Audit of NRCan’s Intellectual Property Management Control Framework (AU1704)

Audit Branch
Natural Resources Canada

Presented to the Departmental Audit Committee (DAC)
March 30, 2017

Executive Summary
Introduction
Findings and Recommendations
APPENDIX A – IP INFORMATION FOR FISCAL YEAR 2013-14 and 2015-16
APPENDIX B – APPLICABLE LAWS AND POLICIES
APPENDIX C – AUDIT CRITERIA

EXECUTIVE SUMMARY

INTRODUCTION

As a science-based department, Natural Resources Canada (NRCan) conducts and sponsors a wide range of scientific activities. A key output from these activities is the various forms of intellectual property (IP) that are created, acquired, or procured to support the mandate of the Department and the priorities of the federal government.

Whether IP is used for decision making, advancing knowledge, or commercial deployment, it is a Crown asset that allows the organization to better serve Canadians. NRCan’s IP constitutes a valuable asset that can yield economic, social, and environmental benefits, and therefore, necessitates effective management, including appropriate protection where warranted and strategic deployment. The focus of IP management at NRCan is to achieve the maximum impact for Canada, in terms of providing benefits to Canadians. Although maximizing royalty revenues is not the key priority, the Department grants permission for external organizations to utilize and market NRCan’s IP through a Royalty – Bearing Licensing Agreement resulting in annual revenues for NRCan of approximately $367k in the most recent year for which data is available (see Appendix A for additional detail).

In 2013, NRCan developed its Intellectual Property Policywhose stated objective is to promote the efficient and effective protection, management, and deployment of IP in a manner that fulfills the departmental mission and objectives, and preserves its values for the benefit of Canadians. In addition, NRCan contributed to the development of the Intellectual Property Policy Framework for the Science-Based Departments and Agencies, which was created by the SBDA under the Assistant Deputy Minister Science and Technology Integration Board. The stated purpose of this IP Framework is to assist SBDA in managing their IP in an effective and diligent manner.

The objective of the audit was to assess the adequacy and effectiveness of the management control framework supporting NRCan’s IP portfolio.

STRENGTHS

Overall, there are adequate governance processes in place to support the management of IP and enable the achievement of the Department’s objectives, through a clearly defined and harmonized IP Framework, and through the leadership of the Sectors’ IP Officers. The departmental IP framework is also aligned with the Intellectual Property Policy Framework for the Science-Based Departments and Agencies. In addition, adequate tools and templates have been developed by the Intellectual Property Working Group (IPWG) and the Sectors to support the identification, protection, and management of IP.

AREAS FOR IMPROVEMENT

Opportunities for improvement were identified during the audit to: consider implementing mechanisms to increase visibility for responsible IP management and deployment; better monitor royalty-bearing license agreements; improve Sector consultation with business offices for the identification and management of IP in collaborative agreements; appropriately identify and justify IP arising from Crown Procurement Contracts; expand employee training and awareness efforts; and, explore the feasibility of implementing a centralized tool to track IP data.

INTERNAL AUDIT CONCLUSION AND OPINION

In my opinion, adequate governance processes and Sector tools are being used to support NRCan’s intellectual property portfolio; however, the audit identified opportunities to improve certain elements of the management control framework.

STATEMENT OF CONFORMANCE

In my professional judgement as Chief Audit Executive, the audit conforms with the Internal Auditing Standards for the Government of Canada, as supported by the results of the Quality Assurance and Improvement Program.

Christian Asselin, CPA, CA, CMA, CFE
Chief Audit Executive
March 30, 2017

ACKNOWLEDGEMENTS

The audit team would like to thank those individuals who contributed to this project and particularly employees who provided insights and comments as part of this audit.

INTRODUCTION

The World Intellectual Property Organization (WIPO) refers to IP as creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce^{Footnote 3}. IP at NRCan includes publications, maps, software, databases, inventions, and process improvements that may be legally protected through patents, copyrights, trade secrets, trade-marks, or official (prohibited) marks (see Appendix A for additional detail). The focus of IP management at NRCan is to achieve the maximum impact for Canada, in terms of benefits to Canadians. Although maximizing royalty revenues is not the key priority, the Department grants permission for external organizations to utilize and market NRCan’s technology through a royalty- bearing licensing agreement resulting in annual revenues for NRCan of approximately $367k in the most recent year for which data is available (see Appendix A for additional detail).

Whether IP is used for policy formulation, decision making, advancing knowledge, or commercial deployment, it is a Crown asset that allows the organization to better serve Canadians. NRCan’s IP constitutes a valuable asset that can yield economic, social, and environmental benefits, and, therefore, necessitates effective management, including appropriate protection where warranted and strategic deployment. A number of Acts and policies govern federal IP and articulate the roles, responsibilities, and accountabilities for its appropriate management (see Appendix B).

The Government of Canada (GoC) recognizes the valuable contribution of scientific knowledge and IP towards wealth creation and social well-being. It is becoming increasingly important for science-based departments and agencies (SBDA) to promote the open dissemination of new scientific data and knowledge, to make it more readily available to researchers and the public, and to capitalize on technological innovations that promote industrial and economic growth^{Footnote 4}. The Open Government Science Initiative aims to increase access to federally-funded scientific publications and information, including open access to peer-reviewed articles and scientific data twelve months after publication.

While Sectors are responsible for the management of IP, from conception through deployment, the Assistant Deputy Minister (ADM) of the Innovation and Energy Technology Sector (IETS) is the departmental IP Champion responsible for providing oversight of NRCan’s IP since April 2016. In addition to managing IP for IETS, the Intellectual Property Division (IPD) also coordinates the management of IP for the Energy Sector (ES), and the Minerals and Metals Sector (MMS) due to the historical organizational structure. The Canadian Forest Service (CFS) and the Earth Sciences Sector (ESS) each have IP officers in their respective Business Development/Agreement Units. To enable the identification and reporting of IP in research activities, which include laboratory activities, Business Offices are set up to support and assist project managers and researchers to proactively identify and efficiently manage IP in corresponding contracts and agreements. The Finance and Procurement Branch within the Corporate Management and Services Sector (CMSS) is responsible for oversight of IP arising under Crown Procurement Contracts (CPC), and for implementing revenue tracking processes for royalty-bearing IP.

The Audit of NRCan’s Intellectual Property Management Control Framework was included in the 2016-2019 Risk-Based Audit Plan, approved by the Deputy Minister on March 10, 2016.

AUDIT PURPOSE AND OBJECTIVES

The objective of the audit was to assess the adequacy and effectiveness of the management control framework supporting NRCan’s IP Portfolio.

Specifically, the audit assessed whether:

The Department has established and implemented adequate governance processes to support the management of its IP;
Adequate processes and controls have been established to support the identification, protection, and deployment of IP; and,
Adequate IP monitoring and reporting activities are established to enable informed decision making.

AUDIT CONSIDERATIONS

A risk-based approach was used in establishing the objectives, scope, and approach for this audit engagement. A summary of the key underlying potential risks that could impact the effective management of IP include:

Governance processes, including documented roles and responsibilities, may not support the successful management of IP in the Department;

The Department’s IP framework may not be aligned with the Intellectual Property Policy Framework for the Science-Based Departments and Agencies and may not consider the implications of the Open Government Science Initiative;

The Department may not have established or implemented a formal strategy to define its intended objectives for IP (e.g., revenue generation, protecting Crown ownership rights, and promoting open access to information and effective deployment in the marketplace);

Adequate processes and tools to effectively identify, protect, and deploy IP may not be established and communicated to employees, and may be applied inconsistently across the Department;

Training and awareness activities may not be established to provide employees with the required knowledge of IP concepts and to recognize its commercial value; and,

Monitoring and reporting processes may not be in place to ensure that IP information provided to senior management and external bodies is accurate and provided in a timely manner to facilitate informed decision making.

SCOPE

The scope of the audit included relevant departmental and Sector processes, procedures, controls, and tools used to identify, protect, deploy, monitor, and report on IP. The audit focused on the period from April 1, 2015 to December 31, 2016, in order to examine the most recent IP processes.

APPROACH AND METHODOLOGY

The approach and methodology followed the Internal Auditing Standards for the Government of Canada, which incorporates the Institute of Internal Auditors' International Standards for the Professional Practice of Internal Auditing. These standards require that the audit be planned and performed in such a way as to obtain reasonable assurance that audit objectives are achieved.

The audit included tests considered necessary to provide such assurance. Internal auditors performed the audit with independence and objectivity as defined by the Internal Auditing Standards for the Government of Canada.

The audit approach included the following key tasks:

Interviews with key personnel and committee representatives;
Review of the Department’s IP Framework, including policies, directives, and guidance;
Review of key IP documents and business processes; and,
Testing a sample of agreements, contract files, and IP Disclosure Kits.

The conduct phase of this audit was substantially completed in December 2016.

After the audit was conducted, in January 2017, MMS and ESS were combined into a new Sector called the Lands and Minerals Sector (LMS); therefore, all audit recommendations involving MMS and ESS are directed to the LMS.

CRITERIA

The criteria were developed from the key controls set out in the Treasury Board of Canada’s Core Management Controls and relevant associated policies, procedures, and directives. The criteria guided the fieldwork and formed the basis for the overall audit conclusion.

Appendix C summarizes the detailed audit criteria.

FINDINGS AND RECOMMENDATIONS

GOVERNANCE

Summary Finding

Adequate governance processes have been implemented to support the management of intellectual property (IP) and enable the achievement of the Department’s strategy through a clearly defined, harmonized IP Framework that is aligned with the Intellectual Property Policy Framework for the Science-Based Departments and Agencies (SBDA), as well as through the leadership of the Sectors’ IP officers. However, the audit identified opportunities to increase the recognition and visibility of employees’ efforts in research and development leading to technology transfer to industry, per the SBDA Framework and supported by audit interviews with researchers.

In addition, the audit identified opportunities to improve the monitoring process of royalty-bearing license agreements to ensure that royalty revenues are being collected per the license agreements.

Supporting Observations

Adequate governance processes allow for management to exercise oversight and enable the achievement of objectives and priorities. Governance bodies provide leadership and oversight for the protection, management, and deployment of NRCan’s IP, while also monitoring the overall performance of the IP Framework. The audit sought to determine whether there is clarity of roles, responsibilities, and accountabilities; the departmental IP Framework has been clearly defined and aligns with the Intellectual Property Policy Framework for the Science-Based Departments and Agencies; and an appropriate IP strategy has been established.

Roles, responsibilities, and accountabilities

Overall, the audit found that roles, responsibilities, and accountabilities regarding the management of IP were clearly defined and communicated.The roles, responsibilities, and accountabilities are communicated through various strategic documents, including governance committees’ Terms of Reference (ToR), the departmental Intellectual Property Policy, and various Standard Operating Procedures (SOPs). Audit interviews confirmed that key players in IP management had a clear understanding of their roles and responsibilities, and employees knew with whom to communicate for guidance and support, when required.

Since April 2016, the Assistant Deputy Minister (ADM) of the Innovation and Energy Technology Sector (IETS) is the departmental IP Champion, responsible for providing oversight for the protection, management, and deployment of NRCan’s IP, through the activities of the Intellectual Property Working Group (IPWG). Prior to this time, the oversight for IP resided with the Office of the Chief Scientist. The IPWG is a cross-sectoral working group made up of the three IP offices representing the Department’s Sectors. The IPWG, in consultation with the Director General Science &Technology (DG S&T) Committee, is responsible for developing and implementing departmental policies and procedures for the management of IP through the sharing of best practices, and for compiling departmental IP information from Sectors’ data.

The Intellectual Property Division (IPD) within IETS coordinates the management of IP for the IETS, the Energy Sector (ES), and the Minerals and Metals Sector (MMS), while the Canadian Forest Service (CFS) and the Earth Sciences Sector (ESS) each have IP officers in their respective Business Development/ Agreement Units (business offices). IP officers are responsible for providing expert advice on all matters pertaining to IP; processing and evaluating IP Disclosure Kits; facilitating the filing of patents and registration of trade-marks process; and negotiating, drafting, issuing, and monitoring license agreements.

At the Branch level, both managers and supervisors are responsible for the management of IP, from conception through deployment. This includes promoting early recognition of IP by staff; approving agreements related to IP, such as collaboration, procurement, and cost recovery contracts; reviewing IP Disclosure Kits; and providing input into protection and deployment strategies.

The Finance and Procurement Branch within the Corporate Management and Services Sector (CMSS) is responsible for oversight of the Innovation, Science and Economic Development (ISED) Policy on Title to IP Arising under Crown Procurement Contracts by ensuring that exceptions to the Policy are properly applied within the Department, including the use of appropriate IP clauses in procurement contracts, and for implementing revenue tracking processes for royalty-bearing license agreements.

Departmental IP Framework

A current and robust IP Framework aligned with the Intellectual Property Policy Framework for Science-Based Departments and Agencies (SBDA) is essential for the effective management of IP to support the achievement of the Department’s IP strategy. NRCan has developed and implemented an IP Framework that includes the NRCan Intellectual Property Policy, IP Reference Guide for Managers, and IP Disclosure Kits. The IP Framework is reviewed annually by the IPWG and updated, as required, in consultation with the DG S&T Committee, and approved by the ADM IETS. In addition, the departmental IP Framework, legislation, regulations, and various references are listed on the NRCan Intellectual Property Portal for ease of use and accessibility to employees.

The departmental IP Framework is aligned with the Intellectual Property Policy Framework for SBDA in terms of its guiding principles, objective, and policy guidelines for governing the management of IP. However, the audit found that the Department does not have a mechanism to provide employee visibility for research and development leading to continued technology transfer, as well as to support technology transfer activities, as recommended in the Intellectual Property Policy Framework for SBDA. In lieu, the Department has adopted the Departmental Awards and Recognition Process for recognizing employee achievements. This may not be the ideal mechanism to promote responsible IP management and deployment due to the process being nomination-based and not providing for consistent awards based on accomplishments. In addition, this process is not tailored to recognizing employees’ accomplishments towards achieving research and development objectives with respect to knowledge and technology transfer. Audit interviews with researchers illustrated that greater recognition would be beneficial to acknowledge employee contributions specific to the research, development, and deployment of technology.

Departmental IP Strategy

The Open Government Science Initiative promotes the open dissemination of new scientific data and knowledge to make it more readily available for use by other levels of government, academia, the public, and the private sector. It is essential to balance the benefits of publishing scientific findings and data against the value of protecting IP, so that the technology can be commercialized. NRCan’s IP strategy supports this initiative by encouraging the uptake of its IP to achieve maximum impact for Canada, in terms of benefits to Canadians. This is achieved through broad dissemination of IP, when it is in the public interest to do so, or by protecting an invention in the form of a patent and encouraging the private sector to invest in and commercially deploy the protected technology, with associated social and economic benefits for Canada.

The audit found that although NRCan enters into royalty-bearing license agreements, maximizing revenues is not the main objective. The audit reviewed a sample of 12 royalty-bearing license agreements and found that the majority of licensees were Small and Medium Enterprises (SME). Audit interviews indicated that SMEs, compared to large corporations, benefit greatly in the creation and commercial deployment of IP by growing economically and creating employment for Canadians. It was also mentioned that when the Department posts commercialization licensing opportunities on the NRCan website, it is generally SMEs that demonstrate interest in these opportunities.

In addition, the audit found that there is limited departmental monitoring of royalty-bearing license agreements. For the agreements sampled during the audit, the majority of royalty statement reports submitted by the licensee were either incomplete or submitted more than six months late. However, a best practice was observed in ESS, where a reminder is provided to the licensee if royalty statement reports have not been received by the due date.

RISK AND IMPACT

Absence of visibility mechanisms to recognize employees’ accomplishments in developing and deploying IP may limit the motivation of employees to bring IP beyond the protection phase towards promoting commercialization and maximizing the benefits for Canadians.

In addition, limited departmental monitoring of royalty-bearing license agreements may result in inaccurate and incomplete royalty revenues being collected.

RECOMMENDATIONS

It is recommended that the Assistant Deputy Minister Innovation and Energy Technology Sector (ADM IETS), in consultation with the Director General Science &Technology (DG S&T) Committee and the Intellectual Property Working Group (IPWG), considers establishing mechanisms to increase recognition and visibility of successful IP transfers.
It is recommended that the ADM IETS, in collaboration with the Assistant Deputy Minister Canadian Forest Service (ADM CFS) and Assistant Deputy Minister Lands and Minerals Sector (ADM LMS), ensures that royalty statement reports are complete and submitted in a timely manner, and royalty calculations are accurate.

MANAGEMENT RESPONSE AND ACTION PLAN

Management agrees. In response to recommendation 1:

ADM IETS will consider various mechanisms to improve visibility and encourage employees to identify, report, and successfully deploy IP. The IPWG will propose options for consideration by ADM IETS.

Position responsible: Assistant Deputy Minister IETS

Timing: September 30, 2017

Management agrees. In response to recommendation 2:

IETS Intellectual Property Division (IPD) staff will work with CMSS IT/IM in consultation with the IP Working Group to explore the feasibility of implementing an IP tracking system, and the IPWG will work with Sectors’ IP/Business offices to continue to ensure reminder letters are issued as required to licensees and that royalty reports are reviewed.

Position responsible: Assistant Deputy Minister IETS

Timing: June 30, 2017

MANAGEMENT PROCESSES

Summary Finding

The Department has an appropriate process for employees to disclose inventions through an IP Disclosure Kit. In addition, different Standard Operating Procedures (SOPs) and tools for the development of collaborative agreements have been established at the Sector and Branch levels.

While the Intellectual Property Working Group (IPWG) has been making efforts to harmonize approaches to IP management, individual Sectors are responsible for managing their IP and implementing their own processes and tools. This has resulted in differences in when researchers and managers involve IP Advisors and the level of consultation with business offices responsible for collaborative agreements, creating inefficiencies and duplication of efforts, since terms of agreements oftentimes have to be renegotiated.

Although recent efforts have been made by the Sectors’ IP officers to raise awareness about what constitutes intellectual property and how it is generated, the audit found that there is a limited understanding among employees of how to proactively manage IP and its value and importance as a Crown asset. In addition, the effectiveness of current training programs has not been assessed, and future training needs have not been identified.

The audit also found that the Department did not consistently identify whether IP was expected to result from Crown Procurement Contracts (CPC). Furthermore, the default for CPC is that the supplier owns the IP unless NRCan enacts an appropriate exception. The decision to enact an exception to claim ownership of the IP was not always clearly and appropriately justified.

Supporting Observations

The audit sought to determine if adequate processes and controls have been established and applied consistently to support the identification, protection, and deployment of IP; and whether awareness and training activities have been developed and communicated.

Business Processes

NRCan creates, acquires, and produces IP through a variety of mechanisms, including inventions made by employees, in collaboration with an external party, through revenue generating activities, and under procurement contracts. The circumstances surrounding the generation of IP influence decisions relating to its ownership and, therefore, its management.

Inventions developed by public servants for new products or processes are subject to the Public Servants Inventions Act (PSIA). The PSIA requires that employees report any inventions arising from the performance of their duties. The audit found that the Department has an appropriate process for employees to disclose inventions, including arising ‘know-how’, through an IP Disclosure Kit. The Disclosure Kit is completed by the inventor and designated manager, and captures information about the ownership of the IP, a marketability assessment as well as management’s proposed mode of deployment. IP Disclosure Kits are processed by the Sector IP officers, and with the assistance of the designated manager, they determine what steps are necessary to seek appropriate protection.

NRCan undertakes collaborative research and development activities with external parties, including universities, other public institutions, and the private sector. Ownership of the IP that will be developed as part of the collaborative project needs to be addressed in advance of the collaboration, and must be clearly documented. The audit noted that at the Sector and Branch level, different Standard Operating Procedures (SOPs) and tools for the development of collaborative agreements have been established. For instance, the Business Development Unit in the Canadian Forest Service (CFS) is involved throughout the entire process and can, therefore, proactively provide IP advice when required. Comparatively, the Business Management Unit (BMU) in the Earth Sciences Sector (ESS) is engaged before an agreement is finalized by conducting the internal review in collaboration with Finance, Legal Services, and the Sectors’ IP officer. Audit interviews with the business office managers in the other Sectors confirmed that these Sectors do not engage them early in the process and will only communicate with them when IP issues arise. This lack of early consultation has created inefficiencies and duplication of efforts, considering that terms of agreements often have to be renegotiated.

NRCan occasionally procures scientific products and research from outside organizations under contract. IP created from these procurement contracts is governed by the Innovation, Science and Economic Development Canada (ISED) Policy on Title to IP Arising under Crown Procurement Contracts. Outside contractors are presumed to own the IP generated from these contracts, unless the Department invokes certain designated exceptions as outlined in the Policy. Although there is a process in place for procurement, the audit found that the Department did not consistently identify whether IP was expected to result from these contracts. The audit reviewed a sample of 25 contracts, and observed that several contracts were reported to contain IP, but did not actually have any IP, which likely resulted in an inefficient use of resources required to process and review these contracts.

In addition, the audit found that when the Department took ownership of IP, it was not always clearly justified, and cited an exemption to the Policy that was inaccurate. However, the audit found that the majority of the contracts reviewed included the appropriate licensing clause in the Articles of Agreement. Audit interviews confirmed that employees requesting a service contract, as well as the procurement officers, have not been sufficiently trained to identify intellectual property produced as the result of a contract. Furthermore, interviews with IP officers indicated that the inability to accurately identify IP may create instances where Crown ownership of IP is not claimed, limiting the Department’s ability to deploy the IP at a future date.

Training and Awareness

The provision of training is an important component for the management of IP as it allows project leaders, researchers, and managers to fully understand the principles governing IP management and its importance. The audit observed that each Sector is responsible to identify its unique IP training needs and develop customized training programs to address relevant Sector processes. The training provided to staff includes IP definitions, types of protection, ownership, available tools (such as IP Disclosure Kits), and how to disseminate and/or deploy knowledge and technology.

The audit review of the training materials indicated that there is a greater focus on IP processes rather than an emphasis on the overall strategic reasons for managing IP. Although basic concepts are necessary to establish a foundation, participants may benefit from an emphasis on the strategic benefits from IP to encourage dissemination to the public and commercialization efforts. Audit surveys conducted with departmental researchers confirmed that only 50% have a clear understanding of the strategic role of IP as it relates to departmental objectives.

The audit also found that the Sectors have offered a series of IP-related training sessions on a regular basis to employees in both the National Capital Region and in regional offices. In 2015-2016, IETS offered 30 different training sessions to researchers and procurement officers, including visits to three regions. For the same period, CFS offered 16 live webinars to the regions, with the recordings of these webinars made available to all staff. ESS delivered eight IP sessions during this period in different branches, including videoconferences with three regions. Despite the high number of training sessions offered, the participation rate to the various sessions was low. Audit surveys with researchers confirmed that only a few of the survey participants have received training within the last year. Audit interviews with IP officers also indicated that more outreach to the regional offices is required, not only to ensure that regional staff has access to contextualized training, but also to get a better understanding of both the research conducted in each laboratory and collaborative research partners. This would allow IP officers to provide meaningful advice and to identify potential licensees, when required.

Furthermore, the audit found that there is no mechanism in place for Sectors to assess the effectiveness of current training programs and identify future training needs. Although there have been recent efforts to increase awareness about IP, there is a need to assess the current training material and delivery formats to engage more researchers and to address their concerns about IP.

RISK AND IMPACT

The absence of a consistent and coordinated approach to manage IP, including the recognition of IP in Crown Procurement Contracts, as well as insufficient training and awareness may undermine the Department’s efforts to support the identification, management, and deployment of IP.

RECOMMENDATIONS

It is recommended that the Assistant Deputy Minister Innovation and Energy Technology Sector (ADM IETS), in collaboration with the ADM Canadian Forest Service (CFS), the ADM Lands and Minerals Sector (LMS), and the Intellectual Property Working Group (IPWG):
1. promotes early consultation with business offices by researchers and managers for the efficient management of collaborative agreements; and
2. expands employee training and awareness efforts to include the overall strategic benefits of IP to encourage proactive deployment plans, and a mechanism for Sectors to assess the effectiveness of training programs and identify future training needs.
It is recommended that the ADM IETS, in collaboration with the Director General Finance and Procurement Branch, ensures that intellectual property in Crown Procurement Contracts is accurately identified, and appropriate justifications are provided for claiming Crown ownership of the IP.

MANAGEMENT RESPONSE AND ACTION PLAN

Management agrees. In response to recommendation 3:

a) ADM IETS, as IP champion, will prepare messaging for Sectors to remind managers and staff to consult business offices early, and of the process for approval and issuance of collaborative agreements.

Position responsible: Assistant Deputy Minister IETS

Timing: June 30, 2017

b) IPWG will work with Sectors to enhance existing training (over 40 sessions delivered in the past year), to solicit feedback and make adjustments if required.

Position responsible: Assistant Deputy Minister IETS

Timing: March 31, 2018

Management agrees. In response to recommendation 4:

The IPWG will work with Corporate Management and Services Sector (CMSS)/Director General Finance and Procurement Branch to propose solutions to amend the process to enable the appropriate determination of IP ownership.

Position responsible: Assistant Deputy Minister IETS

Timing: June 30, 2017

REPORTING

Summary Finding

The audit found that there are different information systems in place within the Department to track IP. This limits the Department’s ability to report accurate information to senior management.

Supporting Observations

The audit sought to determine whether monitoring and reporting activities have been established to enable informed decision making by senior management.

IP Data Management and Reporting

Each Sector is responsible to track all matters related to IP data, including IP creations; publications; agreements that have IP provisions, such as cost recovery agreements; collaborative agreements; procurement contracts with Crown-claimed arising IP; and licensing agreements. The audit observed that only the Intellectual Property Division within IETS uses the Nucleus database to track and record IP information. The database, a 20-year-old program, is not user friendly and is inefficient, since it does not provide enough fields to effectively manage data. For instance, IP officers must manually input data into multiple applications, including Excel spreadsheets, which creates duplication and threatens the integrity of the data due to potential human errors. Comparatively, ESS and CFS use multiple Excel spreadsheets to track and record IP information. Given the limited usability of both Nucleus and the Excel spreadsheets, the completeness and accuracy of the information captured cannot be ascertained.

In addition, each Sector has its own method of tracking S&T publications. For instance, ESS uses the Publishing Process Integration System, while CFS uses an in-house developed database. IETS and MMS have moved to the GCDOCS repository that was designed to enable the Department to meet the requirements of the Open Publications initiative under the Open Science Initiative. Furthermore, considering that there is no common departmental tool to track IP-related information, the audit noted that the type of information captured varies from one Sector to another, limiting the Department’s ability to report consistent information.

The Department currently reports on its performance using the Annual IP Survey, which is limited to reporting on the number of publications; new and active patents and licenses; inventions disclosed; and royalty revenues. However, these indicators alone provide little evidence of how well the Department manages IP for the achievement of its strategic objectives. Regular performance measurement and reporting on the benefits to Canadians related to IP would support senior management in monitoring the success of IP initiatives and making informed decisions. Although the audit found that limited performance measures have been established at the Department and Sector levels to evaluate the effectiveness of IP management processes, management has indicated they will explore the feasibility of enhancing IP performance measures when the IP Policy will next be reviewed.

It should be noted that, in June 2015, the CanmetMATERIALS laboratory conducted a qualitative and quantitative assessment of S&T impacts on five of its research and development projects that were completed between five and 10 years ago. The assessment included measuring the projects’ impact on advanced knowledge, standards development, economic benefits, reduced emissions, and social implications. It also included an analysis of each project’s internal and external funding. Although audit interviews illustrated that conducting such an assessment was challenging, it provided meaningful information about a broad range of benefits resulting from the commercialization of the technology.

RISK AND IMPACT

Inconsistent approaches to tracking IP information as well as a lack of performance metrics hinders the Department’s ability to generate complete, accurate, and meaningful reports to effectively monitor the IP Framework, and to proactively identify areas requiring management attention and strategic decision making.

RECOMMENDATION

It is recommended that the Assistant Deputy Minister Innovation and Energy Technology Sector (ADM IETS), in consultation with the ADM Canadian Forest Service (CFS), the ADM Lands and Minerals Sector (LMS), the ADM Corporate Management and Services Sector (CMSS), and the Intellectual Property Working Group (IPWG), explores the feasibility of implementing a centralized tool that will track IP data consistently across the Department.

MANAGEMENT RESPONSE AND ACTION PLAN

Management agrees. In response to recommendation 5:

IETS Intellectual Property Division (IPD) staff will work with CMSS IT/IM in consultation with the IP Working Group to explore the feasibility of implementing an IP tracking system.

Position responsible: Assistant Deputy Minister IETS

Timing: March 31, 2018

APPENDIX A – IP INFORMATION FOR FISCAL YEAR 2013-14 AND 2015-16

Please note that there was no IP data compiled at the departmental level for fiscal year 2014-2015.


	Fiscal Year 2013-14
New inventions reported	11	20
Patents
New patents issued (during 2015-2016)	18	9
Total patents held	171	153
Licenses
New licenses – Canada	7	15
New Licenses – Foreign	-	2
Total new licenses	7	17
Active Licenses – Canada	48	49
Active Licenses – Foreign	8	12
Total Active Licenses	56	61
Income received from IP (see breakdown by Sector below)
Running royalties and milestones payments	$382,080	$ 366,789
Reimbursement of patent, legal and related cost	$1,600	$ 1,000

Sector	Fiscal Year 2013-14
Innovation and Energy Technology Sector	$313,793	$253,128
Canadian Forest Service	$36,057	$80,439
Earth Sciences Sector	$27,230	$31,722
Minerals and Metals Sector	$5,000	$1,500
Total	$382,080	$366,789

APPENDIX B – APPLICABLE LAWS AND POLICIES

RELEVANT CANADIAN LEGISLATION

Public Servants Inventions Act
Public Servants Inventions Regulations
Financial Administration Act, Part V, Section 61
Copyright Act
Trade-Marks Act
Patents Act
Integrated Circuit Topography Act
Industrial Design Act
Plant Breeders’ Rights Act

RELEVANT GOVERNMENT POLICIES

Policy on Title to Intellectual Property Arising Under Crown Procurement Contracts
Policy on Transfer Payments
Retention of Royalties and Fees from the Licensing of Crown-Owned Intellectual Property
NRCan’s Values and Ethics Code

APPENDIX C – AUDIT CRITERIA

The criteria were developed from the key controls set out in the Treasury Board of Canada’s Core Management Controls and relevant associated policies, procedures and directives. The criteria guided the fieldwork and formed the basis for the overall audit conclusion.

The objective of the audit was to assess the adequacy and effectiveness of the management control framework supporting NRCan’s Intellectual Property (IP) Portfolio.

The following audit criteria were used to conduct the audit:

Audit Sub-Objectives	Audit Criteria
Audit Sub-Objective 1: To determine whether the Department has established and implemented adequate governance processes to support the management of its IP.	1.1 It is expected that roles, responsibilities, and accountabilities of parties involved in the management of IP are clearly defined and communicated.
	1.2 It is expected that the departmental IP Framework has been clearly defined, communicated, and maintained, and aligns with the Intellectual Property Policy Framework for the Science-Based Departments and Agencies and the Open Government and Science Initiative.
	1.3 It is expected that the Department has established and implemented a formal strategy to define its intended objectives for IP.
Audit Sub-Objective 2: To determine whether adequate processes and controls have been established to support the identification, protection, and deployment of IP.	2.1 It is expected that appropriate tools, templates, and processes have been developed and applied consistently to support the identification, protection, and deployment of IP.
	2.2 It is expected that the processes with regards to Crown Procurement Contracts (CPC) include appropriate ownership and licensing provisions.
	2.3 It is expected that awareness and training activities have been developed and communicated to provide managers and employees with a clear understanding of IP concepts.
Audit Sub-Objective 3: To determine whether adequate monitoring and reporting activities are established to enable informed decision making.	3.1 It is expected that IP information is effectively tracked and monitored by the Sectors.
	3.2 It is expected that IP processes are being monitored for effectiveness, and corrective actions are taken as needed by management.
	3.3 It is expected that timely reporting related to IP is provided to those charged with its oversight and to senior management to promote adequate monitoring and strategic decision making.

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Date modified:: 2019-01-31

Audit of NRCan’s Intellectual Property Management Control Framework (AU1704)

TABLE OF CONTENTS

EXECUTIVE SUMMARY

INTRODUCTION

STRENGTHS

AREAS FOR IMPROVEMENT

INTERNAL AUDIT CONCLUSION AND OPINION

STATEMENT OF CONFORMANCE

ACKNOWLEDGEMENTS

INTRODUCTION

AUDIT PURPOSE AND OBJECTIVES

AUDIT CONSIDERATIONS

SCOPE

APPROACH AND METHODOLOGY

CRITERIA

FINDINGS AND RECOMMENDATIONS

GOVERNANCE

Summary Finding

Supporting Observations

Roles, responsibilities, and accountabilities

Departmental IP Framework

Departmental IP Strategy

RISK AND IMPACT

RECOMMENDATIONS

MANAGEMENT RESPONSE AND ACTION PLAN

MANAGEMENT PROCESSES

Summary Finding

Supporting Observations

Business Processes

Training and Awareness

RISK AND IMPACT

RECOMMENDATIONS

MANAGEMENT RESPONSE AND ACTION PLAN

REPORTING

Summary Finding

Supporting Observations

IP Data Management and Reporting

RISK AND IMPACT

RECOMMENDATION

MANAGEMENT RESPONSE AND ACTION PLAN

APPENDIX A – IP INFORMATION FOR FISCAL YEAR 2013-14 AND 2015-16

APPENDIX B – APPLICABLE LAWS AND POLICIES

APPENDIX C – AUDIT CRITERIA

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