A well-meaning law

Carlos Américo Pacheco evaluates the effects of the Innovation Law

The Innovation Law was an attempt to use Public-Private Partnerships (PPPs) in the Science and Technology area. The objective, among others, was to face the institutional challenges of the Brazilian innovation system, an especially difficult undertaking. “Fiddling with institutions is a high-risk occupation”, states the joint secretary of Development for São Paulo, Carlos Américo Pacheco. Two years after it was passed, the law did not prove to be “effective”, as he puts it, in  generating new models (such as the Specific Purpose Firms) for partnerships between the state and the private sectors. This breeds frustration, according to Pacheco, given that when he was the executive secretary of the Ministry of Science and Technology, he was one of the law’s architects. In this interview, Pacheco evaluates the law’s problems.

What are the main institutional problems that the Innovation Law was meant to solve?
The spirit of the law was precisely to expand public-private partnerships. The interface between the government and the public sector does not only take place within the scope of research networks, but also in the legal relationship  between the parties. Intellectual property, for instance, is a core aspect of the legal relationship. It was necessary to improve the relationship between the partners in order  to license  patents and to be clear about the sharing of benefits and to  make the licensing of patents more flexible,  so  the partnership could  be more efficient.

What is the main obstacle that this type of partnership faces? 
The bottleneck lay essentially in the public rather than in the private sector. It’s an administrative law issue: the public sector can only do what is authorized by law and the firm cannot associate itself with a public institution under the same rules that apply to the private sector.  Thus, the law is a PPP law designed to improve the innovation system’s performance. It was with this scope that the law allowed the creation of Specific Purpose Firms to carry out projects in partnership with privately-held partners.

If the law allows for Specific Purpose Firms, why are there so many difficulties?
The spirit of the law is correct, but unfortunately – and I say this sorrowfully because I had some responsibility for this – it turned out to have a low level of legal efficacy. It was more important as an innovation propaganda tool and to call people?s attention to the institutional aspects. It is well-meaning, but the way it was drafted generated certain difficulties. The fact that it required  public notice for licensing and for the sale of patents, for instance, ended up turning into a mini public bidding process. The most critical issue, perhaps, is  the Specific Purpose Firms, which were meant to allow public institutions to organize their joint undertakings with the private sector more professionally, making research funding viable. The Specific Purpose Firms were meant to be subsidiaries of the research institutions and, in the future, to enable them to rely on the earnings from this kind of innovation. The most emblematic cases are the agroenergy opportunities and Embrapa’s attempts to create a Specific Purpose Firm with private sector partners in order to engage in high-return research and to raise as many funds as possible.   Embrapa faces a huge challenge.

What is the origin of these difficulties?
It’s a constitutional problem. The chapter on Economic Order states that the setting up of a company  calls for a specific law. Every time the State enters the economic or corporate arena, a law is needed. There’s a law that allows Petrobras to create subsidiaries. The Bank of Brazil has a law regarding subsidiaries. When the law is generic – as in the case of the Innovation Law, which only states that research institutions are allowed to create Specific Purpose Firms for research purposes – the question  remains  whether this authorization, being too generic, is legally effective. This interpretation divergence gave rise to a legal debate: the law might be so broad that its legal effectiveness was lost. Not to speak of the risk of whether or not it was constitutional.  Without a legal basis, the firms’ legal areas and the Federal Legal Office (Advocacia Gerald a União – AGU) are unable to act, although the law states that an authorization from the President of the Republic is required. It would be worthwhile for the Minister of Science and Technology to get an evaluation of  its efficacy.

Who might the main beneficiaries of this new type of partnership be? 
The Specific Purpose Firms outlined in the new Innovation Law should benefit three main institutions that have quality research for undertakings of this sort: the National Space Research Institute (Instituto Nacional de Pesquisas Espaciais – INPE), Fiocruz and Embrapa. They were natural candidates for using this tool to expand the scope of their research together with private initiative. The development agencies are not aggressive enough in providing lines to make this viable. Finep and BNDES should be stockholders and provide capital for Specific Purpose Firm in areas that are crucial for Brazil. It’s necessary to review the law to enable it to acquire legal efficacy and for agencies to provide support. The idea that the law is self-applicable does not exist.