IMPACT OF CANADA'S PATENT SYSTEM
PUBLIC SECTOR TECHNOLOGY TRANSFER SYSTEM
ON THE GROWTH OF THE BIOTECHNOLOGY INDUSTRY IN CANADA
Thomas E. Clarke, M.Sc., M.B.A.
March 30, 2001
Stargate Consultants Limited
1687 Centennary Drive, Nanaimo, B.C., V9X 1A3
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.
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
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.
"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?
Caulfield, Timothy A. and Gold, E. Richard, "Whistling in the Wind", FORUM, 2000, (http://forum.ra.utk.edu/spring2000/whistling.html)
CEFIC, The European Chemical Industry Council, "The Chemical Industry Response to the Commission Green Paper on the Community Patent and the Patent System in Europe: Promoting Innovations through Patents", November 7, 1997 [www.cefic.org/position/sec/pp-sec15.htm]
Dickinson, Q. Todd, "Reconciling Research and the Patent System", Issues in Science and Technology (Online), Summer, 2000 (www.nap.edu/issues/16.4/dickinson.htm)
Ernst & Young, "Canadian Biotech' 97: Coming of Age", Fourth Report on the Canadian Biotechnology Industry, 1997
Fortier, Pierre et al., "Public Investments in University Research: Reaping the Benefits", Report of the Expert Panel on the Commercialization of University Research, Ottawa, ONT: Industry Canada, May 4, 1999
Gold, E. Richard, "Canadian Biotechnology Advisory Committee: President/CEO Briefing to the Intellectual Property/Patenting of Higher Life Forms Project Steering Committee", Rapporteur's Summary, Ottawa, ONT, September 29, 2000 (a)
Gold, E. Richard, "Patenting Life Forms: An International Comparison", Paper prepared for the Canadian Biotechnology Advisory Committee, Ottawa, ONT, 2000 (b)
Heller, James G., "Background Economic Study of the Canadian Biotechnology Industry", Executive Summary, prepared for the Intellectual Property Policy Directorate, Ottawa, ONT: Industry Canada, December, 1996, (http://www.strategis.ic.gc.ca/SSG/ipoo122e.html)
Industry Canada, "Economic Profile of the Canadian Biotechnology Sector", Ottawa, ONT: Industry Canada, March 31, 2000
Martin, Larry and Amanor-Boadu, Vincent, "The Potential Impacts of Patenting Biotechnology on the Animal and Agri-Food Sector", Executive Summary, Ottawa, ONT: Industry Canada, http://strategis.ic.ca/SSG/ip00188e.html, January, 1997
NBAC, "Leading In the Next Millenium", Sixth Report of the National Biotechnology Advisory Committee, Ottawa, ONT: Industry Canada, February, 1998
Office of the Auditor General, "Agriculture and Agri-Food Canada: A New Crop - Intellectual Property in Research", Chapter 12, Report of the Auditor General, September, 1999, pp. 8 & 10
Panter, Rod, "Biotechnology in Australia", Current Issues Brief, Parliament of Australia, June 8, 1999 (www.aph.gov.au/library/pubs/cib/1998-99/99cib16.htm)
Parker, David L. and Stafford, Nicole, "Biotechnology Research & Patent Infringement: Should Research Be Exempt from Charges of Patent Infringement?", 1998, [www.autm.net/pubs/journal/98/parker.html]
Rudolph, John, "A Study of Issues Relating to the Patentability of Biotechnological Subject Matter", Prepared for the Intellectual Property Policy Directorate, Ottawa, ONT: Industry Canada, January, 1977 (http://strategis.ic.gc.ca/SSG/ip00193e.html)
Schrecker, Ted, Hoffmaster, C. Barry and Somerville, Margaret, "Ethical Issues Associated with the Patenting of Higher Life Forms", Ottawa, Ontario: Industry Canada, http://strategis.ic.gc.ca/SSG/ip01079e.html, April, 1998
Severson, James A., "Testimony to House Committee on the Judiciary Subcommittee on Courts and Intellectual Property", July 13, 2000 [www.autm.net/news/HouseCommittee713.htm]
Stargate Consultants Limited
1687 Centennary Drive
Nanaimo, B.C. Canada, V9X 1A3
Tel: (250) 755-3066