THE STANDING SENATE COMMITTEE ON BANKING, COMMERCE AND THE ECONOMY
EVIDENCE
OTTAWA, Wednesday, April 19, 2023
The Standing Senate Committee on Banking, Commerce and the Economy met with videoconference this day at 4:14 p.m. [ET] to study matters relating to banking, trade and commerce generally.
Senator Pamela Wallin (Chair) in the chair.
[English]
The Chair: Hello to everyone and welcome to this meeting of the Standing Senate Committee on Banking, Commerce and the Economy. My name is Pamela Wallin, and I am the chair of this committee.
I just want to make a couple of notes before we begin. We have only one panel today, so the meeting will be a little shorter than you anticipated. Last night, as many of you will know, the pension bill passed through the Senate. We had put a lot of hard work in on that, so thank you to the members here.
I want to also thank the analysts today. They have been providing us with summaries of evidence as we go along, and it’s extraordinarily helpful, especially under tight timelines, because we’re going to be getting a lot of pieces of the budget very shortly. It’s very helpful for us. Thank you to all. We will now begin our meeting.
Let me introduce the members of the committee: Senator Bellemare, Senator Gignac, Senator Loffreda, Senator Marshall, Senator Massicotte, Senator Smith, Senator Marwah, and I thought I saw Senator Yussuff, but he is going to return in a little bit.
Today, we continue our study on business investment in Canada. For our panel, we have the pleasure of welcoming in person — and we are all excited about that because there can be no technological glitches — James Hinton, intellectual property lawyer at Own Innovation, and Natalie Raffoul, Managing Partner at Brion Raffoul LLP.
Welcome to you both, and thank you for joining us. We will begin with an opening statement by Mr. Hinton, followed by Ms. Raffoul. Mr. Hinton, the floor is yours.
James Hinton, Intellectual Property Lawyer, Own Innovation, as an individual: Thank you to the committee for inviting me to speak. As you said, I’m an IP lawyer, patent and trademark agent with Own Innovation. I am a senior fellow at the Centre for International Governance Innovation. I teach at Western University and, as well, I am the co-founder of the Innovation Asset Collective.
Canada has been focusing on the wrong thing when it comes to innovation policy, which has created significant risk to Canada’s economic prosperity. If we don’t reorient, Canada is at risk of becoming a middle-income country.
Intellectual property, or IP, and data aren’t everything, but they are almost everything. More than 90% of the corporate value today is in intangible assets. So if you are talking about physical assets, such as jobs and factories, you’re missing out on the lion’s share of economic value. The U.S., Europe and other savvy countries shifted decades ago to intangible asset capture. Canada has not prioritized owing and commercializing intellectual property.
You can’t just fund your way into economic prosperity. For example, in clean technology, we own less than 1% of the global intellectual property. So unless you recognize the existing position of Canadian firms and intentionally ensure that Canadian-owned IP and data assets are part of the clean-tech value chain, you are initiating a generational wealth transfer out of the country because 99% of the foundation is already owned.
This is the touchstone of innovation policy: freedom to operate. It is less about protecting your invention but, rather, building an IP position to manage the IP position of other players. So when we fund branch plants or research at universities that end up in foreign hands, we’re making it harder for Canadians to grow and scale, thus eroding our economic prosperity.
More than half of all industry IP that comes out of Canadian universities is assigned to foreign companies. In a particularly egregious example of Canada’s so-called AI strategy, with hundreds of millions of dollars in public funding, only 7% of the IP generated ended up in Canadian industry hands, with 75% of the IP generated being owned by foreign companies. Canadian companies already had limited freedom to operate; now they have a 10 times worse position to work from, all from public funding. This is not strategic.
So how do we ensure that Canadian-owned intellectual property is being commercialized globally and at scale? The first thing is IP education so companies know the rules of the game. The second is IP generation to ensure that companies capture what they create. The third is IP retention because the wealth accrues to the IP owner. We need to ensure that Canadian companies are the ones commercializing and making money from the IP.
Finally, fourth is collective action. We need to reduce the IP and data asymmetry by taking a collective effort to increase freedom to operate with patent collectives and data collectives in strategically important sectors.
Fundamentally, we need to take a whole-of-government approach to increasing freedom to operate for Canadian companies. Thank you.
The Chair: Thank you. Go ahead, Ms. Raffoul.
Natalie Raffoul, Managing Partner, Brion Raffoul Intellectual Property Law: Madam Chair, deputy chair and senators, I appreciate the opportunity to present today. I am Natalie Raffoul, and I am here today in my capacity as an IP lawyer and patent attorney representing Canadian firms, as an appointed policy expert to the Ontario government on IP and data and as a co-founder of a Canadian software start-up.
A fundamental point that I see our governments conflate every day are the terms “research” and “innovation.” These terms are used interchangeably in policy, legislation and program delivery as though they were synonymous.
Innovation is when you take ideas — possibly derived from research — and translate these ideas into commercialized products and services.
At a high level, this conflation results in our government’s funding for research and then labelling it as “innovation funding.”
I also want to address the thesis that low Canadian business enterprise R&D, or BERD, equals low innovation. Unfortunately, this thesis does not account for the pre‑conditional need of IP ownership and control of data required to give our firms the necessary freedom to operate, FTO, to ensure their BERD investments turn into new revenue.
A recent StatCan report indicates that the OECD average for firms holding at least one patent is about 5.9%. Yet only 2% of our Canadian firms hold at least one patent. Countries such as Germany, Sweden and South Korea are in the 10% to 20% range.
The lack of patents and awareness of patents leaves our Canadian firms exposed to a very aggressive marketplace where competitors block their FTO through patent assertion.
For FTO, Canadian patents are of secondary importance. Our firms need to hold and navigate around U.S. and European patents and anywhere else they do business. We can improve the FTO of our Canadian firms when we incentivize and orient our government programs towards greater IP ownership.
For example, the Scientific Research and Experimental Development program, SR&ED for short, is fundamentally flawed because a company that does research and never creates innovation receives the same funding as a company that does research and translates that research into products. For example, the SR&ED credits do not cover patenting costs or other commercialization-related costs.
We also need to put conditions on our research funding, which other nations do. Far too much of the university generated IP is assigned to foreign companies. We also need to build centralized resources to manage the IP ownership function of our funding, and we can look to Germany’s Fraunhofer Institutes as an example.
The reality is that IP ownership moves non-linearly. You make small mistakes, especially early on, and you lose it all. We need to reorient our current strategies, which overwhelmingly ignore IP ownership, to one where our Canadian firms own IP and have the necessary FTO in global markets.
Thank you.
The Chair: Thank you both very much. A couple of interesting points to start, Mr. Hinton, on the less than 1% in clean tech. We saw a lot of money in the budget poured into that sector, but none of the requirements that there be an actual outcome or that patents be owned.
Mr. Hinton: If you fund that downstream piece and you don’t mandate that you’re going to capture some of the upstream value, you get none of the economic benefit. If you think about wind turbines in Ontario, we build the wind turbines, but it’s the people who own the intellectual property who get the lion’s share of that, and that’s Siemens or South Korean companies. It’s a massive wealth transfer. You can’t incentivize something, adopt clean technology and not have companies that are owning it. So we’re actually funnelling funds out of the country with these programs. You have to recognize this asymmetry and ensure that Canadians are participating in the value chain.
The Chair: Ms. Raffoul, regarding your distinction between research and innovation, we keep hearing this. This is an important matter, and we see them conflated in almost all government documents.
Ms. Raffoul: Yes, and research is critical. It’s important and a lot of great discoveries have come out of our universities through research, but that is not innovation. So we have to be careful we’re not bucketing those things together in terms of our dollars and our funding and make sure we’re actually funding for innovation outcomes, which would be products, services and also intellectual property, which is a product itself if you think about patent licensing and the wealth that can be derived from that.
The Chair: That is a good start in laying it out.
Senator Gignac: My first question would be for Mr. Hinton. In the Financial Post, you mentioned at some point that the federal government’s approach to innovation is not strategic but instead consists of “funding announcements in a sea of ‘chaotic’ initiatives.” What kind of initiatives should be done by the federal government, and does the last federal budget address some of that?
Mr. Hinton: To answer your second question first, no, the budget doesn’t do anything for that. If we think about what happened just this week with Ericsson and potentially federal government funding going into that, that’s not strategic. That’s a jobs strategy, and there is a lot more value that Canadians deserve to be created from the value. So all of the IP is going to flow back to Ericsson’s headquarters. There is no strategy around that, and it’s about sort of jobs and sort of a very old way of thinking.
It needs to be about Canadian firms getting inserted into the value chain and being able to commercialize globally, and it does the opposite. It’s putting wind in the sails of Ericsson or whoever else is getting funded through this, but not for Canadian companies. So we lose all of the products of our efforts and our labour.
[Translation]
Senator Gignac: My second question is for Ms. Raffoul. On your website, I noticed that you travelled extensively around the world, before the pandemic. You were invited to speak in many countries, including Korea. I myself have just returned from Korea, where I had the opportunity to meet the Minister of Trade last week. Korea is very intriguing to us because it has been leading in GDP percentage for 20 years in capital investment, among other areas.
I am curious to understand more about its ecosystem surrounding patents. Could you tell us about the differences between Canada and Korea, since Korea seems to enjoy much more success than Canada in terms of innovation and productivity?
[English]
Ms. Raffoul: With South Korea — and we see this also with countries like Sweden and Finland — there is an acknowledgement that ensuring that we protect our innovation is critically important. Embedded in all the programs at the start is making sure that small and medium-sized enterprises, SMEs, are well aware of intellectual property rights, how they harness them. There are funding programs for that. One of the things that really lacks in Canada is funding for patents. If we look across the various programs, there is little for intellectual property protection, trademark strategies or licensing strategies.
When you look at South Korea, and I’ve been over there to teach and speak to folks, they are funding for that. They’re teaching for that, and it starts very early on. It’s embedded early even with the young people. They’re talking about it in high schools.
I also see our American counterparts doing that with their inventors’ clubs and things like that. It just starts so early, but there’s so much support for companies, and they take a very nationalistic approach focused on their domestic sector.
The Chair: That’s great.
Senator Loffreda: Thank you to our panellists for being here. Mr. Hinton, you mentioned in your presentation that the percentage of Canadian companies that own intellectual property is low compared to other countries, and you mentioned the types of initiatives that are needed to improve this percentage. You mentioned IP education, generation, retention and collective action.
Can you further elaborate on some strategies, policies or legislation that you would prioritize in meeting these objectives and increasing the percentage of Canadian companies that would eventually own their intellectual property?
Mr. Hinton: Number one would be to scale the Innovation Asset Collective, or IAC. That is an organization I co-founded, now led by Mike McLean, a global IP expert, but that’s subscale and it’s a limited pilot. They have four major activities: IP education, IP generation, strategic intelligence and a patent pool. In that patent pool, there are a number of patents that are used to reduce the IP asymmetry to increase the freedom to operate for Canadian companies.
The IAC is right there, and it needs to be properly funded and expanded. It’s right now for data-driven clean-tech companies, and there are hundreds of members and a big patent pool there, but it needs to be scaled to strategically important sectors. We can’t do this independently, so we need to be able to sort of mimic the scale through those collective approaches to be able to take on the Americans, the Koreans, the Chinese or the Europeans. And we built it based on the best practices out of these other countries and then tailored it to make it work for Canadian companies.
Ms. Raffoul: Ontario now has established Intellectual Property Ontario, and over the years I was involved in the recommendation that led to the IP Ontario agency being formed.
That agency is doing similar work to what the IAC is doing in terms of IP education and IP procurement. Their mandate will be to work with our research centres and to get more infiltrated with our universities in terms of what they’re doing in bringing intelligence into IP strategy there.
We need a national agency. We do need to be thinking about what they’re now doing in Ontario. Is that something we could be translating at the federal level and creating an IP agency that would be supporting our granting councils?
For example, with all of the research grants and the innovation funding in this country, what is the IP strategy? There is no agency that provides oversight and support and IP intelligence and expertise. We need to be thinking along those lines, so looking at IP Ontario and how we might be able to scale that federally.
Senator Loffreda: So is it at the strategy level that you would prioritize and concentrate on?
Ms. Raffoul: We have seen some programs come out of the gate that have done well; for example, in Quebec they had the First Patent program, and it was very successful. What they found was that it is not just about getting companies patents; it is about strategy. I spoke to the Quebec government about that program, and they’re thinking about reorienting so they ensure our firms are getting strategic advice at the outset in terms of how to establish your IP strategy, what the competitive landscape is, what your competitors are protecting and what kind of patents they hold so that you can really scale more successfully and not face those roadblocks as you grow in the global marketplace.
We need to look at these programs, and they need to not be pilot programs. That program in Quebec was a pilot project, and we haven’t seen it come out again. It was wildly oversubscribed, so there is a need. Our Canadian firms need assistance. They could use the funding in SR&ED programs to cover these costs.
We want them to capture their innovation through intellectual property rights but then we don’t fund that. We need to revisit a variety of programs.
The Chair: Mr. Hinton, you said we need to mimic the scale of our competitors through collective action, but we’re talking about competitors locally. Are they really going to function collectively? Would that really mimic a large operation in the U.S.?
Mr. Hinton: Yes, it’s having that war chest. The way we have structured it through the Innovation Asset Collective is so the companies themselves don’t have to share their IP. They have their own IP, and then the pool is a community pool of intellectual property. They can still complete with each other and still have access to this patent portfolio to be able to take advantage of that freedom to operate.
The Chair: Thank you for that clarification.
[Translation]
Senator Bellemare: You talked about the need for a national strategy. In the article in question, Mr. Hinton mentioned that the government’s current strategies are somewhat chaotic.
You also both pointed out that we know Canada’s economy is in danger. We heard the same thing from other witnesses: If the situation continues, our prosperity and standard of living will be at risk because the resource-based economy has to move elsewhere.
If we had an intangible asset strategy for IP, do you think that would be enough to breathe new life into the Canadian economy?
You spoke about the collective action needed to bring about this new strategy. How can that collective action be achieved? Everyone tells us what we should be doing, but no one tells us what the obstacles are and why these things aren’t being done.
That is my question. Would the strategy suffice to keep us from falling, and how can we make it happen?
[English]
Ms. Raffoul: It’s one of the important pillars. Every company needs an IP strategy. Even if you’re a hairdresser with an operation versus a technology company, you have a brand. There’s IP embedded in everything, but focusing on forcing our companies, through funding and different programs, to really be focused on their IP strategy — I’ve always said it would be a very strong play for our firms.
Because when you look at your IP strategy, what you’re actually doing is a SWOT analysis. You’re saying, “What are my strengths, weaknesses, opportunities and threats?” It is forcing your company to look at the IP of your competitors. If I’m going to continue to scale and grow, what do my competitors do? Okay, they protect through patents and trade secrets. They are very diligent about how they contract.
One of the things I see as an IP attorney working with our firms is a massive naïveté around how contracts should be built to ensure you own your intellectual property and how to patent properly. A lot of companies say to me, “Can you patent that?” Of course you can. Your competitors have a long list of patents in that field.
If we start to force our companies — maybe “force” is a bad word, but encourage — through the funding, through the education, through our programs to look at their IP strategy more closely, it would help them to understand the global marketplace and what their competitors are doing and ensure they’re able to have freedom to operate and capture the wealth effects from the innovation that they’re putting out there.
[Translation]
Senator Bellemare: Mr. Hinton, do you have anything to add?
[English]
Mr. Hinton: Natalie is definitely directly on point. And then from a whole-of-government approach to doing this, if you take an example industry like critical minerals, batteries, electric vehicles, even self-driving vehicles — that whole value chain — as a government approach, when you make a decision around what the standard is for extracting lithium from the mines, or what the ownership policy is at this end for the Canadian content of the mine — taking the IP lens throughout those links in the value chain and understanding where the strengths are, where the Canadian companies are, and where their gaps are, and they continue to fill those spots with Canadian companies.
Mining, for example, a great Canadian sector, but it’s an IP sector today. Ten years ago there were 4,000 patents being filed; now it’s 25,000 patents being filed annually. It’s continuing to increase and continuing to be an intangible position.
From a strategic perspective, using all of the government’s levers — through IP policy, competition, tax policy; Natalie mentioned SR&ED — making sure that it is all aligned with encouraging and supporting Canadian companies as they build technologies, protect those technologies, and we can’t underestimate the challenges they are going to face. There are the Americans and the Chinese. It’s a very predatory space out there, and so we have to reduce this asymmetry. We have to recognize that there is already an existing deficient position and make up for that difference.
But the Americans, the Chinese, the Europeans, they’re accelerating away from us, and we’re actually going negative. We’re filing fewer patents than we did 10 years ago. We’re going in the wrong direction because we keep doing a lot of these chaotic things, funding Ericsson for a handful of jobs.
[Translation]
Senator Bellemare: In Canada, there are several levels of government: the provincial governments and the federal government, which each act independently. What do you suggest we do to get them to act together? A joint effort by all governments is part of the solution.
[English]
Mr. Hinton: Yes, it needs to be coordinated.
Ms. Raffoul: It needs to be coordinated. We need federal leadership. It starts there. The IP Ontario agency, I know that was tabled at the federal level. We need to see more collaboration between our federal and provincial agencies because we can do so much more if we work together. There has to be more collaboration on that level.
If you look across the board, it’s lacking at the provincial and the federal level. I can’t point to a province — and, of course, not federally — where we are doing nearly enough.
Senator Bellemare: Whose responsibility is it to coordinate the work?
Mr. Hinton: It’s everybody’s responsibility. Natalie and I worked on projects even at the municipal level. So all levels of government need to be involved in this and be well coordinated.
When it comes to universities, people say they’re provincial, not federal, and so both have taken a hands-off approach, and for that reason our Canadian universities are failing Canadian companies when it comes to research. The universities themselves need to step up and be higher performing, and all three haven’t done that yet, and they continue to be disoriented. Everybody has got to step up.
The Chair: We’ve heard that from several witnesses. There are federal-provincial issues, but the universities can make those decisions independently about what they’re doing.
[Translation]
Senator Massicotte: Thank you to the witnesses.
First I would like to ask a technical question, before getting to my main question. We have always heard criticism that a lot of money is spent on research and development, yet it does not yield many results, despite our being one of the countries that invests the most in R&D.
About two weeks ago, a witness told us that in fact, R&D investments are not really that high. Which is true? Are Canada’s investments generous or not?
Ms. Raffoul: The investments are quite generous.
[English]
Ms. Raffoul: But what we need is a reorientation about how we are funding and what we are supporting. It comes back to my point that it’s fine to fund research, but there is a precursor to that, which is making sure you get the IP strategy right and the IP ownership piece because if you don’t have control of the IP and the data, you’re funding research that you’re hoping will translate into innovation and then you’re not creating opportunities for you to derive wealth from that, which is what companies need to be able to do — derive wealth through the sales of products and services, and they are lacking the freedom to operate. We see in this country a mergers-and-acquisitions issue. We get our companies to a certain size — and we have had programs recently that wanted to scale 100 companies to $100 million plus in revenue — and we are not succeeding. They are getting to a point and they are getting bought out, and why are they getting to that glass ceiling?
There is an IP story there. They are exposed as they get bigger in the marketplace, and the best thing for them to do is just become part of some bigger supply chain. The IP component, without making sure you are controlling the IP, those programs are not going to derive the results you need.
Senator Massicotte: Obviously, you are very convinced of that point. Both of you are very convinced, and you say what is missing is an IP strategy. Yet the people with their own money — the entrepreneur, the businessperson — he’s got his reputation, his company’s success, yet obviously he doesn’t see the same urgency as you do.
Ms. Raffoul: Yes.
Senator Massicotte: So your solution is that the government has got to interfere and fund it, and yet when the people who are really at stake don’t take the initiative, usually there is a good reason. He doesn’t see the merits, I guess.
Ms. Raffoul: We need a reorientation in this country — we talk to entrepreneurs, and a lot of them are talking about exits. We talk a lot about exits. We don’t hear a lot about scaling to public companies, building local headquarters —
Senator Massicotte: And why not?
Ms. Raffoul: We need to shift attitudes on that, and that’s actually not success. We want to keep the wealth in Canada, keep the jobs here and keep the headquarters here. So we have to reorient on this.
We have a lot of companies — what they’re trying to do is just be first in the market, get some traction and then sell.
Senator Massicotte: Let’s take your Siemens example, the windmills.
They’re out there. The technology is very complicated, owned by Siemens. You’re saying, “Mr. Canadian Businessman, you get out there and start stealing or arguing that a part of that technology is yours.” But Siemens will not accept that. It’s their ship and their technology. If a Canadian company doesn’t do it, it is obviously because they don’t think it’s worth it.
Ms. Raffoul: What Canadian companies need to do — and what they are not doing — is they get into those conversations with Siemens and they are not prepared. They haven’t filed a patent application. And they think Siemens is their friend. Siemens is a for-profit-driven company.
So we see time and time again — a classic example is i4i, a Toronto-based software company that got into discussions with Microsoft. Luckily, this Toronto-based company had filed for a patent application back in the late 1990s on an XML editor. Turns out, unwittingly, Microsoft ended up using that XML editor in Microsoft Word 2007, 2003 versions. That i4i company was able to get VC funding, and they took Microsoft all the way up to the U.S. Supreme Court and won around a $500-million judgment against Microsoft and had the patented invention stripped out of the product. Had i4i not been “patent pending,” Microsoft would have smothered them.
So what we do see — I see this in instances with large companies getting into contracting situations where they don’t want our small Canadian companies to file for patents, making them exposed within the supply chain, and all of a sudden, when they no longer want to work with you, they can easily work with someone else because you’re not the patent holder. They can move to a cheaper place to produce it because, “yes, thank you so much for your innovation, and now that we know how it works, and you didn’t file for a patent, we can use someone else who is cheaper.” We see these sorts of —
Senator Massicotte: But they’re not doing it. They need to hire you to get there.
Ms. Raffoul: Well, exactly. And we don’t fund for it, so we don’t support them in that, which is a real flaw. We do need to. It’s expensive. IP strategy and IP are expensive to procure, but everyone else is doing it. Canada stands uniquely apart from everyone else in terms of our focus on patents. When the OECD average is 5.9%, and we’re sitting at 2%, it’s an alarm bell.
It is not everything. We are not here to say that IP is everything, but it is an important pillar. You combine that with our attitudes of just getting to the market as fast as you can and then getting an exit, that is not going to — in the long term, that’s a real problem for us.
Senator Massicotte: Okay. Thank you.
Mr. Hinton: Maybe to add, if you look at the makeup of the Canadian economy, we have the banks, the telcos, the oligopolies — primarily domestic companies — and then we have foreign technology companies that are here. We’re talking about Canadian companies that are global and headquartered here. And if you have these acquisitions, and companies get bought up, and we don’t have domestic technology companies that will be able to do that acquiring, it’s always going to have to be acquired and then offshored. You have to have that proper makeup, and we’ve been focusing on reinforcing the lack of competitiveness on the banks, telcos, grocers. And then —
Senator Massicotte: How about the oil and gas sector? That is one of our most important sectors of investment, very significant players worldwide. In Canada, the product, as you know, the way they extract it is very complicated. Have they done the IP strategy? Are they doing it right?
Ms. Raffoul: They are probably one of our better sectors, actually, if you look at some of our mid-sized players, but then you have the foreign ownership. It depends on who is holding that.
Halliburton is one of the biggest patent filers. If you look at these oil and gas companies, they are some of the biggest global patent filers, and they’ll say, when they joke, they’re not oil companies; they’re data companies. It’s all about the data and the IP.
The Chair: That’s exactly what they’ll say.
Senator Marshall: So it’s all very puzzling because you’re here telling us that we’re not doing that great, but the government is spending billions and billions of dollars to help companies, and we’re at the bottom of the heap. But in the budget now they have established a new fund called the Canada Innovation Corporation, and I’m curious as to whether — they do have a blueprint on the government website. Have you looked at that? You say what we’re lacking is a sensible strategy, but it seems like the blueprint is supposed to be the strategy, and I’m wondering if you have any comments on that strategy.
They are also going to be governed by their own legislation, so it’s something they’re just getting up and going on. But there are billions of dollars being put into that fund, and it is named “innovation,” not “research,” so hopefully the objective is to achieve along the lines of what you’re talking about.
Have you looked at that blueprint? I’m interested in what else the government can do, what they should do. So they have got this Canada Innovation Corporation with the blueprint. Have you looked at it? Is the government on the right track?
Mr. Hinton: Yes, maybe I’ll start.
So the Canada Innovation Corporation — Danny Breznitz is fantastic; he is the guy who consulted and got it all going.
The track record is not good. The superclusters, another billion-dollar effort, to me, very disappointing, but it was structurally flawed from the beginning, and we knew that and we said it will not work. It went ahead, and it went the way it went. The Strategic Innovation Fund — to me, there are some positives, and then there are a lot of negatives as to how that has been going.
I remain optimistic that this could be productive, and the frameworks are — begin to be there. They talk about IP generation and some IP retention. But if you don’t account for the freedom-to-operate risks, then whoever owns the IP on the foundation that you’re funding is going to be the one who economically benefits. Unless you reduce the freedom-to-operate risk which is out there — the Chinese and the Americans are filing a million patents a year — so you have to reduce that risk and, on the data side, ensure that Canadian companies have access to data assets that they can commercialize and compete with global companies at the same level.
To me, it is yet to be seen. It’s a promise to do better next time, but the last three times have been abysmal.
Senator Marshall: They’ve been dismal.
Mr. Hinton: Yes.
Senator Marshall: Have you looked at the blueprint? What I see — I’m an accountant, so I see all this money go out the door, and the objectives aren’t always well laid out, but the government keeps doing the same thing over and over. So out goes $5 billion, and no results. They do the same thing, do the same thing.
Now we have the innovation corporation, but at least there is a blueprint to look at. Is that something that you have looked and you said, “Oh, well, I have hope now,” or have you looked at it and said, “That’s not going to work either”?
Ms. Raffoul: I think the thing is that we set up these programs and we are not necessarily clear on what outcomes we’re looking for. So how do you measure success? The supercluster, yes, they talked about IP strategy, but you also have to remember who you put in there — the fox is in the henhouse, so you’ve got the large multinationals coming in to do partnerships with our SMEs. What were you hoping the SMEs would get out of this?
If you were hoping they were going to get more patents, intellectual property and have products that scale, then you want to be measuring for that. It is not just that you talked about it and there is some technology sharing that can happen.
And to Jim’s point about understanding who is coming into the henhouse, what they are truly bringing to the table in terms of IP assets, it is taking a hard look at that and figuring out how you will deal with the asymmetry.
A lot of our companies, when they got into these supercluster arrangements, our companies are very naive. We need to be swarming around them much more than we are. We need to provide funding and help with advisory services, and a lot of that was not happening. We are still leaving them to their own devices, hoping they will figure it out. There is nothing in the programs to ensure they are going from having no IP protection to having something to show for it once they get through this funding program: There is a product, it’s protected, and there is a strategy around it. We’re not measuring for that.
Senator Marshall: This innovation fund, this is the government’s nth attempt to do something and be successful. But they are still looking to appoint the board and people within the corporation; I think it will be a Crown corporation.
What sorts of people should populate that organization? What kind of people at the board level? Would they be people like you? What kind of people should be at the operational level doing the assessment of applications for funding? They’re not on the right road yet.
Mr. Hinton: The management needs are important. With all due respect to former bankers, no former bankers; that’s a different industry. They need to be innovation experts as well as former CEOs of companies — people who know the rules of the game. Then add to that those experts within certain domains, IP being one, but there are a number of other experts needed to be able to do this.
Ms. Raffoul: We see these investment agencies and who is sitting on the board — we’ll have someone from Nokia or some foreign multinational. I’ve seen that with our local investment vehicles. Their orientation is completely different. They are not pro-Canada; they are pro–their home base and are here to look for opportunities and take the wealth effects back to their home country.
So why do we have members of foreign multinationals sitting on boards of domestic investment agencies? Take a look across Canada and you’ll see folks from many multinationals that shall remain unnamed. What are they doing? Their orientations are completely different.
The Chair: That’s an excellent point, thank you. We will go to some former bankers now to see what they have to say.
Senator Marwah: Thank you to the witnesses.
Mr. Hinton, you made the point eloquently that in an increasingly digital world, the control of IP is paramount. I couldn’t agree with you more. In fact, my view has always been that, in today’s terms, if you don’t control the IP, you become a modern-day colony, and the wealth accrues outside of your country. This strikes me as being glaringly obvious. Everyone I speak to agrees.
So now you go to governments and business. Let’s start with governments. The people in government are very bright, very dedicated and they want to do the best for the country. I know Innovation, Science and Economic Development Canada, or ISED, has consulted extensively with all sorts of people — yes, unfortunately, sometimes they have a large company — but Jim Balsillie has a group full of entrepreneurs. They consulted extensively.
Yet I hear constant criticism that the government doesn’t get it. So I am trying to understand what their blind spot is. What don’t they get? They have consulted. Is it the focus on jobs and living in an industrialized world where jobs are paramount and not IP? Are they thinking short term versus long term? I want to understand what the government’s blind spot is.
Then I would like to go to business and note that business understands this too. They understand IP. Every small tech company I’ve been associated with — 30 or 40 small tech companies I’ve consulted with all understand that IP is paramount. They are paranoid about controlling IP and not letting it go elsewhere, so they get it. Yet I hear that they don’t get it, so I am confused as to what we need to change.
Mr. Hinton: Maybe I will start on the government side of things. A lot of it is that ISED will have to do the opposite of what they have been doing; they will have to do the opposite of what they did on Monday by giving tens of millions of dollars to a branch plant of Ericsson. That’s a strategy that worked when you had an auto manufacturing plant and a bunch of suppliers around that because you had to do that. They are still running a 1920s playbook today. Many people on the team there are deploying that playbook and then asking about the jobs. They are using economic models that made sense 100 years ago.
It’s exactly what you said: It’s about the IP and the data. When you ask them what the IP terms on the Ericsson deal are or what they IP terms on the Nokia deal for $40 million are, there aren’t any terms. If a Canadian company wants to do a deal with the Strategic Innovation Fund, then there are IP terms in there, but they forget about IP when they see —
Senator Marwah: But they are very smart people. I cannot believe they would just ignore that side of it. I look at some of the people, and they are bright people.
Mr. Hinton: It is perplexing to me. The way I have understood it is that they have to do the opposite of what they have been doing, and it’s hard for someone to build something up and then have to go in and say, “Look, we did this wrong and we have to take it down to the studs because we have been working in the wrong direction for many years.”
Ms. Raffoul: It’s hard to reorient and that’s the challenge. And to be clear, the spillover effects are not happening. The Nokia employee can’t just set up shop now and start building the same thing — the 5G technology, that’s all patented. There are also trade secret protection and confidentiality agreements. You don’t have the spillover effects that you would have had back in the 1920s.
I hear what you’re saying. Yes, there are many domestic technology companies in Canada that do get it and file for patents, but it’s not enough. They are not supported in that, so they are doing what they can.
There is a big naivety in Canada around software patents. If I had a dollar for every company that told me they didn’t know you could patent software . . . There are 6 million patent applications being filed every year, and 70% of the patent applications being filed today are for software.
For Canadian companies — and we both work a lot with incubators and accelerators across Canada — and the advisors within those say to me that it’s a software as a service company, or SaaS company, and they don’t need to think about patent protection. Well, what’s Amazon and all those companies? And yet they are going after — they hold massive troves of patents. Google was, for a long time, anti-patent. They have a massive war chest of patents.
We just see a massive asymmetry, and the numbers aren’t there; they don’t bear out. It sits at 2%, and we are filing fewer and fewer every year. Our biggest patent filer in Canada is the Royal Bank of Canada. RBC gets it more than anyone else. They are a technology company, but they are a bank, and they’re the biggest patent filer in Canada, not another technology player, not an automotive company, not oil and gas — RBC.
Senator Marwah: Going back to governments and ISED, ISED did extensive consultations; they do it continually on the IP strategy, et cetera. Is it that they are not getting the right people at the table? They consult extensively. I know a lot of the people they consult with. Are they ignoring the advice they are being given, or are they getting the wrong advice?
Mr. Hinton: What you are telling me, I’m in line with. I will support you; you support me. We’ll encourage a reorientation within ISED. I know the people there. They mean well and want to do better. Let’s continue to encourage them.
It’s obvious to me and clearly to you as well that it’s not working. There is a clear path to make it work, so a little renewal would help.
Senator Marwah: But do we have any ideas in terms of what you think they should do differently? I would like some specific ideas from both of you. That would help immensely.
Mr. Hinton: I’ll start by saying enough of the stuff from Monday, no more of this foreign branch plant stuff. The foreign direct investment stuff is foolish. I’m not saying to close off Canada’s borders. We want foreign companies and branch plants here, but we don’t need to be putting $40 million or hundreds of millions into them. The Michelin tire factory out east — Michelin has 10,000 patents. It’s an IP game, and we’re talking about the jobs. We need to do the jobs, but we also need economic prosperity. So if you are short-sighted and only focused on the jobs, you’ll have your lunch eaten every day.
Let’s have a longer-term view — 5 years or 10 years. The Senate is the perfect example and opportunity. We need that long-term view. Sometimes, on the political front, the view is Twitter likes and Facebook clicks as to how decisions are made.
Senator Marwah: The problem is the government’s thinking doesn’t go beyond four years.
The Chair: Yes, exactly. We also need to measure some outcomes so that there is some evidence to say, “This is why you need to change your approach to this one.”
Ms. Raffoul: Yes, and there is $40 million for foreign direct investment, and then there are pilot programs for our companies —
Mr. Hinton: What the fund collected is like $30 million, so how can you even compete?
Ms. Raffoul: Exactly. There is an asymmetry in terms of how we are funding and how we are supporting our companies.
Also, if you look at our research funding across universities, our universities, generally speaking, are not working with domestic companies, because it’s much easier for a professor to do a larger project with a foreign multinational than to do four projects with four SMEs.
If we reoriented the funding and incentivized our researchers to work with our domestic companies — and I hear that from a lot of technology companies —
Senator Marwah: Do you really think we should provide grants tied to patents?
Ms. Raffoul: We need to make sure that grants have an IP strategy that is domestically oriented —
Senator Marwah: No, I’m saying give a grant only after you get a patent.
The Chair: No, vice versa —
Senator Marwah: Oh, vice versa —
Ms. Raffoul: Well, actually, senator, there are patents. What is happening is that they get patented. The patents are held by the foreign company.
Senator Marwah: Who?
Ms. Raffoul: I would say 80% to 90% of university-patented research is in the hands of foreign companies. That’s where it all goes. So, it is being patented. It is just not being patented by our companies. They’re not involved, for the most part, with high‑level research in this country.
If you look at the University of Toronto and if you look at our major institutions and how much of that is with our domestic sector, they’re not even in the game, so forget about the patents.
But yes, then they need to be in the game, and we need to get patents on the research that is being translated into innovation.
Senator Smith: Thank you for being with us. I’m sitting here listening, and a lot of the testimony we’ve had to this particular point on IP from very successful entrepreneurs has said basically that there’s a pathway from the idea to commercialization that should be like an incubation type of system, and we’ve heard of incubation projects and the start-ups with software.
I just want to make a point: I have nothing against government, but if I depended on government to help in my own life, I would have had more problems because of the risk of decision making, and it’s a different environment. If you’re going to get in a competitive environment, and the competitors that you’re talking about that have been successful, just listening to you, and going back to when you wrote in your article, Mr. Hinton, about a national data strategy, I guess, I would ask both of you to give us the top four or five points that need to be built into cement, but the cement can be broken and adjusted so that young entrepreneurs can start and go forward.
Because if you get guys like Jim Balsillie, who is very successful, and other entrepreneurs, sometimes these people say, “Well, we would love to help you out, but you’ve got to be selling $100 million before we’re going to deal with you because we have to protect our own interest.” That goes back to the risk‑taking of some Canadian people.
How would you set up that incubation process so that we’re not always just complaining about other people who have IP, but we’re actually taking a concrete, planned approach and supporting inventors and creators who can go forward and be successful so we can build up our percentage so that we’re a player?
We’re not a player yet.
Mr. Hinton: Maybe I’ll start.
We create a lot of start-ups. We have a lot of seeds, and they’re spread around. The problem that we’ve gotten into is that scaling problem, so you go from your one customer to a million customers.
Senator Smith: Absolutely.
Mr. Hinton: And that’s where the huge economic returns are because you’ve already got a market and now you’re expanding into global markets.
Really, I would say it is two pieces: It’s the patent collective concept, and so having a collective resource of IP that Canadian companies can rely on, and the Canadian companies can come and go. They don’t have to share their IP.
Then the other piece is the data collective. The shift to the data-driven economy has mandated that we need to have those data assets, and we don’t have those assets.
Senator Smith: But how do we get the assets? If we go to Natalie and say, “Ms. Raffoul, how much are you going to charge me to do the support to get the IP assets?” And maybe that’s what happens to some of the Canadian entrepreneurs or young entrepreneurs, who say, “God, I don’t have the funds to do that.”
How do they get the funds? How do they get in a process that is going to have that type of funding available to them through the white angels or whatever we call them who have the courage to do this?
Mr. Hinton: On the data collective side — and Natalie is working on the OHDP, Ontario Health Data Platform, which a huge opportunity — there is public data that we can unlock the value of and then use those — managing all the privacy issues and consent issues that you need to — to be able to be those assets that Canadian companies can lean into and then use for their fuel to be able to commercialize.
Natalie, you can get into the weeds on it.
Ms. Raffoul: We’ve been working on the Ontario Health Data Platform and talking to folks within the various stakeholder communities, and we’re quibbling over who we are trying to support. Is a Canadian firm Microsoft Canada, or are we really focused on CCPCs, Canadian-controlled private corporations?
We need to get right who we are trying to help right because there is a big difference between a branch plant, a Canadian subsidiary, and a domestic company. So even that is actually being debated. When we get to the table and we start to work on these programs, who is going to get access to these funds?
Senator Smith: Are you going to do it so you will have a little bit of each, or are you going to take some test markets?
Ms. Raffoul: We need to reorient because right now we are so oriented towards foreign investment that a lot of the dollars at large scale are going into these partnerships where, yes, you have some smaller players involved, but we don’t support them.
You talk about how we can help companies. Let’s just look at SR&ED. I mean, what is going on with SR&ED? SR&ED is a program that funds research and not innovation, yet we say this is our largest innovation funding program in the country, and that is oriented towards SMEs. But there is nothing in the buckets of funding, no tax credits, for true innovation achievements by the company.
I mean, it’s not necessarily about spending more money; it’s about reorienting what we’re incentivizing. You know, SR&ED has become this thing where you have a “cottage industry” of consultants to figure out how — and you have accounting firms getting SR&ED credits. You know, are accounting firms really building technology?
We need to reorient these programs so that the funding is shifting. We need to look at our research funding in this country and make sure that our domestic companies get access to cutting‑edge research to help grow other companies and build solutions. But we don’t fund for that. We’re agnostic. Whether you’re partnering with Microsoft or you’re partnering with a little company in Ottawa, there is no differentiation.
We need to get clear on who we are trying to help. That’s when I come back to these programs. What is the outcome you are trying to seek? You want to see improvements with your own domestic companies. What does that look like?
And we can’t even get clear. I mean, these debates on the Ontario Health Data Platform, think about the Ontario Health Data Platform. When we pool all of our health data in a province where you have a publicly funded health system, there is nowhere in the world that you can go and get access to that kind of health data that crosses that kind of socio-economic spread that has everyone feeding into one system. Do you know how many large multinational companies want to get their hands on that health data? And our domestic companies in Ontario are saying, “We want to get access to that; we want to build solutions on the back of Ontario health data.”
But you know what? No one is fostering the relationship. When James Hinton was talking about data collectives, this is exactly what we’re talking about. In terms of our data collectives, this is about affirmative action. We’re saying, “No more laissez-faire; we’re going to help our companies, and we’re going to help our economy.” We need affirmative action, and affirmative action starts with saying to our domestic companies, “What would you like to have access to first?” — rather than to Google, which is now a health data company as well, who wants to get access to our health data platform. Well, yes, you can have access, but we want to trade something. We want to make sure that we get the Pfizer vaccine the next time and not beg for it, and, “Hey, little Ontario company, we’d love for you to spend time on our platform, and let’s talk about an IP strategy for you.”
We don’t do that, but that’s what we need to start doing. This is what Sweden does. This is what the Germans and the South Koreans do. They really make sure that their own are in there getting access, and there is affirmative action. “Made in Germany” is a thing.
The Chair: Excellent. Thank you for that very clear direction because that’s what we’re going to do in our report: try to give some very clear direction.
Senator Moncion: To get to that point, how much education is needed within companies to really go further than where we’re at?
Ms. Raffoul: A lot of higher-level education. It’s not about telling them what a patent is, necessarily. It’s about more advanced education. That’s why we need a federal agency that has sophisticated actors.
It’s interesting, the top patent licensing firms actually came out of Ottawa. We talk about WiLAN and MOSAID, which became Conversant. Some of the top buyers and sellers of patents globally are Canadians. Canadians developed that market. We need to repatriate that expertise, get some of these Canadians coming back from Silicon Valley and wherever else they are and make sure we get some of these folks now in an agency that we build that is going to disseminate some of that expertise.
If you look across government, we don’t have a lot of IP experts within government, and we need them. We’re in a new economy and we have people that know about resources, but who knows about IP in a truly strategic way? Yet we have Canadians — I see them all the time in Silicon Valley and elsewhere. They would come back if there was a position for them.
We need to repatriate these people, build an agency and fund for that so we have the expertise in our country. If you want to do neurosurgery, you hire a neurosurgeon. If you want to do IP strategy, you need an IP expert. We need to have those roles here, and they need to be within government.
Senator Moncion: And we need people who are into innovation and not into doing the same thing every day that’s been done for 30 years and will continue being done for another 30 years.
Ms. Raffoul: Exactly. Because our domestic sector is not patenting a lot, many of the IP attorneys — Jim and I are kind of unique in the sense that we have big domestic practices and we are doing a lot with incubators and accelerators — but a lot of our colleagues are just working for foreign multinationals, getting them Canadian patents. We’re going to have that, of course, but we need to start reorienting. We need our own experts helping our own companies with strategy, and there are programs coming along.
The federal government’s IP Assist program is great, but we need to build on that. There needs to be more clarity around that. They finally hired an IP expert to run it, so there are some moves I want to acknowledge. Roula Thomas is now leading the IRAP program, that is the National Research Council of Canada Industrial Research Assistance Program. She is someone who comes with an IP background. We are seeing some moves, but it’s not enough and it feels very pilot, always at risk of being defunded, whereas this is the new reality; it has to be permanent.
Senator Moncion: The other question I have is about the scaling of your services as lawyers in IP.
Do you have scaling? You’re talking about large companies — that you would rather deal with larger companies. It’s very difficult for small firms to really get into it because of the costs that are associated with the lawyers’ fees that will help them get there.
Ms. Raffoul: This is what I say to smaller companies: Your cost should really be commensurate with the size of your company and the amount of revenue generated. As you get larger, your spend on IP protection and IP strategy will be commensurate with where you are on that revenue growth chain. You’re not going to start where Microsoft is. They literally have an IP law firm within Microsoft. You’re going to start out slowly, and the spend is going to be fairly linear in a sense. We need our companies to start getting access to funding and tax credits to be able to start that spend slowly but surely. You’re not filing a hundred patents; you’re filing one or two on certain very strategic things that if your competitor stole those, you would be caught out there with your pants down.
Our companies will need to be much more directed. Look at the example of i4i I gave you, that Toronto-based company. They filed one patent application and then had a conversation with Microsoft. I wish all our companies would do that before they get into a big customer meeting. But so many times, I have small Canadian companies coming back to me saying, “I talked to them, and now they want to know a little bit more, but we didn’t file a patent application yet.” Alarm bells.
The Chair: Nothing you can do.
Ms. Raffoul: Nothing you can do. You make small mistakes like that, and it will cost you everything.
Senator Yussuff: Briefly, if you guys are so right, how come we haven’t had more people leading the charge saying, “Hey, we screw this up over and over; we have to change the strategy because we’re spending billions of dollars of taxpayer money without the results that we should be getting”? I’m not saying that in a condescending way. I’m saying that in a way recognizing that you’re not people without the wherewithal to help others achieve the objective.
The federal government and the provinces have to work on this together because the strategy was rolled out this week with, again, a subsidy. The provinces weren’t involved. They’re not a separate part of the entity, so is the intelligence of the provinces even less than that of the federal government?
My point is that if they were driving it, the federal government would have to come along and partner. Or if the federal government were driving it, then the provinces would have to come along and partner. But it seems like, on both sides of the equation, we’re not getting there because Ontario is one of the largest industrial provinces, with Quebec right next door, yet the same mistakes that you keep talking about are happening.
I’ll finish on this point. In the auto industry, at least we have Ontario-based suppliers, Canadian suppliers, who have developed a very sophisticated network and have become multinational. Magna is a good example. Why can’t the same partnership evolve in a way that shows recognition? If you want to build wealth in this country, the only way to do that is to actually create the things that other people want to buy.
Ms. Raffoul: — that other people want to buy. Exactly.
Mr. Hinton: It’s a really interesting question. I’ve been at this, and for the longest time, people would just say, “IP, what are you talking about? That doesn’t matter.” It has been in the last maybe two or three years where we’ve seen, okay, IP does matter. We’ve just gotten to that point. For the longest time, it was like we didn’t need to worry about that, and now we’re starting to see it.
Between the federal and provincial governments, we’re working across the board, but there is a smaller group of people who get it. IP is not a backwater thing anymore, and a lot of the professionals, as Natalie said, fit into that camp. We will just process this document and get a patent or trademark here for this other company. It’s no big deal. But the rise in the value of the assets themselves hasn’t kept pace with our attention to them. They have been left unattended for such a long time, along with the policy levers around them.
Yes, we’ve been working on IP in Ontario and Quebec. Alberta is looking into this; B.C. is moving on this, Manitoba, out East. The provincial governments are starting to turn their minds to it, and so is the federal government. We just have to keep getting everybody moving in the same direction.
Ms. Raffoul: These are tough conversations because if you’ve always been giving it away and never cared about IP, now you have to tell your friends at these foreign companies and folks within Canada who are in lots of partnerships with these companies that we’re actually going to have to negotiate better terms. That’s not a nice conversation to have. I’ve been involved in some of those discussions, and there is a lot of pushback on that.
What we’re now saying is the party is over. It’s now going to have to be some form of affirmative action. We do have to help our domestic sector, and that’s where the leadership comes in. That’s where I see it at the federal level. We need that leadership. This is tough stuff. Some people are not going to be happy with this. They like it the way it is because it works for them, but it’s not a long-term strategy for us. That’s not easy. Just the debate I was telling you about: Is Microsoft Canada a Canadian company?
Mr. Hinton: It’s an Irish company. Microsoft Canada is owned by an Irish company.
Ms. Raffoul: Should they get the same funding bucket as a CCPC? That remains up for debate. Why would we leave them out? That’s where we’re still at.
The Chair: We’ve heard this from some other witnesses, so I want to hear you on this, and then we’ll do some quick follow‑ups because we’re overtime right now.
You talk about the exit versus the scaling and our tendency as a country to make a quick buck and sell it to the big guys and move on. A couple of the senators have referenced this. The attitude, the mindset that we have in Canada, whether it’s government or private sector, is that we don’t think big enough. It’s that kind of “let’s make a buck and get out” mindset. “Let’s not take too much risk. I don’t care about IP. I won’t have to worry about that. It’s down the road.”
How do you characterize the attitudinal roadblock problem that we’ve got?
Mr. Hinton: The Canadian companies I work with dream big and they want to accomplish everything. It is the grocers, the banks, the telcos — those are the unambitious companies that we have to deal with, and that’s where there’s no fire in the belly. The Canadian companies I work with want to be gold champions.
Ms. Raffoul: Yes, they do, and they want access to our researchers. This is the other struggle. They want to work with our leading minds. They’re struggling with big problems. They’re asking me, “How do I better incorporate AI into my product? How am I going to build a product that will actually replace — we’re in that time where we’re talking about whether this would replace an individual — can we reduce the workforce with this product?”
They’re grappling with difficult problems, yet in our research community, we have incredible minds in Canada. We invent the most amazing things. We are the inventors of insulin. There’s a whole litany of things we’ve invented. Why are we not partnering with our own? They don’t have access to that.
[Translation]
Senator Bellemare: My question is very specific. During our discussions on intellectual property, one witness told us this asset might cease to exist because of artificial intelligence. They mentioned difficulties relating to patents and so forth.
What do you say to that?
[English]
Ms. Raffoul: It remains to be seen whether IP in the AI space will be used more as a strategic means, as we’ve had with the telcos. You had the telecommunications companies holding troves of patents, but they weren’t asserting those against each other. In the mobile phone war, we’ve seen something different.
It remains to be seen what we’re going to see with patent protection in the artificial intelligence space, but what I can tell you is that the patenting is going exponentially in terms of filings. Everyone is filing, and Canada wants to be strategic around AI. We don’t hold any assets in this space. In fact, there was a 2019 report from the World Intellectual Property Organization that I will forward to this committee, and it was so poignant. There was a leader from a Chinese company who said Canada does research in this area very well, but they haven’t figured out how to harness the value from it or turn it into commercialization for their domestic industry. We are coming up with great ideas, but we’ve got these institutes we’ve set up that have partnerships with a lot of foreign multinationals, and a lot of that intelligence is — we were getting thanks. Google has thanked us for helping them only the AI front.
Right now is not the time to question whether the patents are going to be of value. Everyone is filing for them, and so should we. We are pouring millions and billions of dollars into AI research and commercialization, and yet we don’t think that IP protection is important while every other country thinks differently.
Mr. Hinton: That report says 350,000 patents have been filed, and Canadian companies can’t commercialize AI if they don’t have the data. You need to have the technology and the IP, but also the inputs and the data that’s out there to be able to feed into the training data to do all of this. You can’t commercialize artificial intelligence unless you have the data assets, and we don’t.
The Chair: Thank you. This is very sharp and pointed. I appreciate it. Another banker, Senator Loffreda.
Senator Loffreda: I’m a former banker. We have been discussing bankers. Senator Smith says I’m always a banker, so here I am.
You didn’t mention IP education; you mentioned it first when it came to strategy and what was needed. I’ve often said here and elsewhere that in Canada we’re great in putting money into R&D, but as for monetizing the R&D, we don’t do such a great job. We’re not very good at that because of the reasons we have mentioned. I’m looking at a StatCan website from December 2022, and under the heading “Canada continues to be a world leader in higher education spending,” it says:
Over the years, Canada (0.72%) has remained the country with the highest higher education R&D intensity . . . among G7 countries.
In 2020/2021, Canada also ranked among the top five Organisation for Economic Co-operation and Development (OECD) member countries with the highest higher education R&D expenditures, ranking fourth, after Denmark, Sweden and Norway.
You did make the point that our universities are not working with domestic companies; they’d rather work with foreign multinationals. And the scaling is so important. Canadian entrepreneurs — as a banker I heard this all the time — the thing they talked about first is their exit strategy and their projections. There are surveys that credible accounting firms have done over and over again saying the entrepreneurs would rather sell than grow. Is there a quick fix to that? It’s so important to turn all that investment and monetize it. Is it solvable?
Ms. Raffoul: One of the things we need to understand is that Canada is sort of set up when it comes to intellectual property ownership. Essentially, it’s university by university. You have some situations where it is the institution that owns the IP. In many universities, it’s the researcher who owns the IP. Everyone is left to their own devices to figure it out.
In the U.S. they passed something called the Bayh–Dole Act, which meant all government-funded research was held by the institution, and then they have other layers to ensure that the IP remains in the country. In Germany, they have the Fraunhofer organization, which manages all of the IP and commercialization coming out of all of the research institutions.
We don’t have any kind of overlay. We’re not going to go in and start negotiating the collective bargaining agreements across all of these universities to switch IP policies. It’s the granting councils. You are funding $6 billion or whatever it is a year. Where is the IP going? We’re not asking that fundamental question. We’re not asking about national security and that kind of stuff either, but let’s just talk about IP. It’s just a detail, but that also plays into it.
We’ve got research projects with foreign countries. They are taking that IP, and that’s quite scary because a lot of it is in the telecommunication sector. The patents and intellectual property are just flying out the door, and there is no gatekeeping of that. There is no strategy around how, actually, we’re going to own the IP, we’ll derive the wealth. You can take a licence to the technology. You can license it, but we’re going to drive the wealth effects from this, and we’re also then going to give a licence to our domestic companies to build follow-on technology on that. We need to negotiate better deals, but we don’t have a Fraunhofer Institute or the Bayh–Dole Act.
Mr. Hinton: In 2018, universities spent $4.5 billion on research and development. They generated $54 million. So, nothing is happening. The universities aren’t the answer. They’re not doing it. I work for a university, but they don’t do innovation. They want more money, but just spend less money and you’ll make more money. They’re not properly oriented. I’ve got a paper on this coming out next week through the Centre for International Governance Innovation, and we go into detail on how Canadian universities are performing. It’s about governance, and they lack governance when it comes to working with and for Canadian economic benefits.
The Chair: Please forward that to us if we don’t find it ourselves. That would be great.
Mr. Hinton: Yes.
Senator Moncion: Following on the conversation that we were having about the questions that I had about education, and it’s about the ownership. How much of it is stolen? How much of it is lost? How much of it is hacked?
Ms. Raffoul: We’ll share that WIPO report showing that by the time — patent applications get filed and they take about three to five years to grant. There was a big study done across Canada to learn that by the time they grant, half the patents that are invented by Canadians are owned by foreign companies, and within seven years, the lion’s share is also in the hands of foreign companies.
Senator Moncion: We’ve known that for years.
Ms. Raffoul: Yes, exactly.
Mr. Hinton: Some of it is about theft, but a lot is about giving it away. Especially on the research side, you have to publish. You’re giving it away. If you’re not protecting it, it’s philanthropy. Our institutional policy for Canadian research is philanthropy.
Natalie mentioned insulin. That’s now 100 years old, Banting. We’re still clinging onto some of that. Drug medication for insulin is through the roof. It’s because there was a strategy but it wasn’t an intelligent strategy, and we continue to pay for it. All of those advancements, Canadians participated in creating them, but not in retaining the value and then getting the global benefit to be able to be part of it.
The Chair: Very important.
Ms. Raffoul: That is a very interesting point about IP theft. I do deal with that. They are not things I can disclose, but we see it all the time. We need education for our companies because it’s happening far too often. We need to help them with how they’re structuring their confidentiality agreements and how they’re educating their employees around trade secret theft. Because now, with employees being so mobile, most of the time, trade secret theft is an inside job. Our companies have to be much more attuned to the realities of that, they have to structure their employment agreements in a different way. And that’s, again, intangible. Those are intellectual property. Contracts are a form of intellectual property. I keep harping on that too because I do talk about patents, but contracts are critically important. It goes back to education.
The Chair: Thank you, this has been most educational, enlightening and frightening, and we really appreciate the work you’re doing on this. We’re trying to be very constructive in the recommendations that we’re going to make in our report, and this is extremely helpful. We do need a new story. We can’t be talking about insulin and the Canadarm for the rest of our lives. Jim Hinton and Natalie Raffoul, you have been terrific. Thank you very much.
(The committee adjourned.)