Schaan: I'd add that the freedom-to-operate principle that Mr. Balsillie has introduced is something that we are very mindful of. Speaking to the previous effort that we were discussing, in terms of increasing the IP savviness of Canadian firms, a lot of that has to do with understanding freedom to operate and the ability to be able to move effectively into foreign markets.

Things like prior art libraries or standards are growing areas that continue to be of interest and where we continue to take an interest in ensuring that Canadian companies have all they need.

It is interesting that in terms of the patenting behavior of Canadian firms, 83 per cent of the patents filed by Canadian firms are already in international jurisdictions. I think that highlights two points. First, there is quite a bit of freedom to operate for lots of Canadian firms, and they are obviously aggressively pursuing foreign markets in terms of where they see their markets are and where they see potential.

The second highlights the necessity for these global standards and IP norms vis-à-vis international trade agreements, because 90 per cent of the patents filed in Canada are from foreigners and 83 per cent of the patents from Canadians are going abroad. That highlights the fact that we're going to continue this constant global interplay of movement between our firms and their intellectual property and the need to ensure that we're going to respect those on like terms.

Mr. Halucha: The vast majority of the time when we've heard from Canadian companies talking to us about their experiences with intellectual property regimes abroad, it's been to identify the fact that there are actually lapses in their IP protection. Things like bringing products to market in countries and then having competitors appear with knock- offs, and they're not able, through judicial systems, to get remedies they need to get those products off the market. It's typically been that kind of message that we've been getting.

If you look at the TPP as expanding the operating system of the United States and Canada — our core trading partners — to cover more countries, we should take a lot of assurance that that's an operating system that we and our businesses are used to working within.

Senator Poirier: The report also mentioned work related to the pharmaceutical intellectual property provision of CETA. Could you give us more detail on this? Do we need to change our laws? What will be the impact of the pharmaceutical intellectual property laws in Canada?

Mr. Schaan: There are essentially two major provisions that exist under the pharmaceutical patent regime that's anticipated under CETA. As I indicated at the outset, CETA doesn't require significant or dramatic changes to our existing legislation, but it does require some on both the regulatory and legislative side.

With respect to CETA, one of the biggest changes is around an additional period of protection that essentially is remuneration for the time period that it takes a pharmaceutical product to go through the R&D and approvals process.

In many other jurisdictions around the world pharmaceutical companies, in addition to the 20-year patent that they may enjoy as part of their fundamental patent system, are granted an additional period of protection to compensate for that R&D and long development.

What CETA will do in the pharmaceutical space for Canada is essentially create an additional protection period. That period in many ways mimics a patent and will be capped at two years. It will be a calculation from the time when the patent was applied for through to the time at which the product was approved minus five years to a cap of two. I recognize that's very technical.

It essentially allows for a modest and important contribution back for the time period in which we at Health Canada were busily reviewing that product and ensuring it was effective and safe for the Canadian public and for the substantial investment that was made in the R&D process.

The other is with respect to providing a right of appeal in the pharmaceutical space and thereby ending dual litigation.

We have a complex system in Canada that allows for pursuit of patent infringement and patent issues under the regulations and under the legislation. Similarly, we committed under CETA to collapse those into a single track and thereby allow for an effective right of appeal to ensure that the full hearing of issues related to the patent could be adjudicated in the Canadian court system.

Senator Poirier: Do we need to change the law?

Mr. Schaan: We do need to change the law and the regulations.

Senator Cordy: This is most interesting. Thank you very much.

I was looking at the three changes that would have to be made to copyright laws if, in fact, we ratify TPP. One of them was to provide national treatment to foreign music performance and record labels. Could you explain that to me?

Mr. Halucha: There are a couple changes we need to make. First, we had implemented the WIPO Internet Treaties a couple of years ago, and we are allowed to take reservations under that provision. We took a number of reservations based on the idea that we would only remunerate foreign jurisdictions in exactly the same way that they remunerate Canadians that are on the market in those countries. What it meant was that in a couple of places we did not provide national treatment.

Senator Cordy: What do you mean by that?

Mr. Halucha: National treatment means that you treat foreign artists that are on the market in Canada exactly the way you treat Canadians on their market. Even though it's an American product on the market, here we would treat them the way that a Canadian would be treated in their jurisdiction. It's a different approach to doing it.

Senator Cordy: Would that have any effect on CBC? Currently, so much of their play time has to be Canadian artists.

Mr. Halucha: It's totally separate from the Canadian content requirements that are part of the licences of the CBC and other broadcasters.

The copyright laws are complex in the United States, like the copyright laws are everywhere, but they basically have different treatment for recordings pre-1972 and post-1972, where they effectively developed for the first time a national law.

When we did reciprocity we reflected the laws of the country and we captured that in how we required the remuneration.

Under TPP, we would no longer be able to do that, so we would have to provide compensation for 1972 sound recordings. This would be principally around subscription-based music services. Our estimates on what the royalties would be are around $1 million to $1.5 million a year, and principally back to the United States.

Senator Cordy: You spoke earlier about pharmaceutical changes, patents, those kinds of things, and the enforcement of drug patents. I guess my question is sort of trade but sort of not.

You mentioned earlier that technologies have changed tremendously over the past number of years. We know there are a number of knock-off pharmaceuticals coming into Canada, which at best would do no harm to the person and at worst would cause considerable harm to the person, but they are really cheap so people can order them online.

Do we have any protection for people or for pharmaceuticals that have the patents, yet these illegal pharmaceuticals are coming into the country? The enforcement is probably isn't your department, but is there anything in place?

Mr. Halucha: We were responsible for bringing forward the anti-counterfeiting bill, which came into force January a year ago. In that law we created a new criminal provision that focused on counterfeiting. Previously it was more difficult to bring forward criminal cases of counterfeiting because the offence you had to argue under was fraud.

We also expanded the civil provisions, because before you almost had to find, using your example, a pharmaceutical drug in the marketplace in Canada. Now we have expanded out several provisions to allow it to be dealt with at the stage of manufacturing, anywhere up to the point it's on the market. Obviously, as you point out, once it's on the market, it is much more difficult. That was the purpose of that legislation, to provide a regime, and at the border as well.

Typically, up until this bill was passed and this law came into force, border guards did not have the authority to stop, on their own volition, shipments that were coming in if they only suspected it was counterfeit. We gave them the power to detain those goods at the border.

Senator Cordy: Has this change in law had significant effect? I heard before the law was passed that high numbers of illegal drugs were coming in.

Mr. Schaan: The enforcement provisions, as Paul said, are still relatively new, but we believe they have been effective and have allowed for search, seizure and detention of goods. The threat of search, seizure and detention is also an important preventative mechanism to ensure we are actually making that known to potential counterfeiters.

In terms of your previous question about what happens with respect to the ability to pursue your own rights with the pharmaceutical companies, we also have significant provisions within the Patent Act that allow for cases of patent infringement to be pursued vigorously before the courts.

In both cases we have allowed for mechanisms, especially when it comes to the impacts on human health. There are significant provisions under the CCPA, the Combating Counterfeit Products Act, that allow for that enforcement.

Mr. Halucha: I'd say as well that the nature of the challenge has changed a bit with e-commerce. Obviously in the past you would be talking about large shipments that would have to come into the country and then be almost physically distributed and sold. It's not just around drugs; it's around a lot of counterfeit goods. Small packets are being purchased and, as opposed to having 30,000 packages come through a customs official versus having one large shipment, it's a more complicated enforcement challenge.

One thing industry is doing very well — and they're working with authorities on this — is when they find out a site is operating and selling counterfeit goods it is actually taking away the payment methods. If you can't use your PayPal, credit card or basically buy it electronically, you have removed it. The challenge is, of course, they replicate and try to appear under a different name. It's a constant effort.

As well, one of the things we tried to do when we were bringing the law forward was work to educate consumers about the dangers of purchasing these types of products. Obviously a drug that could kill you as opposed to help you would be an extreme example, but there are a lot of people who pay top dollar thinking they are buying a luxury good when they are actually getting ripped off. We really try to use the legislation to educate Canadians about that. That is an ongoing challenge.

Senator Ataullahjan: Thank you for your presentation. Most of my questions have been answered but, looking at your submission, you say there are benefits to aligning our domestic IP policies to international standards.

Do you feel that currently domestic IP policies are not up to international standards? If so, what are we lacking and where are we lacking?

Mr. Schaan: I think the important work that has been done on expanding our overall trade agreement retinue, including under the Canadian-European Union trade negotiations, are codifying and continuing to align those international standards to allow for Canadians to be able to access those markets.

In many ways, as you can see, it takes modest changes to Canadian domestic law to be able to accede to these treaties, which reflects the important work already done to bring our standards into international alignment and the important work, as Paul has indicated, that has been done to make sure our frameworks are as modern, up to date and effective as possible. I think the growing nature of trade agreements then allows for expanded reach. Under CETA we have found a mechanism and an important opportunity to be able to find new trading partners where we have that alignment and ability for Canadian firms to grow to scale.

Senator Oh: Thank you, gentlemen, for your presentation. I have two questions for you.

According to the Conference Board of Canada, Canada earns a C grade on innovation and ranks ninth amongst 16 comparable countries they include in their sample. Can you explain what factors make Canada relatively weak in innovation performance?

Mr. Halucha: I'll start, and then Mark will probably come in.

If you look at the last 10 or 15 years, there have been many studies on what ails Canada from the perspective of innovation. I think about the Red Wilson panel in the mid-2000s that looked at competitiveness in Canada. We had the Science, Technology and Innovation Council that reported to our minister and looked at this, and the Conference Board. Many organizations have looked at it.

I think what many of them have come down on is the importance of commercialization. That's often where we are viewed as not being as strong as some of the other countries. No one disputes that we have tremendous scientists and a great capacity to develop new innovative products, but too often they are not commercialized or they are commercialized outside of Canada. I think addressing the commercialization challenge is critical. In some areas we are doing it better.

One of the key things that has changed in the last couple of years is with the decline in commodity prices, the decline in oil and gas, it has revealed how important it is that we get stronger in the digital economy and get stronger on science and technology and on commercializing those innovations in Canada. The Prime Minister and ministers have been to places like Kitchener and Waterloo talking about what is working well there and trying to make the case that we need to replicate those types of investments and experiences in other areas of the country.

Our minister is working on an innovation strategy. That has been his priority. He has talked to hundreds of business leaders and innovators in Canada with a view to developing a strategy that will lead us forward to meeting those challenges.

Mr. Schaan: The only thing I would add to Paul's comments is around taking that commercialization challenge that he very accurately represented, adding in as well value chains and where we are in the value chain, and also growing firms to scale.

In terms of commercialization challenges, small commercialization could potentially happen in Canada, but I think we need to ensure that Canadian firms are actually growing to their full potential, which often means expanding beyond Canadian borders and into international markets and that we're entering into the value chain where we have comparative advantage and can actually leverage the abilities of Canada to make sure we are playing in the economy at a sophisticated and complex level that allows our firms to be at their peak.

Senator Oh: Talking about the minister, on April 18, 2016, he attended the World Economic Forum event in Toronto. He participated in the session on Canada's innovation ecosystem.

Has the minister come up with something to promote Canada as the centre for global innovation?

Mr. Halucha: That's exactly what we're working on and what he is working on. The previous budget actually identified an envelope of roughly $800 million to support innovation, and the next steps will be to further consult Canadians, develop an agenda and implement it in the coming years. That is the focus.

I think one thing that will be different and has changed is that for many years the view was that a hands-off approach to innovation would work effectively and that the role of government was simply to get the business environment right, and then it would be over to the private sector to innovate and grow the economy. There is a certain element of truth to that. I won't dispute it entirely, but clearly if you look at what countries rank higher than us in that innovation grid that you talked about, you'll find that the role of government is much more pronounced. They are there with business and are making investments, countries like Germany, Finland, Israel, the United States.

The United States does a tremendous amount of hands-on, direct support to companies around innovation, and I think that's a space we need to move in. When Mr. Balsillie says that we need an innovation strategy, that we had an S and T strategy and haven't had an innovation strategy, I think that's exactly what he is talking about, those types of partnerships. That is absolutely the reorientation that we're going through right now.

Senator Johnson: All my questions were answered in the last two rounds, so I'll pass. Thank you.

The Chair: One of the strategies, blending innovation and intellectual properties, et cetera, is that the offenders are the ones that normally don't sign international treaties, and they are often the larger countries, countries in development, countries with different philosophies. In your paper you say TPP standards we've met and that what we're trying to do is to join, I would say, a growing body of people who are working toward international standards. Is one of the reasons that we're saying TPP will be advantageous to Canada is that it will bring a lot of other countries on board and bring their standards up, and we'll have a greater and growing international body with some consensus on how to deal with these issues?

Mr. Schaan: I recognize that the TPP is very much an issue currently under consultation, to which this government has not yet taken a formal view, but I would say that certainly one of the interesting features — having participated in some of the negotiation around the Trans-Pacific Partnership — was the diversity around the table. Obviously, there were very many tables that were busily facilitating this agreement, but I think the goal and the interesting aspect of the TPP is that it brings together very different economies, different economies of size, different economies of geography, different economies in terms of their comparative advantage and in which industries they potentially have that advantage.

To your point about whether or not it is an opportunity to be able to further develop new norms, I think the goal was very much to ensure that in the TPP Canada's voice allowed for both norms that we could live with and norms that we felt were reflective of the kind of marketplace frameworks we had established and marketplace frameworks that we felt allowed for our own domestic innovation and, potentially, that we would like to see others adopt. There was very much a notion of trying to ensure that that diversity around the table was reflected, and certainly that our own diversity in Canada was reflected.

Mr. Halucha: I'd be less reserved than Mark. I would say, absolutely, that is an important asset and selling feature of the TPP, the fact that it provides a blueprint for the countries in the agreement to expand.

For example, Korea has made a request to join the TPP already. They are waiting to have the ratification process go through, but I think you can expect that it will expand. Obviously, in the context of the growth in Asia, having these types of rules extended to China will be very important. There is not a multilateral solution right now. Not to say that WTO will not move forward again, but effectively the TPP is the best bet right now to have that kind of counterweight, from an economic, geopolitical perspective, to China.

The Chair: One of the things I have been pondering is the fact that with CETA it was a Canadian initiative to get to the table quickly. It was a strategy to get a trade agreement. We knew that there were negotiations with the United States, but it was a Canadian initiative and a response from the Europeans. One could argue that maybe the Europeans were already talking but, in any event, it was sort of an equal opportunity for Europe and Canada.

With TPP there was resistance to Canada coming on board in some quarters, on certain issues, and there was a lot of political talk. Did we have, in the intellectual properties, sufficient opportunities from your perspective — not from a political one — to make Canada's case known to the other partners as to what our expectations were so that we would have a fair advantage at the table in the negotiations?

Mr. Schaan: I think Canada played an incredibly important role in the negotiation of the intellectual property sections of the TPP. To your question about whether or not we were able to make our views known, we were certainly known around the table for aspects like Canada's unique notice and notice system that was preserved in the TPP text. Some of the other unique "made in Canada'' features came about as a function of the fact that we were very clearly able to demonstrate to others how Canada had created a robust and very mature intellectual property regime that met international standards but potentially did so in a way that was sensitive to the Canadian economy and to the Canadian market.

I would hesitate to over-compliment my peers, but those involved in the TPP negotiations were very sophisticated in bringing extreme expertise and knowledge to bear. Again, having just returned from the United States where I saw many of the counterparts who were across the table from me in the TPP negotiating round, I'd say they knew us. They knew us well, and they knew us as important and potentially formidable partners to ensure that we were going to arrive at an outcome that we could all live with.

The Chair: I hope I'm not displaying my own personal lack of information and/or ignorance. You say that there are two main IP changes that Canada will need to make, and one is a regime regarding geographical indications. Can you give me an explanation of "geographical indications''?

Mr. Schaan: The most common geographical indication that I think most people are familiar with are things like champagne, feta or provolone. It's a mark that allows for a particular product to demonstrate its quality or reputation as a function of its geographical indication.

In the Canadian-European Union trade negotiations, there are a number of products that both Canada and the Europeans, particularly the Europeans, wanted insurance of protection for that have that mark of reputation or quality as a function of their geographic region, champagne being a good one and feta being another. As part of the agreement we agreed to recognize a number of those geographic indications and to ensure we had a system in Canada for their protection, including at the border and from an enforcement perspective.

The Chair: Are there any new ones on the list? Champagne has been known, and the debate about it has been known for a long time. Are there any new geographical indicators?

Mr. Schaan: There are over 100 new geographical indications that will be entered into the GI system for Canada as a function of CETA.

Mr. Halucha: For wine and spirits there was already a list that existed, but cheeses and meats were added under the CETA negotiations. Effectively they function as trademarks for a region. Obviously it's important to the Europeans in terms of being able to correctly have those products represented in markets around the world.

In the TPP negotiations, the only the requirement was, because we had already completed CETA, that we needed to ensure we had the flexibility to honour the commitments we had made in the CETA negotiations. We had to get an exemption to allow us to recognize the GIs.

Mr. Schaan: Under CETA just one little change, because I think my remarks note eight years of "market exclusivity,'' which should read eight years of "data protection.'' That would also be codified as a function of our acceptance of CETA.

The Chair: The other changes are in the pharmaceutical patents regime, the definition of pharmaceuticals. Is it for human use or is animal welfare included also, pharmaceutical having the broad definition?

Mr. Schaan: Pharmaceutical is human use and veterinary drugs. That's right.

The Chair: There is an ongoing concern that I have, but I won't take the time. The interchange between the needs of animal welfare is also of concern for human welfare, and there is the intersection there. I wanted to know the definition of pharmaceutical regimes. Thank you for that.

Obviously this is a very complex area. I'm very pleased with the questions that have come from senators. They have done their homework very well, and I think that we will serve the public well in our discussions and negotiations.

Your very informative text is what we needed to complete and continue our study, so thank you for the time that you've taken and the material that you've provided. If we need more information or clarification, I trust that we can reach out to you in written form to get the details that we need. Thank you for coming before the committee.

As I have indicated to our senators, we are adjourned. Our second panel has been cancelled, but I look forward to our session tomorrow. This session is adjourned.

(The committee adjourned.)