IMPACT OF CANADA'S PATENT SYSTEM
AND
PUBLIC SECTOR TECHNOLOGY TRANSFER SYSTEM
ON THE GROWTH OF THE BIOTECHNOLOGY INDUSTRY IN CANADA
Prepared by
Thomas E. Clarke, M.Sc., M.B.A.
March 30, 2001
Clarke-Reavley Consultants
(formerly Stargate Consultants Limited)
707 - 172 Wentworth Drive, Halifax, N.S., B3M 0P4
This paper is based on an earlier study commissioned by
the Canadian Biotechnology Advisory Council in December of 2000.
This report notes that one of the major hurdles to growing the biotech industry
in Canada is the human resources and skills gap. Industry leaders have identified
the lack of senior skilled managers with an understanding of science, marketing,
financing, and regulatory systems as a challenge. The report also voices concern
over a possible "brain-drain" to the U.S. due to the strong growth of their
biotechnology sector. It warns that "a large flow of highly skilled Canadian
workers moving to the United States would have serious consequences on the biotechnology
industry in Canada"(p. 16).
The sectoral report states that in 1997/98, the Federal Government spent $314
million on biotech R&D with the largest players being the Medical Research
Council (now the Canadian Institute of Health Research - $104 million), Natural
Sciences and Engineering Research Council ($90 million), the National Research
Council ($60 million), and Agriculture and Agri-Food Canada ($40 million).
PATENT REGIME DIFFERENCES
"One cannot build a world class innovative biotechnology sector on intellectual
property (IP) protection that is less robust than the protection offered by
Canada's major competitors and trading partners" - 1998 NBAC Report, p.
46.
Information for this section is drawn mainly from a report previously commissioned
for the Canadian Biotechnology Advisory Committee entitled, "Patenting Life
Forms: An International Comparison" by E. Richard Gold [(b), 2000)].
Canada, like the European Union members, the United States and Japan, is a signatory
to the World Trade Organization (WTO) and the Agreement on Trade-Related Aspects
of Intellectual Property Rights (TRIPS). The purpose of TRIPS is to establish
minimum standards of protection among countries in the area of intellectual
property rights, including patents. TRIPS sets forth rules that each WTO member
must follow in operating its country's patent regime. TRIPS does, however, include
an exception (Art. 27.3(b)) which allows WTO members to exclude from patentability
certain biological material (e.g., plants and animals other than micro-organisms
and essentially biological processes for the production of plant and animals
other than non-biological and micro-biological processes), provide protection
over plant varieties either by patent or an alternative system (i.e., plant
breeders rights). The Agreement also provides in Art. 27.3(a) WTO members with
the option of excluding patents on certain processes related to medical diagnostics
and treatment of humans or animals (e.g., surgical procedures, therapeutic methods).
Canada provides patent protection on fewer types of higher life forms than any
of its major competitors. In Canada, (subject to the forthcoming Supreme Court
decision on whether to hear the appeal of the Harvard Mouse case) an inventor
cannot get patent protection on animal organs, whole animals, animal varieties,
human organs, whole plants, and plant varieties. Both the U.S. and Europe issued
their first plant and animal patents in the 1980s (Martin and Amanor-Boadu,
January, 1997). Unlike Europe, in Canada inventors can obtain patents on processes
using higher life forms involving animal and human diagnostic procedures but,
like Europe, not on animal or human therapeutic and surgical therapies.
Plants and plant varieties are protected in Canada under Plant Breeders Rights
(PBR); not under patents. PBRs are considered by many to be a much weaker form
of protection given the extent of the significant exemptions which have no counterpart
in patent law. For example, under what is commonly called "farmer's privilege",
a farmer can save the seeds from a previous year's crop and plant them in the
following years. It is estimated that 70% of the grain on the Prairies is grown
from producers' bin seed (OAG, 1999, pp 8 & 10). If plants were patentable,
barring a similar exemption under the Patent Act, the use of the seeds might
be considered patent infringement. According to Gold (b,2000), the European
Union, through the implementation of the "Directive on the Legal Protection
of Biological Innovation", has expanded the concept of "farmer's privilege"
to cover both genetically modified plants and animals subject to patent rights.
Gold notes that the exact form that the "farmer's privilege" exemption will
take is still to be determined (p. 10).
Another difference between the U.S. and Canada, is that U.S. law prohibits anyone
from making generic versions of biologics; Canada has no such restriction.
In general, the U.S. and Australia have the most open patent systems in that
they allow patenting of almost anything involving higher life forms. In fact,
the Australian patent system is in full harmonization with the United States
on what is patentable.
One must be careful, however, when interpreting the impact of patent protection.
For example, in the U.S., "methods of medical treatment" on humans is considered
patentable subject matter. This does not imply, however, that only the inventor
can use the treatment. If the patented method of medical treatment does not
involve a pharmaceutical, but is strictly a technique, US courts have determined
that the patent holder cannot collect damages for infringement.
Another area in which Canada differs from its European counterparts is in the
use of morality or public order exemptions to the issuing of patents. Under
TRIPS, countries must grant patents over all categories of inventions (subject
to the exceptions noted above) despite the possible different natures of the
inventions. Once a country decides to grant patents over a particular class
of higher life form, it can only single out particular inventions within that
class for exclusion in limited situations. A country may only exclude a particular
invention from patent protection where the sale of that invention must be prohibited
in order to protect political order (ordre publique) or morality of that country,
to prevent harm to human, animal, or plant health, or to prevent serious prejudice
to the environment. These moral exclusions have been used to prevent, for example,
the patenting of contraceptive devices in some countries. A paper by Schrecker,
et al (1998) delves into some of these ethical issues in more detail.
The U.S. and Australia believe that morality clauses should not be part of the
patent system. They believe that issues of morality and public order should
be dealt with in other ways or venues outside the patent system. Canada has
not yet made any definitive statement on this issue but appears to go along
with the U.S. in this matter.
One of the key questions to be addressed in this study is what effect do these
differences have on the ability of Canadian organizations to transfer and/or
commercialize biotechnological inventions.
IMPORTANCE OF PATENT PROTECTION
"A patent can be the most valuable asset a biotechnology company owns."-
Venture Capitalist
Section 2 of the Patent Act defines invention as "Any new and useful art, process,
machine, manufacture, or composition of matter, or any new and useful improvement
in any art, process, machine, manufacture, or composition of matter".
New inventions are rarely in any state where they can be put to immediate use.
It is not uncommon that 100 times the costs of the "invention stage" must be
spent in order to produce the final product or process. Any investor in the
new invention will require some guarantee that he/she will reap the benefits
of their considerable cash outlay to bring the invention to market. Patents
provide such protection by giving the inventor/developer a monopoly for a particular
period of time on the sale and/or use of the patented product or process. The
patent system is a major encouragement of technological innovation. Numerous
surveys have noted that investors place more value on patent protection than
on any other form of intellectual property protection. Having a patent also
increases the ability of a firm to attract partners.
In addition, the strength of a country's patent system in protecting the rights
of the inventor has an impact on the degree to which that country is viewed
as a "good place to do business".
Schrecker et al. (1998, p. 4) note the following three arguments have been made
in favour of patenting higher life forms:
Mossinghoff notes that at present 60% of the applications filed with the European
Patent Office are already in English and only 10% in French. "English de facto,
is the language of science and technology". The use of English as a common IP
language would reduce the costs of patenting considerably. Other issues he believes
would have to be resolved are an agreement on what will be patentable subject
matter, and development of a reasonably priced reexamination system to enable
someone to challenge a recently granted patent.
IMPACT OF CANADA'S LACK OF HARMONIZATION IN PATENTABLE SUBJECT
MATTER WITH OTHER JURISDICTIONS
"The Harvard Mouse controversy is a real show stopper. We are out of
step with the rest of the world". - CEO
"What technology are we not getting access to because we do not provide
patent protection for it?" - Patent Lawyer
"From an economic point-of-view, Canadian patents are not relevant."-
Snr. Univ. TT Advisor
Information in this section is drawn from interviews conducted for this paper,
and from previous reports that expressed the views of Canadians who are involved
in the transfer and/or commercialization of biotechnology in Canada.
There are two schools of thought about what effect our lack of harmonization
on what is patentable in Canada versus what is patentable in other jurisdictions
is having on the ability of Canada to grow a vibrant biotechnology industry.
Insidious Impact
Studies have shown that strong IP protection encourages investment. - Martin
and Amanor-Boadu, 1997, p. 5
One school believes that Canada's stance on the patenting of higher life forms,
in particular, is having a long-term deleterious effect on Canadian companies'
ability to attract investment and R&D dollars. Some felt that it was making
it difficult to do business smoothly across the Canada-
U.S. border. One interviewee believed that "the differences cause a more insidious
impact because they undermine our ability to be a world leader".
Sharing this view, Dr. John Rudolph, in his review of issues related to the
patentability of biotechnological subject matter, believes that Canada's refusal
to patent higher life forms is a factor in preventing Canada from becoming a
world leader in biotechnology (Rudolph, 1997).
The CEO briefing to the CBAC also voiced concern that Canada's lack of harmonization
with other countries' patent rules was sending a negative message to foreign
investors and senior managers of foreign multinational companies in Canada that
would result in reduced investment. "Our lack of harmonization is having a chilling
effect on the international perception that Canada is a good place to invest
in biotechnology". Pharmaceutical firms were especially concerned that Canada's
patent policies would reduce their ability to convince their head offices that
Canada was a good place to conduct R&D. This position was echoed by a government
interviewee who said, "it sends a signal to the international research community
that if you are doing research in genetically modified higher organisms, Canada
may not be the place to do it".
The fact that the Commissioner of Patents was fighting the Federal Court decision
in the Harvard Mouse case was felt by some as signalling that Canada is hostile
to biotechnological inventions. This could reinforce the concern expressed during
the CEO's briefing to CBAC (Gold, (a), 2000), that by failing to harmonize what
is patentable with internationally accepted patent standards, Canada was discouraging
foreign investors. Two interviewees noted that the outcome of the Saskatchewan
court case involving Monsanto over the exercise of the "farmer's privilege"
with genetically engineered canola seeds (Roundup Ready canola) could have a
major effect on R&D investment in the plant biotechnology area if Monsanto
were to lose. Since those interviews, the federal court in Saskatoon has ruled
in favour of Monsanto. In March, 2001, the judge ruled that a farmer does not
have the right to grow crops with a patented and genetically modified gene unless
he or she has an agreement with the company that owns the patent. In making
his ruling, Judge MacKay did not accept that the amount of Roundup Ready canola
in the farmer's field could be explained by cross-pollination or the spread
of seeds from nearby fields.
Many people interviewed consider that Canada's reluctance to quickly harmonize
what is patentable subject matter is sending a very negative message out to
the rest of the world about our technological sophistication. One government
technology transfer officer thought that our unwillingness to harmonize our
patent rules was "making us look parochial". The differences were simply forcing
their organization to patent plants in the U.S. and to obtain only plant breeders
rights in Canada.
Several respondents were concerned that the lack of patent protection for transgenic
animals was discouraging the development of that industry in Canada despite
the ability for transgenic firms to patent elsewhere. Another felt that it was
discouraging R&D investment in plant research. Several agricultural interviewees
thought that our lack of HLF protection was making it harder for Canadian organizations
to compete for research dollars.
A university technology transfer interviewee felt that the inability to patent
animals (i.e., research mice) was making it very difficult for them to enforce
their patents on animal models in Canada. "We can patent the use of the animal,
but it is very hard to enforce the patent if you can't patent the whole animal".
This interviewee also commented that the differences cause irritants in doing
business across the Canada-U.S. border. "Really, we shouldn't be different from
the U.S.; it makes it very difficult for people trying to do business fluidly
across the US-Canada border. These differences are a pain in the neck".
A patent lawyer interviewee pointed out that our unwillingness to move quickly
on the patent protection scene was going to have an adverse effect in a newly
emerging area of biotechnology, bioinformatics. "It is not clear that the computer
models developed can be protected under our existing patent rules". This person
felt that this uncertainty would drive this branch of activity outside of Canada
into a patent jurisdiction that did offer solid protection.
The reality is that everyone who was interviewed for this study had no qualms
about the patenting of HLFs and did so whenever and wherever necessary to protect
their inventions. This raises the question of what the government's rationale
is for operating under the existing policy on this important issue and, in doing
so, making the Canadian patent system less relevant in the marketplace.
When asked why they thought the government and CIPO were not moving quickly
enough to harmonize what is patentable subject matter with our competitors,
most thought it was for reasons of Canadian sovereignty. The sovereignty issue
defence raises the question, "How can we, as Canadians, claim pride
in our sovereignty when we force our citizens to obtain the patent protection
they need to build a strong industry for the benefit of Canadians, from foreigners?".
Little Direct Economic Impact
The other school, while not dismissing the concerns mentioned above, believed
that the economic effects of the differences in what is patentable were not
major. "Patenting in other jurisdictions gives us the protection we need".
CIPO's refusal to provide patent protection similar to that provided by other
jurisdictions has made Canada's patent system less relevant in the strategic
planning of many, if not most, Canadian biotechnology firms. One university
technology transfer interviewee who believed that the differences in what was
patentable had no impact went on to say, "People will do what they have to do
to commercialize their inventions in other jurisdictions based on the law that
is in place in those other jurisdictions".
The bottom line for these interviewees was that Canada was a relatively small
market for biotech products and processes and it was much more important to
protect inventions in the larger markets. As most of those markets allow for
the patenting of higher life forms, companies file first in those jurisdictions
for economic reasons, and file in Canada for patriotic reasons. Because other
jurisdictions do not insist on reciprocal patenting arrangements, Canadian companies
can develop new HLF-based products and patent them elsewhere. Thus their ability
to commercialize is not seriously jeopardized. One interviewee wondered, however,
how long it might be before other countries did retaliate and refuse to patent
Canadian developed HLF biotechnologies.
In summary, the impact on Canadian firms of the differences in terms of what
is patentable in Canada versus other major patent jurisdictions is likely having
a negative long-term effect on Canada's image as an advanced nation interested
in growing a strong biotechnology industry. With respect to day-to-day operations,
however, the effect is relatively minor given that most Canadian organizations,
universities and companies, patent first in the countries with the larger market
(e.g., U.S., Europe, Japan) and only secondarily in Canada, and they patent
in Canada mainly for patriotic, not economic reasons.
This would change dramatically if other countries, especially the U.S., decided
to retaliate, despite international agreements, against countries that did not
match what they allowed as patentable subject matter. This might arise if the
U.S. was successful in any future round of WTO Agreement negotiations in its
efforts to amend TRIPS to eliminate the present exceptions under Article 27,
and Canada were not to change its regime within a reasonable time.
IMPACT OF THE CURRENT CANADIAN PATENT PROCESSING SYSTEM
"Little, it is a global activity." - CEO
"A patent system is an economic tool; it has to function in harmony
with the rest of the global economy or it will not work."- Interviewee
As noted above, a Canadian patent is not considered to be as economically valuable
as a U.S. or European patent because of the small size of the Canadian market,
and therefore the Canadian patent system appears to have minimal impact on Canadian
organizations' ability to commercialize their biotech inventions.
In general, most of the interviewees were critical of the level of service provided
by CIPO. "CIPO doesn't have the resources or the people to get the job done".
Many felt that the U.S. was making better progress at providing sufficient numbers
of staff, and with the needed expertise.
In particular, everyone mentioned the slowness of the CIPO in examining and
issuing patents as a major problem. This reinforced the economic reasons to
file first for patent protection in other jurisdictions. It has been estimated
that a two year delay in getting a product to market will reduce a biotechnology
firm's rate of return by over 5% (Heller, 1997, p. 7). Company representatives
believe that delays in the granting of patents results in:
It appears that because the Canadian patent system is in need of additional
resources, and revision, it is contributing to a drag on the growth of the Canadian
biotechnology industry.
RECOMMENDED CHANGES TO IMPROVE THE CANADIAN PATENT SYSTEM
"To be competitive, we must be in harmony with the rest of the world."-
Venture Capitalist
"We cannot be inconsistent with the U.S. if we want to be competitive."
These two quotes from interviewees capture the general feeling of those interviewed
during this study. The following recommendations, starting with some specific
recommendations that could be acted upon immediately, are generally in line
with the spirit of harmonization that Canadian industry and other organizations
believe are absolutely necessary to promote the biotech industry in Canada.
Patent Higher Life Forms
The respondents overwhelmingly called for the immediate harmonization of what
is patentable subject matter with our major trading partners, as did the industry
representatives taking part in the CBAC briefing.
Immediate approval of the 1991 UPOV Convention concerned with plant varieties
is also supported.
Patent Term Restoration
Another area of agreement was the establishment of patent term restoration to
compensate for delays in regulatory approval in the biopharmaceutical area,
as is available in Europe and the U.S.
The lack of patent term restoration was felt by some as reinforcing the impression
that Canada does not understand the new product development process as it applies
to biotechnology.
Research Exemptions
"The dual role of biotechnological discoveries as research tools and as commercial
products and processes raises the significant issue of whether early stage or
laboratory scale developments should receive broad patent protection or be made
freely available for others to use" - Parker and Stafford, 1998
"Freedom to Operate" was voiced by many interviewees
as a major concern. Because of uncertainty and lack of any explicit guidelines,
many big biotechnology companies do not believe that research organizations
such as university or government laboratories have any right to use patented
research tools without the express approval of the patent holder. There is some
concern that "hoarding" these research tools could be a major inhibiting factor
in the advance of science. One university technology transfer officer said that
more and more patents for "research tools" are being controlled by seven or
eight large firms. "Tools of research are being tied up".
Concern over whether intellectual property rights are discouraging research,
its communication and use is not unique to Canada. The Science, Technology and
Economic Policy Board of the National Research Council in the U.S. in September
of 1999, launched a 33 month study on the impact on IPR policies on performance
and communication of academic research, mobility of highly trained personnel,
initial and subsequent innovation, and competition and industry structure (http://www4.nationalacademies.org/pd/).
The issues to be addressed include:
Several Canadian interviewees believed that patents that are far too broad
are being granted in the U.S. and Canada, and that these are having the effect
of inhibiting innovation (i.e., these are known as blocking patents).
In their review of the patenting of human genetic material, Caulfield and Gold
(2000) suggest that possible solutions to the "hoarding of research tools" include
mandatory licensing, at a reasonable price, and/or reduction of the power of
the patent holder to exclude others from using their patented invention in research
aimed either at discovering new genetic secrets or directed at finding other
gene-based therapies. Parker and Stafford (1998) conclude in their review of
the issue in the U.S. that, "any exemption for research should provide for inventions
with a primary utility as a research tool and should carefully balance the need
to promote incentives to seek patent protection for basic technologies with
the need to decrease the costs associated with research on, and for the purposes
of, assessing that basic technology".
For these reasons, many interviewees called for an explicit statement in the
Canadian Patent Act to clarify when a researcher can safely use another's patent
for the purposes of advancing science and developing future innovations. The
European patent system provides such guidelines.
Establish a Patent Opposition Process
Several interviewees voiced concern over the fact that CIPO did not have any
administrative procedure in place to allow for challenging patent applications
prior to issue. Forcing companies to challenge patents in the Federal Court
was felt to cause financial problems, particularly for smaller Canadian firms.
The USPTO has a re-examination system, for example, that provides for re-examination
if unconsidered or newly discovered prior art surfaces.
Creation of a North American Patent System
"The availability of a North American patent, just like they have in
Europe, makes a lot of sense." - Government Official
One recommendation that has been made before, and was supported by most of the
interviewees in this study, is to create a North American, or even a NAFTA patent
system, along the lines of the European patent system. In the extreme, some
respondents felt that once a patent has been issued in the U.S., a Canadian
patent should be automatic. This would put into question the need for a Canadian
patent office.
A major concern among many of the proponents of the North American patent system
was the number of concessions that would have to be made to the U.S. to achieve
a harmonized North American system. There was no suggestion of going back to
a "first-to-invent" system. Several interviewees acknowledged that, in reality,
a person in another country who wishes to file a U.S. patent must be able to
prove when the invention was made. One university technology transfer officer
stated that "Canada has saved itself a lot of grief and a lot of litigation
and has become more stream-lined by going to a first-to-file system".
Several interviewees thought that a North American patent system might save
time and money for patent applicants. Others thought that the lack of a North
American patent was a major factor in discouraging patenting in Canada.
Under a North American patent system it was suggested that CIPO could take on
the patenting of a few areas of technologies of interest to Canada (e.g., agricultural/plant
biotechnology) for all of North America and become expert in those specific
areas. The U.S. Patent and Trade Mark Office (USPTO), with its larger budget
would handle the rest. Given the fact that most inventors patent in the U.S.
in any event, this approach would not result in any increased load for the USPTO.
On the contrary, it should reduce the workload for the USPTO.
Overall, there was general agreement that the North American or NAFTA patent
model should be explored.
Reduce CIPO's Patent Processing Time
If Canada is to retain an independent patent processing activity that means
something on the world stage, CIPO must reduce the time it takes to process
patent applications. Slowness in processing patents can arise from at least
two independent sources: lack of personnel to perform patent application examinations;
or having personnel who require more training in order to quickly assess today's
more complex biotechnological patent applications. Most respondents felt that
most of the delays associated with processing patents came from a lack of personnel
although a few did question whether CIPO staff were up-to-date on the latest
biotechnologies. Several respondents questioned CIPO's ability to attract first-rate
talent because of the relatively low salaries it offers. Several interviewees
commented on the low fees that CIPO charges. They suggested that an increase
in fees to enable CIPO to hire additional competent people which hopefully would
result in faster turn-around times would be acceptable to the biotechnology
community.
Faster response times would encourage Canadian firms to make use of CIPO rather
than spending their patenting dollars in other jurisdictions to obtain a search
and preliminary opinion on the patent status of their invention. One interviewee
thought that faster processing by CIPO could have a positive impact on Canadian
companies in that they would be able to say that they had a Canadian patent,
while their applications in other patent jurisdictions were still pending.
Fast-tracking, whereby the decisions of one patent agency are accepted by another
to reduce duplication of activities, was also suggested as a way to speed up
the process. "Prior art is a fact, and is not as prone to subjective interpretation.
It should be possible to cooperate on identification of prior art".
The overall recommendation of interviewees was to put more resources into CIPO
so that it can hire the personnel required in order to service clients in a
timely manner and improve the quality of patents issued.
CIPO Should Conduct More Outreach Activities
Several interviewees felt that CIPO was interpreting its mandate much too narrowly
and should be taking a more active role in meeting with the public, as well
as patent agents. CIPO is perceived as being insular. Possibly as a result of
this opinion, CIPO is planning on re-establishing a Management Advisory Board
(MAB) that will be composed of "members of the private sector with senior experience
and expertise". The MAB's mandate will be to provide strategic advice to CIPO's
Chief Executive Officer on the mission, objectives and programs of the agency,
as well as on its management and business strategies.
In a similar vein, the USPTO has recently established two committees to provide
advice to the Office. The Patent Public Advisory Committee (P-PAC) and the Trademark
Public Advisory Committee (T-PAC) each held their inaugural meetings on August
23, 2000. These Committees were created under the American Inventors Protection
Act of 1999 in order to advise the Director of the USPTO on the agency's operations,
including its goals, performance, budget, and user fees. Each Committee has
nine voting members who are appointed by, and serve at the pleasure of, the
Secretary of Commerce. Appointments include independent inventors, lawyers,
corporate executives, small entrepreneurs, and academics with significant experience
in management, finance, science, technology, labour relations, and intellectual
property issues. Advisory Committee meetings are open to the public.
Since the inaugural meeting, the Committee has met once in October, 2000.
From the limited information available, it appears that the U.S. initiative
is much more open and potentially less professionally incestuous than the Canadian
approach.
In addition to the new Committees, interviewees noted that the USPTO holds quarterly
public meetings that anyone can attend. This allows people to meet examiners,
find out what is going on, and to ask questions of the patent examiners. The
meetings also allow people to voice concerns over particular procedures and
ask that any problems be rectified. According to one respondent who has attended
the meetings, the USPTO appears to listen and make corrections where necessary.
The USPTO also has educational programs where they go into the school system
to describe what they do, and the importance of the patent system. One respondent
stated that in contrast, CIPO personnel are often unavailable or reluctant to
participate as guest speakers at IP seminars held in Canada.
NEW GOVERNMENT INITIATIVES TO PROMOTE THE GROWTH OF
CANADA'S BIOTECHNOLOGY INDUSTRY
As much has been written on the relationship between the adequacy of venture
capital at the early stage of a new firm's life and the growth of an industry,
this study did not explicitly examine the adequacy of the biotechnology venture
capital market in Canada. A few respondents mentioned that shortage of venture
capital was a serious impediment at the moment. "Seed financing is in short
supply". A few thought that Canadian venture capitalists were more risk averse
than their American counterparts. Several interviewees found dealing with lending
institutions that do not understand the value of patents to be very frustrating.
In addition to the changes to Canada's patent system mentioned above, interviewees
thought that consideration should be given to the following:
Patent Infringement Insurance
Firms entering the U.S. market, or any other important market, face the possibility
of their patented product or process being challenged by another firm claiming
patent infringement.
A large predatory firm can use the patent courts to bleed a small company dry
by simply filing an infringement case, regardless of the merits of their own
patents. At the moment, the usual recourse or defence when this happens is for
the smaller firm to align itself with a larger firm with financial pockets deep
enough to fight the infringement charge in court. This usually means the smaller
firm giving up ownership of its product/process in return for financial assistance.
In order to help prevent the sell-off of Canadian patents, many of which were
supported by the Canadian taxpayer, and subsequent stunting of the growth of
Canadian biotechnology firms, several interviewees agreed that the establishment
of an "infringement insurance" program by the government would be useful.
There is, however, patent infringement insurance available from private sector
firms. It is a relatively new "insurance product" and many people do not appear
to know of its existence. Information about one such offering can be found at
http://www.binks.ca/patent.htm.
Marsh Canada Limited and Reed Stenhouse are other sources. This raises the question
of whether the private sector insurance offerings are sufficient and/or whether
small biotechnology firms can afford the cost of the policy. If the cost of
the policy from the private sector is beyond the financial reach of most biotechnology
firms, then for all intents and purposes, patent infringement insurance is not
available to an important segment of the industry.
There may still be a need to establish a government insurance program that would
be similar to the "accounts receivable insurance program" operated by the Export
Development Corporation. This program protects Canadian companies that do business
in foreign countries from catastrophic loss if the foreign buyer refuses or
cannot otherwise pay for goods/services received. One insurance agent contacted
stated that accounts receivable insurance is also available in the private sector.
If a large foreign company decides to challenge a small Canadian firm entering
its market, it would know that it could not wear down the Canadian firm in the
courts because the Canadian firm would have the financial resources of the Canadian
government behind it. This would be especially important if the Canadian firm
is promoting a technology whose origin was in a Canadian government or university
laboratory.
Educate Biotechnology Researchers about IP Management
The best patent system in the world will be virtually useless in protecting
IP is the researchers in the field do not have at least a rudimentary understanding
of how the patent system works. Ignorance can cause the loss of potentially
commercializable IP to stronger competitors.
Consideration should be given to copying Biotechnology Australia's lead in presenting
a series of seminars to researchers and SMEs in the biotechnology area dealing
with IP management issues, and in particular the challenges of obtaining foreign
patent protection in the major markets.
As noted below, there is also a need for intense IP management training for
government and university technology transfer officers. A strong cadre of technology
transfer officers who specialize in the biotechnology field would enhance the
effective flow of biotechnology from the universities where it is most prevalent,
and from the government laboratories.
ETHICAL AND SOCIAL CONSIDERATIONS AS AN INTRINSIC ELEMENT
OF THE PATENT SYSTEM
"It is hard for a patent office to play a role as ethical watchdog."
- Gov. TT officer
"There is a serious risk of social engineering forcing biotech companies
out of Canada."- Univ. Professor
"Patents are an economic tool. There are other fora to deal with social
and ethical issues." - Gov. TT Officer
Having social, moral or ethical considerations as an intrinsic part of the patent
system was almost uniformly rejected by most of the interviewees. "Ethical and
moralistic considerations should be kept out of the patent system". Many people
remarked that if the federal election had gone a different way, a Canadian patent
system that incorporated the European approach (i.e., morality and public order
elements) might be under pressure to reject patents on religious grounds.
Most believed that our continued harmonization with the U.S. in this area was
necessary. Issues of morality or ethics and what should be patentable was felt
by many to be the domain of parliament, not the patent office or the courts.
"If we had a challenged based system that operated through the patent system,
it might be open to abuse by special interest groups. Most non-government organizations
are not, in themselves, democratic organizations". Another interviewee commented,
"Ethics policy must be in line with commercialization opportunities, otherwise
research will be impeded".
One interviewee did believe that areas such as "methods of medical treatment"
should remain exempted from patentability or, as in the case of the U.S., should
not be subject to infringement damages. This allows medical practitioners to
use the latest methods of medical treatment without fear of any financial consequences,
while allowing the inventor to gain recognition from peers and the public by
having their name associated with the new medical treatment method (e.g., Heimlich
Manoeuver).
Another respondent said that the Canadian patent system should respect the traditional
medicines of cultures that in the past relied solely on oral traditions for
passing down information on medical products (e.g., herbal remedies). "There
are companies that are trying to get patents on these ancient medicines". "Bio-piracy"
should not be supported as it takes unfair advantage of people who might otherwise
reap financial benefits from their knowledge and customs.
Several people who did favour Canada adopting an approach closer to the European
stance specifically mentioned the ethical issues associated with cloning human
organs or humans. They believed that the patent system should deal with these
types of issues.
In summary, most of the interviewees did not believe that the CIPO was equipped
to deal with moral or ethical issues and that these should be handled by other
institutions. The regulatory system was mentioned as a possible venue, if not
parliament.
IMPROVING THE TRANSFER OF BIOTECHNOLOGY FROM PUBLICLY
FUNDED INSTITUTIONS
"UILOs are an obsolete model; they are under-resourced and are resented
by the faculty."- CEO
Universities are an important player in the economic activities of a nation.
For example, in 1998, the patent and licensing activities of U.S. universities
resulted in $33.5 billion in economic activity, supported 250,000 jobs and resulted
in $7 billion in federal and state taxes (Severson, 2000). Given that universities
are an important source of biotechnology for development by the private sector,
it is important that their technology transfer operations be efficient and effective.
While the following suggestions are not unique to the biotechnology area, they
were felt to be very important in the creation and growth of the biotechnology
industry in Canada as universities are a major source of biotechnological inventions.
Develop Multi-University Technology Transfer Offices
"Why don't we pool the IP work in a regional office?" - Univ.
Professor
Most of the interviewees focussed their opinions on the transfer of technology
from Canadian universities. Each university with its own technology transfer
office (university industrial liaison office - UILO) was considered to be an
outmoded approach and not very efficient. "With each public organization having
its own IP office, we have created a system that is counterproductive".
One interviewee stated, "the present system of UILOs at universities is a terrible
system; salaries are uncompetitive with people staying only long enough to get
some training (9-12 months) and then go out and get 2-3 times the university
salary". Another noted that we "need to worry about the 'Berlin Wall' around
each of our institutions". At one university, for example, there were two distinct
business development/technology transfer offices in competition with each other.
Another felt that the lack of more centralized offices prevents the effective
bundling of individual patents into a stronger patent portfolio. "Everyone treats
their small bundle of technology as their own, and they don't pool them to create
a more substantial IP package".
One university professor, who was very familiar with technology transfer activities,
was quite critical of many of the UILOs and believed that they had a higher
opinion of their abilities than their clients had. "Many companies don't like
to negotiate with universities because the university UILO personnel don't know
what the real world is like".
There was wide-spread support for a system whereby universities in a geographical
region develop IP management specialties and provide services in particular
technology areas to other nearby institutions. This would avoid the problem
of a single UILO having to cover technologies for which it has little understanding
of the marketplace. This is particularly important in the biotechnology area
which is a much more complex challenge than other technologies. It is understood
that universities need to have people "on-the-ground" to work closely with faculty
and to encourage and guide disclosures, but other aspects of IP management could
be more centralized and assigned to specialists. Several people thought that
an examination of the Québec model of business development units serving
several universities might suggest ways it could be copied in other parts of
Canada. A centralized service approach is also used in Nova Scotia. NU-TECH
(Nova Universities Technology Inc.) is the technology transfer organization
servicing Dalhousie University, DalTech, Nova Scotia Agricultural College and
the University College of Cape Breton.
Another interviewee stated that because each Canadian university has its own
IP policies, it is difficult to negotiate license agreements when several university/research
hospitals are involved in the development of a biotechnological invention. Working
with a centralized business unit should reduce this problem.
Both provincial and federal government support should be aimed at increasing
real cooperation and collaboration among the individual UILOs at the operational
level, and should not be just a "smoke and mirrors" form of cooperation, which
one respondent said has usually been the case with past initiatives. Several
knowledgeable interviewees, for example, questioned the true degree of cooperation
that was taking place within Alberta's Technology Commercialization Network.
While thinking that a multi-university model might be a good idea, several respondents
did not have much faith in the willingness of universities to voluntarily cooperate
to make such a model work.
While the above has focussed on universities, there is no reason that this model
could not include the servicing of nearby federal and provincial government
laboratories.
Increased Resources for University Technology Transfer Offices
Many university technology transfer officers commented on the lack of resources
to hire additional staff, to provide proper protection for their intellectual
property, and for prototype development. A small point of frustration to the
business community is the inability to talk to a human being when trying to
contact a UILO. It is not unusual to have to make several calls before someone
actually answers. Leaving a message is not always appropriate.
Money for prototype development was considered critical by one interviewee in
order that additional experiments could be conducted after provisional filing
to allow for data to be added in that first year, thereby increasing the depth
and strength of the patent application.
One respondent said that, "none of the [university] technology transfer professionals
has enough money for proper patent protection; they do the skimpiest of patent
protection on a piece of IP and they think they are covered. One patent will
not give the licensor the tools to work with". Universities need the resources
to provide global protection. This scope of coverage is usually too expensive,
unless they have a local licensee lined up who is willing to share the costs.
Lack of resources and competent people can also result in UILO's limiting their
activities to patenting and trying to sell licenses. They don't participate
in the value-added development of the IP. They don't manage the process for
a period of time so as to be able to show potential licensees or venture capitalists
that there is value in the IP (e.g., conduct marketing studies, etc.).
Several interviewees noted that there is pressure on the UILO's operations to
be at least cost neutral to the university. This forces the UILOs to focus their
attention on licensing, which will generate funds faster, rather than on company
creation that will result in slower returns to the university in the short-term
but potentially better returns to both the university and economy in the long-term.
Several interviewees felt that the funding issue could be alleviated if grants
from the major granting councils included a small percentage (e.g., 1%) which
could be used to cover technology transfer expenses. "The end point of research
is no longer just a publication, so the councils should fund the technology
transfer". One respondent noted that requests that technology transfer funding
be an explicit part of granting council funds have been made before. To date,
no action has resulted. This recommendation is similar to Recommendation #3
of the report to the Advisory Council on Science and Technology entitled, "Public
Investments in University Research: Reaping the Benefits" (Fortier, May, 1999).
The Natural Science and Engineering Research Council's Intellectual Property
Management program, which does support university UILOs, was thought to be inadequately
funded thereby compromising its effectiveness. One respondent believed that
the new CIHR should also be supporting technology transfer activities through
a 1% levy on its grants. One respondent reported that the UK granting councils
budget a percentage of their grants for technology transfer activities.
With increased resources, UILOs or more centralized business development units
could offer competitive salaries to technology transfer officers and provide
them with the tools to protect and market their technologies more effectively,
taking into account longer time horizons..
Training of New and Existing Technology Transfer Personnel
There was uniform agreement that Canada was lacking in qualified, well-trained
technology transfer personnel and that more resources were required to fill
this gap.
While several people mentioned the technology transfer workshop held recently
in Montebello, Québec (sponsored by the Association of University Technology
Transfer Managers), it was recognized that more effort and resources are required
to produce a cadre of well-trained technology transfer personnel. Only the University
of Alberta, through its MBA program, offers a graduate degree that includes
technology transfer and intellectual property management in its program. A few
other universities, through their extension programs or their engineering or
law faculties, offer single courses on IP management. Some workshops are available
from private consultants that deal with the transfer and commercialization of
intellectual property from government laboratories to industry (e.g., Stargate
Consultants Limited).
Better trained technology transfer officers, in both university and government
business development offices, would help avoid the "over valuation" problem
mentioned by one interviewee. "There is an unrealistic expectation of what the
inventor or the institute should get".
One government respondent felt that Canada's lack of adequate training for new
technology transfer officers, including patenting personnel, coupled with retirements
in the near future of the few skilled people we have in the patent examination
and regulation area, could stop the expansion of the biotechnology industry
in Canada.
Because of concern over the training issue, the Federal Partners in Technology
Transfer has commissioned a study to identify the training requirements of technology
transfer officers, and another study to develop an inventory of the resources
available in Canada and the U.S. to provide such training.
As noted earlier, education of biotechnology researchers in the basics of IP
management should also be addressed.
Differences in University IP Ownership/Management Policies
At present, Canadian university policies on ownership of an invention made by
a faculty member ranges from the institution owns (e.g., University of British
Columbia), to co-ownership (e.g., University of Toronto) to creator/inventor
owns (e.g., Queen's University). In the U.S., most universities own the IP their
academic staff develop.
While inventor owned approaches are said to encourage more disclosures, they
carry with them the danger of great conflict further down the commercialization
chain. It has been the experience of some universities that even when the identified
inventor has assigned ownership to the university in return for assistance in
getting his/her invention to market, another "rogue" co-inventor has surfaced
later on to claim partial ownership and a share of the royalties. Even if the
"rogue" inventor's claims are weak or invalid, some have been known to threaten
a licensee company, which in good faith, has spent considerable amounts of money
on what it thought was an exclusive or sole license, to bring the product to
market.
In Canada, if their claims are valid, "rogue" inventors have the right to practice
the invention themselves. They do not have the right to license it to a third
party. This is not the case in the U.S. A "rogue" inventor can therefor threaten
the Canadian firm with licensing the technology to an American competitor.
According to one university technology transfer officer, big pharmaceutical
firms are especially nervous about this situation. "The last thing big pharma
wants is someone saying 'you do not have full title', I am taking this invention
down the road [to a competitor]". This respondent added that the pharmaceutical
companies will pay "rogue" inventors serious money to make she or he go away.
The result is that some Canadian biotechnology firms will not license from inventor-owned
universities for fear of downstream "blackmail".
The solution to this difficulty is for the institution to own any inventions
developed by its faculty (and graduate students) so that it can transfer clear
ownership or a clear license to the adopting company. This, of course, may generate
other problems. Another interviewee said that the transaction costs of dealing
with universities was high because of the variation in how they managed their
IP. Problems increase in universities where the creator has an ownership position
and wants to play an active part in the business negotiations. Over valuating
their "baby" can cause serious roadblocks to reaching a business agreement.
This respondent felt that the granting councils should be enforcing more uniformity
in IP management at universities.
Government Technology Transfer Activities
Like their university colleagues, technology transfer officers in government
departments are running their operations on minimal budgets. This, according
to one interviewee, limits their ability to file for protection in key countries,
and to do strategic planning. It also limits their ability to hire good patent
agents who can word claims carefully to meet the requirements in a particular
country. Canadian companies need IP to be well-protected, otherwise they cannot
be competitive. "There needs to be greater appreciation given to supplying sufficient
resources to public research organizations for protection of their IP".
Several respondents noted that government laboratories have a mixed mandate
when it comes to technology transfer. One mandate is to strengthen the Canadian
economy, and the other, more immediate and mercenary concern, is to generate
revenues that are needed to sustain their research activities. The situation
can arise in which the short-term survival of a government laboratory (i.e.,
revenue generation) takes precedence over the economic development of a Canadian
firm, when it cannot compete with what is being offered by a foreign competitor.
Adding to the challenges of managing intellectual property in the government
context is the newly revised Treasury Board (TB) policy on "Title to Intellectual
Property Arising Under Crown Procurement Contracts" (2000). This policy retains
the presumption of contractor ownership of any new IP developed during the course
of a contract, unless the government invokes one of six exceptions as stated
in an earlier 1991 TB policy. The 1991 policy and the 2000 revision are based
on the belief that when a contractor owns the IP, they will be more willing
to invest the often considerable funds necessary to fully exploit the technology
and develop new products or services (i.e., encourages job and wealth creation
in Canada). The decision on whether to invoke an exception and for the Crown
to retain ownership must be made before any contract solicitation documents
(e.g., Request for Proposal) are issued. This policy puts the government official
in the unenviable position of having to decide whether to keep any resulting
IP that might have commercial potential and have revenues come back to the department,
or to allow the contractor to retain the IP ownership and have the department
receive only the contracted for deliverable. Past practice has been that the
departments have used the exceptions liberally to retain any IP with commercial
potential. The new revised policy is intended to make it more difficult for
departments to invoke the exceptions for purely financial reasons.
The reluctance of some government departments to award exclusive licenses to
firms was considered to be an impediment to the commercialization of technology.
Without such a license, firms are reluctant to make the considerable investment
often needed to bring the technology to market.
"Canada First" Exploitation of Publicly Supported Technology
Universities that are recipients of federal funds are not under any obligation
to try to have their IP commercialized by a Canadian company. In addition they
are not required to provide the government with any records on commercialization
activities, as suggested in the Fortier Report. Some academics seem to consider
that such reporting arrangements infringe on their academic freedom. It could
be suggested that they are free not to accept government support if they do
not like the conditions.
At least with IP generated by the National Centres of Excellence, there is an
understanding that NCE managers will try to partner with or commercialize their
IP from a Canadian base, and there are some sanctions if they break the spirit
of the understanding.
However, if best efforts to work with or through a Canadian firm are unsuccessful,
the IP should not sit on the shelf. The organization should then be free to
offer the IP to the highest bidder. One interviewee suggested that the extensive
network of NRC's Industrial Research Assistance Program (IRAP) officers was
an underutilized mechanism for identifying possible Canadian partners.
On a positive note, federal government laboratories do generally make considerable
efforts to locate a Canadian partner in the commercialization of their technologies
and only venture outside Canada if this approach proves to be impractical.
ISSUES FOR FURTHER CONSIDERATION
It is important that Canada not be perceived internationally as a country that
falls behind in the development of advanced technologies.
This short study has identified many intellectual property/technology transfer-related
issues that affect the creation and growth of a vibrant biotechnology industry
in Canada. As the purpose of this paper was not to make any recommendations
or conclusions but to identify issues that should be given further serious review,
the following key issues that directly impact the biotechnology industry are
put forward for consideration:
What structural changes are required in the Canadian patent system to prevent
Canada from lagging behind in the protection of biotechnological inventions
and retarding the growth of the industry?
What are the pros and cons of Canada being part of a North American patent system,
what should CIPO'S role be it, and would the Americans be interested in creating
such a system?
What are the pros and cons of the government establishing a patent infringement
insurance program?
What incentives are needed to encourage greater cooperation among universities
and government laboratories in the transfer and commercialization of their intellectual
property?
Should the existing granting councils set aside a percentage of their grants
to support the technology transfer activities of university and government recipients
given that a publishable paper is not the intended final product of the financial
support? Should they also encourage more multi-university business development
offices as well as a more common approach to IP management practices?
________________________
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