INDU Committee Report

Productivity gap:

The productivity gap between Canada and its main competitors threatens our economy and our ability to maintain our quality of life into the 21^st century. This is now a widely accepted fact, supported by numerous studies by the Canadian Council of Academies (2009), the Science and Technology and Innovation Council (2010) and, more recently, the Jenkins Report (2011). 

“The challenge, of course, and the reason there's so much discussion around this area, is that Canada suffers from a lack of productivity related to poor innovation. We have below average BERD spending, we're in the bottom third of PhD graduates per capita.” (Rob Annan, Director of Policy, MITACS, June 19, 2012, 09h10)

The NDP believes the productivity gap must be at the core of any discussion on innovation and intellectual property. As a consequence, the NDP members of the Industry Committee present a dissident opinion to highlight significant elements of testimony of independent experts or industry sectors whose views are not adequately represented in the main report.

Innovation, intellectual property and good-jobs for Canadians:

“Innovation has market value and intellectual property may or may not. It's just an output.

We have to be careful not to focus our policies on getting more intellectual property rights. We should focus on better IP, not more IP rights. Better IP will drive innovation, which has market value. That is what drives jobs and economic growth in all sectors—the knowledge economy, manufacturing, everything.” (Professor Jeremy de Beer, University of Ottawa, May, 15, 2012, 10h15, emphasis added).

The NDP is concerned that early on the Committee was guided by a “more is better” bias in approaching intellectual property. Expert witnesses are clear that high-quality intellectual property and patents will foster innovation, but that intellectual property rights are only one element in a larger toolbox to stimulate business R&D and innovation.

Plugging the leaks of Intellectual property  

Canada needs smarter policies to support the right kind of intellectual property, and we need the right tools to maintain our most innovative companies and intellectual property in Canada. Canada’s intellectual property deficit has been valued at a whopping $4.5 billion. That is bad for Canadian jobs and bad for the economy.

“We did some research looking at how many small and medium-sized companies were involved in mergers and acquisition deals in Canada over a period of five years. What we discovered was that about 58% of the companies that were sold went to overseas buyers, and 66% of the IP went abroad, which means that overseas buyers heavily covet our companies that are rich in intellectual property ...we need to recognize that something is missing in this country. Something is not anchoring.... We're not keeping enough of our IP in this country. I think, and maybe Tony would agree, that anchoring IP in this country would also help to create jobs..” (Karen Mazurkewich, Director, Intellectual Property, Canadian International Council (CIC), October 2, 2012, 11h45).

It is thus critical to consider the issue of intellectual property in the wider context of the challenges facing small start-ups, the manufacturing, aerospace and pharmaceutical sectors, and other government programs in support of research and development. 

Cuts to SR&ED – a bad recipe for innovation and productivity:

If the ultimate aim of the study is to direct the government to improve Canadian innovation and productivity, then it is critical that government also review other major changes in support to programs. For example, numerous witnesses have suggested that cuts to the Scientific Research and Experimental Development Program would have disastrous effects on business investments in research and development and innovation...  

“What we have done effectively, by reducing the SR and ED credit, is penalized our current investments, which as I mentioned, are throwing off a great deal of productivity, not just for our company, but also for the country.” (Mr. Emechete Onuoha, Vice-President, Citizenship and Government Affairs, Xerox Canada, November 06, 2012).

“In total, you are talking about $750 million in reduced incentives for companies. How that will impact companies' actual investments in R and D...based on the surveys we have done, the reduction of business R and D expenditure will be between 25% and 30% as a result of these measures. You're talking somewhere between $1 billion and $1.5 billion, according to the survey we conducted this year. (Martin Lavoie, Director of policy, Canadian Manufacturers and Exporters Nov. 1, 2012, 12h45)

Recommendation:

That the Government delay the planned $500 million cut to the SR&ED program and instead consult with industry on improvements to support for business R&D that do not result in a net loss of funding and potential loss of IP.

Recommendation:

That the government further study means to grow innovative Canadian companies to keep valuable intellectual property in Canada and close the productivity gap with our competitors.

Recommendation:

That the government of Canada explore options to simplify and provide better support including education for the filing of patents for small businesses.

Intellectual property for our aerospace industry:

Canada’s aerospace industry leaders were clear. The government of Canada was not doing enough to support our world-class aerospace sector, and this timidity is harming our companies. The government needs to negotiate with a stronger hand in purchasing aircraft from foreign companies to obtain the intellectual property necessary to perform high-value maintenance and repair.

“The last, but also extremely important, issue is in terms of government procurements or federal acquisitions of foreign aircraft. … Our SMEs particularly are at a great disadvantage, because they don't have access to this IP because government does not negotiate it at the front end … “We have to reinforce our procurement policies by negotiating upfront access to IP, which is so necessary to create more of these high-value jobs that the industry already provides.” (Lucy Boily, Vice-President, Policy and Competitiveness, Aerospace Industries Association of Canada) October 2, 2012, 11:10)

Recommendation:

That the government better leverage procurement and Industrial Regional Benefit agreements to secure intellectual property from original equipment manufacturers to help integrate Canadian companies into global value chains.

Getting it right: pharmaceutical innovation and health care costs

As free-trade negotiations between Canada and the European Union draw to a close, the decline of Canada’s research-based pharmaceutical companies was of particular concern to NDP members of the Industry Committee. While the extension of brand-named pharmaceutical patent rights was touted as solution to fix Canada’s declining investments in pharmaceutical R&D, a recent study shows this would increase health care costs by $2.8 billion annually. The NDP is eager to create high-value added research jobs and protect health care costs, especially for seniors.

Independent witnesses were clear that the pharmaceutical industry was undergoing important restructuring and that granting additional patent rights was unlikely to bring additional R&D investments to Canada and increase therapeutic innovation.

“If you look at the accord that was done in around 1989 with the pharmaceutical industry, they promised to move us up to 10% of the revenues we invested in R and D, which would still be about half of the OECD average. They hit it for a few years …and now were back to the old levels … So giving the [pharmaceutical companies] more [IP] is not going to bring them back … We can triple our patent rights and it's not going to have a marked increase, at least on an economic basis.”  (Professor Richard Gold, McGill University, 1030)

Increasingly, successful businesses in the 21^st century economy, including pharmaceutical companies, are embracing early stage collaborative strategies to develop common intellectual property and accelerate the pace of innovation for all partners. This model was hailed as a success to be explored by more sectors.

“It's not anti-IP, right? It's a precompetitive stage before the competition really starts, and it just speeds up the process. We know that pharmaceutical companies are struggling to get new products out the door, and sharing of data upstream will speed up that discovery process and allow them to compete down the value chain.” (Pierre Meulien, CEO, Genome Canada, October 23, 2012, 12h20)

This raises the question of whether more intellectual property rights or simply more innovative business strategies and targeted incentives are the real solution for this industry. Furthermore, as CETA negotiations have been held behind closed doors, NDP members feel more transparency is needed to assess options the government may be pursuing for pharmaceutical related reforms to our intellectual property regime, and the implications for provinces, consumers, federal budgets and industry.

As the Committee heard no testimony on the Patent Law Treaty, the Madrid Protocol and Singapore Treaty for trade-marks, and Hague Agreement for Industrial Designs, New Democrat committee members are surprised by the inclusion of a recommendation regarding these treaties in the majority report. The Committee should seek more information before pronouncing on such treaties.

Recommendation:

That the government of Canada undertake an independent, evidence-based review of challenges facing the brand-named pharmaceutical sector in Canada to determine the most appropriate solutions and steps to be taken.

Recommendation:

That the government of Canada provide greater transparency with regards to its position and the state of CETA negotiations concerning pharmaceutical patents.

Recommendation:

That the government arrive at a trade agreement with Europe that will not increase the cost of prescription drugs for seniors.

Supporting the innovation pipeline:

Innovation is a process, and it is critical that it is being harnessed at all stages including the earliest. While Canada must do more to bring new inventions and ideas to market, it is critical that we not abandon the necessary investments to spur the next generation of innovations.    

“It is important to maintain funding for what is called “blue sky research”, meaning research that can go anywhere and find anything.

I have seen you all with your BlackBerrys this morning. Maxwell's equations form the basis for the transmission of electronic signals. Fifty years passed before Hertz and Marconi put them to work. I feel sure that, these days, Mr. Maxwell would not have received any funding, so no one would have a cell phone. We have to keep funding discovery research.

Of course, we have to maintain an overall balance between basic research, applied research and subsequently the commercialization of research. Otherwise, discovery research will no longer exist. We may well have brought a lot of things to market, but there will be nothing coming down the pipeline … So granting agencies play a very important role, that of funding basic research. (Professor Catherine Beaudry, École Polytechnique de Montréal, May 12, 2012, 9h40).”

National Research Council:

Recommendation:

Recognizing the substantive role the National Research Council plays in supporting research, including through patents and peer-reviewed papers, and generating knowledge, that the government immediately disclose details to Parliament on its plans to support a refocus on business-led, industry-relevant research.

Recommendation:

That the NRC maintain ownership of IP generated through its personnel, and that it maintain its support to non-oriented research and development through long-term, stable and consistent funding mechanisms for undertakings in fundamental research.

Counterfeiting:

In light of the ongoing proliferation of counterfeit consumer products entering the Canadian market, New Democrat committee members note that dealing with counterfeiting and copyright infringement is important for both Canadian businesses and consumers. This is especially important where counterfeit goods may put the health or safety of Canadians at risk.

In spite of these challenges, the Conservatives have not taken timely and balanced action to deal with counterfeit goods. Furthermore, Budget 2012 announced cuts of $143 million to the Canada Border Services Agency, which will reduce frontline officers and further reduce our ability to monitor our borders.

A balanced approach to tackling counterfeiting or infringements must address both the public interest and the interests of trade-mark or copyright holders. This will require consultation to ensure the rights and interests of individuals are respected while addressing the growing costs of counterfeiting to Canada’s economy.

Recommendation:

That the government include consumer groups in addition to industry groups in education and coordination efforts to combat piracy and counterfeit.

Recommendation:

That appropriate authority be vested in RCMP and border officials to do their work, while ensuring respect for civil liberties and due process. This may need to include compensation in cases where seizure of goods was not warranted.

Recommendation:

That criminal remedies be available where trademark counterfeiting or copyright piracy are both willful and on a commercial scale. However, Consumers themselves are often unable to distinguish between legitimate and counterfeit products, and as a result excessive fines for individual consumers acting non-wilfully are inappropriate.

Recommendation:

That the government stop cutting the budget of CBSA and instead ensure the agency has adequate resources to properly combat counterfeiting without compromising its other important responsibilities in protecting Canadians and defending our border.