Legal Framework promises to slash R&D impediments

Brazil’s federal government is making yet one more attempt to cut through the bewildering ticket of protectionist and outdated laws whose effect is to prevent academics working for publicly-funded research bodies from seeing their innovations ever being adopted by industry, or profiting from them.

At the same time legal uncertainties mean that private enterprise has become used to seeing the state as an unreliable partner whenever R&D is involved.

It’s well known the world over that a so-called Valley of Death separates early-stage innovations from eventual acceptance by the market and is much feared by cash-strapped scientist-entrepreneurs. But that gulf is particularly wide in Brazil, not just for lack of funding, but due to a culture that looks askance at private-public participation. Funding for innovation has long been seen as a state responsibility.

Unsurprisingly the country fares poorly in international rankings based on patents (it came 99th in WIPO’s 2017 Global Innovation Index), while concerns about legal attribution of any intellectual property developed in partnership with the state, have hamstrung the venture capital and private equity industries and deterred outsiders.

To reverse all this, on January 7th the government announced its Legal Framework for Science, Technology and Innovation, or Decree Law 9.283. This is the second attempt in just two years to pass the law. In January 2016 then-president Dilma Rousseff first introduced the package (Lei nº 13.243/2016) – but this was never implemented.

Brazil’s President Temer: seeking to break down the public-private divide

Now, president Michel Temer’s pro-privatisation administration has again tabled the comprehensive package of amendments to nine protectionist laws (some 40 years old) that have been throttling Brazil’s ability to foster innovation by means of active ties between industry and the academic research environment.

Gilberto Kassab, minister of MCTIC (Ministry of Science, Technology, Innovation and Communication), said the legal package would “bring certainty and increase a sense of security” for the private sector. He also said it would make it easier for Brazil’s scientific and technological institutions to widen their contacts with international partners and with industry.

In fact it has taken a decade of active negotiation between academic bodies, industry and government to unwind a byzantine network of restrictive laws that acting together have:

  • Banned publicly-funded research academics from working more than 120 hours a year for private enterprise.
  • Prevented publicly-funded research facilities from sharing knowledge or even giving businesses access to their laboratories.
  • Forced research academics to enter into bureaucratic public tenders for all purchases of laboratory equipment or contracting of services.
  • Obliged publicly-funded laboratories to always buy the cheapest equipment regardless of quality or likelihood of additional follow-up costs.
  • Forced universities to pay heavy taxes on imports of research equipment.
  • Deterred the creation of research-based companies in which private enterprises and the state were partners, and stopped the state from commissioning research from private companies.
  • Restricted companies that had developed intellectually property jointly with state-funded institutions, from unfettered ownership of that IP.
  • Limited visas to foreign researchers – even when receiving local grants.
  • Blocked research establishments from hiring researchers to execute specific contracts on fixed-term or temporary basis, favouring lifetime employees.

Such barriers were of course not deliberate, yet have emerged as unintended consequences of laws designed to protect the Brazilian state from pillage by unprincipled entrepreneurs. In just the same way that the country’s prescriptive yet sprawling 1988 Constitution (it has 413 pages compared to 96 pages for the US constitution), has hamstrung the nation’s development in many sectors (and failed to deter corruption) so the distorted environment for science and innovation is another example of best legislative intentions gone sadly awry over time.

Brasília's Ministries: erratic funding and uncertain future for science.

Unintended consequences: Brasília’s lawmakers have often hindered, not helped the cause of science.

It’s true too that not all these laws were always enforced to the letter. In fact, the Innovation Law of 2004 did say that private companies could set up or sponsor laboratories inside public universities – but lawmakers forgot to mention how any resulting intellectual property would be apportioned between state and risk-takers.

So the absence of a transparent legal framework — reinforced by a cultural predisposition among lawmakers to believe that any business contact between private and public sectors must foster corruption — led to an environment where business simply preferred to hang back.

The result was that Brazil produced a generation of highly-trained research academics, but kept many of them shut away in publicly-funded universities and research institutions with little or no access to markets. Coincidence or not, Brazil ranks 98th in the Global Entrepreneurship and Development Institute’s Index.

So just as the rest of the world was breaking down barriers between public and private sources of research innovation, Brazil created a culture in which – whatever their needs or wishes – the two sides were kept firmly apart.

According to a report on the development in Brazil’s leading right-of-centre daily Estado de S. Paulo, officials in Brasília are well aware that the new presidential decree alone does not yet constitute a culture change. Estado quoted Álvaro Prata, a senior official responsible for technology policy at the MCTIC) ministry as saying: “we’re going to see more businessmen in the academic world, and more scientists in companies. The gap between the academic science world and the industrial world will get narrower.”

Yet the Estado also quoted Ildeu Moreira, a Rio professor and president of The Brazilian Society for the Progress of Science (SBPC) as saying: “This will be a learning process. On thing is the freedom that the new legal situation permits: but the actual implementation is something quite different.”

The backdrop, of course, to the state’s newly-discovered willingness to involve private enterprise in the business of scientific innovation, is the recognition of its own budgetary inability to be a reliable partner to the research community in coming years.

If the state can’t pay for all of Brazil’s publicly funded researchers, then it’s time to open doors to international and private sector support.

With a reduction in the MCTIC’s own budget of some 50% and the Treasury’s recent decision to block an additional BR$500 million worth of resources earmarked to science, it’s becoming apparent that other sources of funding must fill the breach if Brazil is to fulfill its potential and to maintain the highly-skilled community of research academics, rather than see them scattered through an international brain drain that has already begun.

For international companies and foreign research institutions interested in tapping Brazil’s strong reserve of highly-skilled and creative researchers, and gaining access to a large marketplace, this development – if it ever bears fruit – marks a very positive moment.

It remains to be seen whether government – which has historically been unable to resist crowding out private enterprise – will indeed open doors to international research partners.

The laws affected by the Legal Framework for Science, Technology and Innovation include:

  • 10973 of 2/12/2004 which limits the rights of publicly-funded universities or scientific research institutions (ICTs) from entering into contracts with the private sector or allowing access to their intellectual property.
  • 6815 of 19/08/1980 which defines the rights of foreigners in Brazil and their visa rights
  • 8666 of 21/06/1993 which obliges publicly-funded universities to adopt “cheapest wins” public tender for all equipment purchase.
  • 12462 of 4/08/2011 confers special benefits in public sector contracting to limited industrial sectors.
  • 8745 of 9/12/1993 controls the right of publicly-funded universities to hire anyone but public servants on full salary.
  • 8958 of 20/12/1994 controls the right of research establishments to acquire foundation status.
  • 8101 of 39/03/1990 regulates levies and tariffs on all purchases of imported equipment.
  • 8032 of 12/04/1990 controls exemptions from import duties.
  • 1210772 of 28/12/2012 limits the number of hours that state employees at publicly-funded universities are allowed to work in the private sector.

You can read a full article  (in Portuguese) on the Framework by Brazilian journalist Herton Escobar of the Estado de S. Paulo by clicking here.

You can refer to the government’s own agency release about its Decree Law 9.283 by clicking here.

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