Conference Board of Canada Event Highlights Importance of IP Protections

James Gannon is an Osgoode Hall alumnus and is currently an articling student at McCarthy Tétrault.  Jonathan Frydman recently completed his second year of the J.D. program at Osgoode Hall Law School.  James and Jonathan took notes at a recent conference they attended and they report on the speaker presentations in this blog.

On Friday, April 29, the Conference Board of Canada hosted a well-attended event titled “Intellectual Property Rights: Innovation and Commercialization in Turbulent Times”. The event featured a wide variety of panel speakers representing a wide spectrum of industry and academic backgrounds. The major theme of the event which was echoed by virtually every speaker was the urgency in getting Canadian IP laws up to speed with international standards in order to encourage investment spending in Canada on new research and development. This theme was first expressed by the Chair of the event, Graham Henderson, President of the Canadian Recording Industry Association, who stated that investment in research is nurtured in an environment with protectable ideas and products. The featured panel members, and an excellent keynote address by the Hon. Michael Bryant, all offered their views on this subject from the standpoint of their particular field or industry.

Plenary Session 1 – IPR and the Global Economic Slowdown

The first panel opened with a keynote speech by Glen Hodgson, Senior Vice-President and Chief Economist with the Conference Board. Mr. Hodgson began by commenting on some positive economic figures that indicated that the healing of national markets has accelerated in the last month and gave a generally positive outlook on the future of the economy. He predicted that Canada would see the benefits of fiscal stimulus over the next year and may experience positive growth in the 4th quarter of this year. On a less positive note, he also led the conference through some international indicators on innovations which gave Canada a grade of “D” as an innovative nation.

Picking up on the theme of innovation, Aaron Sawchuk, the Director of Enforcement and Regulatory Affairs with the Canadian Recording Industry Association, noted that the best way for a country to promote innovation is to have a robust IP framework. He argued that weak IP protection leads to a lack of investment in key industries which should be corrected not only with a strong legislative framework in IP, but also robust institutional and educational initiatives. However, strong IP rights still remain the foundation of innovation, as they allow investment to shift from static to dynamic areas of economic activity. Mr. Sawchuk closed by making an interesting parallel between the current financial crisis, which was caused by a lack of regulation in the banking and finance markets, and the crisis in innovation, which he said was caused by inadequate IP governance.

Mr. Sawchuk’s comments were followed by those of Richard C. Owens, a well-known Toronto IP lawyer. Mr. Owens stressed that IP was necessary to commercialize our ideas in the arts and sciences and lamented how IP theft is increasingly seen as victimless. He pointed to several problems he saw in Canada’s current IP framework. First, he stated that the system of levies had dealt the culture of IP rights a serious blow.  Second, he pointed to uncertainty of rights in the university environment as another area that needs to be improved. Finally, he noted that if we want to see an increased level of technological investment in Canada, we must “tend” to our IP system and ensure we strike the correct balance.

Plenary Session 2 – Innovation and IPR Governance

The second panel saw a lively debate between two university law professors, Prof. Richard Gold of McGill University and Prof. George Barker of the Australian National University. Prof. Gold began by arguing that there is more to IP “rules” than merely legislation and that norms and standards also play an important role. He said that Canada will only improve its innovation record if we have the right business models to use the IP we develop, arguing that there is little known conclusive evidence on the effect of IPR on innovation. Prof. Gold further stated that we are entering a new age where partnerships towards innovation are becoming more and more common. While he admitted that there has yet to be a successful medicine go to market without making use of patents, he stressed that more research tools need to be moved into the public domain.

Prof. Barker dedicated much of his presentation to countering Prof. Gold’s points and underlying research. He argued that a country’s laws and IP practices do matter to encourage innovation. He stated that investor certainty and stable business environments emerge as a result of self-interested people working towards a mutual benefit and that IPRs are the common vehicle to achieving these goals. He further argued that the ability to appropriate returns from innovation is the foundation for increased investment and as such, increased protection for IPRs lead to greater innovation. While he acknowledged Prof. Gold’s position that open source models can be beneficial in very limited circumstances, he argued that, over time, proprietal systems will generally yield better results.

Plenary Session 3 – Optimizing Commercialization with University and Business Partnerships

The third panel featured a variety of speakers discussing the issues surrounding commercialization of innovation in the university context. Moderator George Ross, Ontario Deputy Minister of Research and Innovation, opened the discussion by stressing the importance of technology transfer between universities and industry. He noted that Canada benefits from the creation of many university spinoff companies but that the link between universities and industry remains thin.

David Naylor, President of the University of Toronto, began his talk by arguing that the debate between institutional and inventor ownership of university-based inventions in not as important an issue as many believe; rather, certainty of ownership is the more pressing issue. As with the other panellists, he emphasized again that as long as IPRs are clear and well defined, the details of the precise model is not essential.

Thomas Corr, CEO of the Accelerator Centre in Waterloo, stated that the success of the University of Waterloo’s many spin-offs in the high-tech industry was a direct result of the University’s culture of promoting innovation among its students and faculty. Under the University’s model, no IP is owned by the University unless it takes a direct role in the commercialization of the invention. He made note of other institutions’ reluctance to implement such a program, however Mr. Corr believed that many Universities overvalue IP on its own and often forget the cost of bringing the IP to market.

The next speaker on the panel also came from Waterloo. Tom Jenkins, Executive Chairman and Chief Strategy Office at Open Text Corporation, spoke about the need for flexibility in considering an institution’s IP policy. He believes that there is no one-size-fits-all approach to IPR and commercialization of innovation. He echoed Mr. Naylor’s point that it is not the exact IPR model so much as the certainty in the model’s application that is key to driving innovation. However, flexibility remains key and each individual industry sector would benefit from a specifically tailored IPR model. One advantage of such a robust yet tailored system would be a common nomenclature between parties that could facilitate commercialization of IPRs.

Finally, Jon Soderstrom, the Managing Director of the Office of Cooperative Research at Yale University, spoke about the importance of supporting students in developing and marketing their ideas.  He also emphasized that the university’s role in encouraging innovation does not rest simply with developing an IP policy, but rather fostering an “entrepreneurial ecosystem” in which students can thrive. Mr. Soderstrom also spoke about the importance of a university’s IP transfer office, stating that one of his primary goals in his role is to make investment opportunities as visible as possible to potential investors.

Plenary Session 4- Preserving Incentives for Biologics Innovation and Commercialization

The keynote speech in plenary session 4 was delivered by Mr. Richard F. Kingham, an international medicine lawyer and partner at the prominent US law firm, Covington & Burling LLP. He began by providing a brief overview of the major differences between small chemical drugs and biologics. The prototypical example of a small chemical drug would be Aspirin.  Similar to other simple compounds produced by scientists, Aspirin is a chemically-simple substance that triggers the occurrence of various physiological reactions in the body.

In stark contrast to the chronologically mature small chemical drugs, biologics are much newer and different from their relatively simple counterparts. The earliest form of variolation with biologics was pioneered in Asia, where patients were inoculated against small pox via deliberate infection with a weakened form of the disease.

The commercial production of biologics began early in the 20^th century with the advent of insulin (for the treatment of Diabetes) by Banting and Best at the University of Toronto. The biologics produced during this time were referred to as “old biologics,” since the technology was due to receive a massive overhaul in the early 1970s, following the discovery of DNA.  This groundbreaking discovery led to significant innovation with respect to the production and commercialization of biologics. Scientists were able to derive pure recombinant DNA proteins from small DNA protein codes, which allowed for the production of pure insulin, designed specifically for human use. The introduction of recombinant DNA proteins in the production of insulin led to the solution of a major problem that was linked to the “old biologics”. Unlike their “old” counterparts, the “new biologics” did not contain insulin derived from pig pancreas and consequently, the finished product was entirely tolerable to humans.

Mr. Kingham explained that, while the biologics industry has certainly come a long way since its original inception, the industry remains fragile and is particularly susceptible to changes in government policy. Investment in biotechnology is risky. The cost of R&D is, on average, $1.2 billion for every therapeutic compound that is successfully brought to the patient. Further, it takes approximately 10-15 years from discovery for a drug to the time it finally reaches a patient. Strict price controls on products means that investors are less likely to recover the full costs associated with R&D, let alone pay significant sums to award investors for taking risks. The ability to attract investment in biologics depends on the opportunity for reward in successful products. Since most products of this type do not succeed, potential awards must be high enough to outweigh these unfavourable odds and encourage investment.

Mr. Kingham suggests that a uniform system of protection is necessary across all major countries, which will allow for some period of exclusive reliance (data exclusionary period) to demonstrate the effectiveness of the new biological product. In order to maintain incentives for the development of new biologic medicinal products, we must: (1) maintain a necessary length of period protection, and (2) change the patent litigation system to facilitate disputes prior to release of the patent. He also suggests that the government must provide incentives to discover new uses for old products. He also purports that it is the lack of infrastructure and adequate delivery of health care in developing nations that is the main problem, not the patent system.

Keynote Presentation – The Hon. Michael Bryant – Research and Innovation – Ontario’s Economic Development

The keynote presentation was delivered by The Hon. Michael Bryant, former minister of economic development and current president and CEO of Invest Toronto. The primary goal of his latest endeavour is to “capture unrealized economic opportunities within the city of Toronto.”

Mr. Bryant introduced his latest initiative by stating that the Canadian government is investing directly in domestic companies and changing existing tax laws to render this country a more competitive tax jurisdiction. To effectively illustrate the large pool of talent, technology and diversity in Toronto, he mentioned that the GTA boasts the 2^nd highest share of high-knowledge workers in North America (tied with NYC and second only to Boston). The problem, he claims, lies in our system of “lazy, lax intellectual property rights protection.” This lack of protection inevitably leads to lost opportunities. A prime example of this would be Ontario’s failure to capitalize on insulin, reflecting a $15 billion loss in potential earnings for the province.

There is clearly a need for significant reform with regard to the protection of IP rights in Canada. The federal/provincial governments cannot afford to be “asleep at the switch” while consumers are being harmed.

In his closing remarks, Mr. Bryant expressed his belief that Canada has the potential to evolve from being one of the worst offenders of IPR abuse, to becoming a global leader in promoting the protection of IP rights over the next 3 years. To effectively achieve this end, he stresses that Canadian business leaders must be more strategic and aggressive with governments when addressing the issue of reform.

Mr. Bryant impressed on the crowd that in order to emerge from this recession as global leaders, we must rise above our jurisdictional competitors. We have the necessary resources, but resources alone are not sufficient. These resources must be complemented with the necessary level of action and ambition, for real change to ensue.

Plenary Session 5 – Commercializing Breakthroughs: The Development and Dissemination of Green Technology

Marc Boismenu, Manager, Advanced Technology, General Motors of Canada Ltd., claims that IP clarity is essential to the preservation and promotion of innovation within the automobile industry, especially in times of economic instability. The focus of his discussion was on the evolution of the electric vehicle, with an emphasis on the Chevrolet Volt, which is due to be released in late 2010 as a 2011 model. He emphasized that, in order for GM to maintain a competitive advantage in the electric vehicle market, and to successfully allow it to create and market a “zero-emission” vehicle, the Canadian government must strive to ensure that there are sufficient IP protections in place to protect that advantage.

Carl Horton, Chief Intellectual Property Counsel, General Electric Company, emphasized the importance of maintaining a strong IP protection regime to effectively promote and develop green technology. Due to rising energy demands, coupled with our awareness that we are unable to continue emitting at current levels, we must discern an effective way to encourage investment in green technology. General Electric is so confident in the legitimacy of this need, that in spite of the current instability of the economy, the company has agreed to invest $1.5 billion in green technology.

According to the United Nations Framework Convention on Climate Change, an enhanced emphasis on intellectual property rights protection is the ultimate solution to drive any real climate change initiative. This is the only way that greentech companies can attract the necessary funding from investors to promote the diffusion of green technology. Investors will only do business in an environment where they can control their own destiny. Where this sense of control is lacking, investors cannot trust that any misappropriation would be enforced and/or penalized. IP protection is necessary to allow businesses to transact freely and exert sufficient control with respect to how that business is propelled forward.

To create an infrastructure that is conducive to facilitating investment in green technology, we must: (1) maintain a strong rule of law, which adheres to all international treaties; (2) continue to invest in R&D; (3) let a technology-needs-assessment drive solutions for least developed countries; (4) promote incentive programs through government assistance, Clean Development mechanism (CDM) and feeding tariffs and; (5) explore alternative funding mechanisms.

Plenary Session 6 – The Evolution of Internet Governance and Education

The final panel featured an equally spirited discussion on the increasing role of ISPs in protecting IPRs online. The first speaker, Greg Frazier, Executive Vice-President for Worldwide Government Policy with the Motion Picture Association of America, spoke of increasing initiatives between ISPs and rights holders to achieve greater IPR compliance. Speaking specifically about the recent legislative enactments in France mandating a graduated response system among ISPs to deal with repeat IP infringers, Mr. Frazier noted that what’s happening in France is being closely observed in other jurisdictions. He stated that the movie industry is generally optimistic about the Internet’s potential as a key technology in delivering their products to their audience. However, in light of the failure of notice-and-notice models around the world, the prevalence of film piracy online was requiring rights holders to enter into more and more partnerships with ISPs. At the end of the day, concluded Mr. Frazier, “the French Model gets titles to people quicker”.

The next speaker, Jay Kerr-Wilson, a partner at Fasken Martineau DuMoulin LLP who often acts for ISPs, provided counter-points to some of Mr. Frazier’s views. He began by listing the many ways in which ISPs are currently regulated and that they have come a long way from their original role as providers of “dumb pipes”. At the same time, he noted, ISPs were looking to enter into cohesive, structured conversations with rights holders with a view of looking into partnerships. As opposed to Mr. Frazier, he believed that the continued prevalence of voluntarily imposed notice-and-notice systems among ISPs was an indication of their relative success in regulating IPRs online. In summary, Mr. Kerr-Wilson stated that while ISPs were open to working with parties to achieve greater IPR enforcement online, he noted that these parties should be cognizant of the many demands currently placed on ISPs and that IP enforcement is just one of the competing interests they must grapple with.

The final speaker of the panel was Victoria Sheckler, Deputy General Counsel with the Recording Industry Association of America. She began by providing industry numbers showing an alarming decline in the sale of music over the last ten years. Recording industry revenues have declined by 40% since 1999, largely, she believes, due to rampant online copyright infringement. Ms. Sheckler also spoke of the importance of continuously innovating and restructuring the partnerships between rights holders and ISPs, and that continued experimentation will eventually produce an ideal model that gives music fans access to what they’re looking for, timely and efficiently. She noted that the RIAA hopes to see copyright reform in Canada in the short term and emphasized that the current regime leads to a greater uncertainty among both distributors and consumers of digital music. She spoke of the need to change the “download culture” in Canada and that a big part in achieving this change involves strategic partnerships with Canadian ISPs.