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Legal certainty

A new decree outlines measures to lift bureaucratic barriers and boost innovation in companies and universities

A long effort by the scientific community, industry, and policymakers to lift bureaucratic barriers to research, strengthen links between industry and universities, and promote innovation in business came to a positive conclusion last February 8 with the promulgation of a federal government decree regulating previous legislation on science, technology, and innovation. The extensive new regulations aim to give practical effect to Act 13,243 (January 2016), which introduced changes into a set of legal instruments on innovation (see Pesquisa FAPESP, issue no. 240). “While the Act promulgated in 2016 has just 18 articles, the decree now regulating it has 86, which have been formulated to provide greater clarity and legal certainty to stakeholders,” says Alvaro Prata, secretary for R&D and innovation at the Brazilian Ministry of Science, Technology, Innovation, and Communications (MCTIC). “The new legal framework is the result of a collective effort.”

The February 8 decree is a bid to improve on the innovation framework that has been in place in Brazil since the Technological Innovation Act came into effect in 2004. Among other changes, this Act introduced the option for government funding to be invested in companies and for researchers from public institutions to work in the private sector. But while the act promulgated 14 years ago primarily focused on public-private partnerships and in-company innovation, the amended framework is more diversified in scope. Some provisions elaborate further on previously introduced concepts. For example, the framework now allows public institutions to host private companies’ “innovation-promoting environments,” supporting the development of science parks and accelerators such as those being set up in several cities and institutions in Brazil.

Among the newly introduced provisions is a broadened set of grant mechanisms for micro, small, and medium-sized enterprises. “Technology bonuses,” for example, are a new form of financial aid awarded by public institutions to small business to pay for the use or sharing of research laboratories or specialist research services. “A startup will not have the research capabilities available to a large innovation company or research institution. Technology bonuses are a kind of grant designed to fill this gap and help startups engage in research and development,” says Cristina Assimakopoulos, a lawyer who is leading a working group created by the National Association for Research and Development at Innovative Companies (ANPEI) to discuss the regulatory changes.

The new legislation also allows companies to use grants both for research funding and for capital expenditure. “Players in the innovation ecosystem will have greater legal certainty under a framework establishing essential guidelines for cooperation between scientific institutions and industry,” explains economist Gianna Sagazio, national superintendent and head of innovation at the National Industry Confederation’s (CNI) Euvaldo Lodi Institute (IEL). “The decree has provided an incentive for cooperation arrangements and is introducing R&D instruments that are widely used in developed countries, such as Public Procurement for Innovation (PPI), now within a clearer framework.”

The new rules include governance standards for the transfer of technology produced by research institutions, and allow universities and public entities to hold minority stakes in private companies. Newton Frateschi, an executive director at the innovation agency Inova Unicamp, sees a number of benefits in the new legislation. “The provisions in the decree about the role of Innovation Centers (Núcleos de Inovação Tecnológica, or NITs) within scientific institutions will be important in organizing collaboration arrangements between industry and academia,” he says. “Researchers will often attempt to negotiate research agreements or even licenses directly with a company and only approach the NIT at the end of the process, without realizing that there are mechanisms in place that are needed to protect intellectual property. The involvement of NITs is often seen as a nuisance when, in fact, they are there to facilitate and accelerate these types of arrangements,” he says. “Universities will need to restructure their NITs to accommodate the new roles created for them by the decree. We know of some centers that are staffed by seconded teams, grant holders, and interns. This makes the structuring and professionalization of these units even more important.”

Léo Ramos Chaves A test laboratory at Trópico in Campinas: the private sector wants previously vetoed provisions, such as those related to research grants, to be reinstatedLéo Ramos Chaves

Frateschi sees with interest the opportunity for universities to hold stakes in companies. “Universities can derive new revenue streams from equity interests in companies created in incubators or technology parks. Over 500 companies have been born out of R&D produced at UNICAMP, and today collectively gross some R$3 billion. Imagine if the university had a stake in just a handful of them.” Frateschi also welcomes the opportunity given for researchers at federal institutions to take a period of leave to pursue entrepreneurial interests: “Many professors will now feel safe to take leave to start a business.”

The legislation passed in 2016 addressed a number of demands from the scientific community. “Ideas about ways to lift bureaucratic barriers to research first began to be discussed and developed in 2008, and have since incorporated inputs from industry, state research funding agencies, and state departments for science and technology, among other stakeholders,” says physicist Ildeu de Castro Moreira, president of the Brazilian Society for the Advancement of Science (SBPC). The 1993 law on competitive procurement has also been amended. The decree has a section on procedures for seeking exemption from competitive bidding requirements for engineering works and services classified as products of research and development. It also provides flexibility for research funding to be repurposed, addressing a long-standing demand from the scientific community. “Following initial planning for a project, subsequent developments will often reveal the need to purchase equipment or retain additional services. The decree takes this uncertainty into account. Researchers can apply to have their research funding repurposed without their project accounts being rejected by auditors,” says Maria Zaira Turchi, president of the National Council of State Research Funding Agencies (CONFAP).

The new regulations specify that tax exemption on imported machinery and inputs for research activities extends to all accredited science, technology, and innovation organizations, and that lower tax rates are also available to companies purchasing imported goods. While celebrating the flexibility and increased transparency the new framework has brought into relations between universities and industry, the ANPEI believes it is too early to declare mission accomplished. According to Cristina Assimakopoulos, the real-world implications of each aspect of the decree will first need to be assessed, and discussions with stakeholders will need to be had to ensure that the changes take practical effect. “Each science and technology institution now needs to determine the ways in which it will apply the new rules. We have to ensure the framework is interpreted and implemented consistently. The challenge is now one of awareness and dialog,” says Assimakopoulos, who works for Brazilian miner Vale’s Technology and Innovation Department. “The risk is that conflicting opinions on the new legislation could emerge and undermine the legal certainty that the decree seeks to provide.”

The decree promotes R&D models that are widely used in developed countries, says Gianna Sagazio of CNI

ANPEI also believes the framework needs to be further developed. “Some of the provisions that were vetoed in the act passed in 2016 were of special interest to innovative companies and need to be restored,” says Assimakopoulos, referring, for example, to the provisions on private research grants, which were removed under the final wording of the act.

Although filled with good intentions, some of the regulatory changes have sparked controversy. Chief among these was Constitutional Amendment No. 85, passed in 2015, which gave to the federal legislature jurisdiction to enact general rules governing the National Science, Technology, and Innovation System, with state and municipal legislatures having powers to legislate only on specific matters. “The intent behind the amendment was probably to ensure that robust legislation is in place in states which are unlikely to enact legislation of their own,” explains Fernando Menezes, a professor at the School of Law at the University of São Paulo (USP) and administrative director at FAPESP. “But this amendment is potentially a source of conflict as it allows the Federal Government, in establishing general rules on R&D, to encroach upon the devolved jurisdiction of states.”

State legislation enacted in São Paulo in 2008 contained a number of provisions that have now been incorporated into federal law, such as state ownership of equity in innovation companies and the allowance made for researchers from public institutions to work in industry. Fernando Menezes was part of a working group that for six months provided inputs into the development of a regulatory decree signed by governor Geraldo Alckmin in September 2017, which sought to harmonize state and federal rules governing research institutions operating in the state.

Public domain image A Science Park in São José dos Campos: the new framework supports the creation of hosted “innovation-promoting environments”Public domain image

Biochemist Helena Nader, a researcher at the Federal University of São Paulo (UNIFESP) who headed the SBPC between 2011 and 2017, and was actively involved in the talks on the new federal legislation, says the process led to a new understanding of R&D activity. “A centerpiece of the new legislation is its recognition that research differs from other activities. It involves risk, and therefore the products of R&D deserve special treatment,” she says. According to Nader, the unique nature of R&D activities is taken into account in Constitutional Amendment no. 85 and embodied in the act of 2016 and the decree promulgated in February. This new understanding, according to Francilene Garcia—president of the National Council of State Secretaries for Science, Technology, and Innovation (CONSECTI) and executive secretary for science and technology of the State of Paraíba—is essential for R&D to thrive. “Experiments with live organisms to develop vaccines, for example, should not be subject to the same rules applying to commodities imports,” she says.

Another criticism concerns the length of the regulations: the São Paulo decree has 68 articles and the Federal decree 86. “They could and ought to have been more concise, but have been written to a great level of detail so no room is left for doubt as to what is permitted to government officials. This is important at a time when state oversight bodies, such as audit courts and public prosecutors, are tightening their scrutiny of government officials—and for good reason,” Fernando Menezes explains. He notes, however, that this can often have unintended effects. “The lengthier the provisions, the greater the risk that conflicting interpretations or doubts could arise about their meaning.”

Detailed regulations are not a guarantee that policymakers’ original intent will materialize. “It will take time to assimilate it all,” says Alvaro Prata of MCTIC, who is coordinating a range of initiatives to support implementation of the new legislation. Implementation guides are being developed for each of the segments involved. Legal advisory departments at the MCTIC and the Ministry of Industry, Foreign Trade, and Services are developing a policy document to equip public prosecutors to “enforce the decree to its fullest extent.” A guide is also being developed for industry by the CNI, the Business Initiative for Innovation (MEI) and ANPEI. “Companies need to understand all the implications of the decree,” says Prata.

APTA The São Paulo Office for Agriculture’s Animal Nutrition Laboratory: shared use of research infrastructure is promoted under the new frameworkAPTA

Carlos Américo Pacheco, CEO of FAPESP’s Executive Board, says the legal framework creates possibilities that need to be put into practice and promoted by innovation agencies. “Over time we will have the opportunity to experiment with these new solutions and test them for effectiveness. And we need to bear in mind that this is a work in progress, which from time to time has to be revisited. What’s important is that we continue to move forward,” he says. He notes that the institutional environment is central to any innovation system. “This is clearly seen in the US innovation model, in the way it supports collaboration and the commercialization of research outcomes, and in the fact that its top universities and research institutions are all private, not-for-profit organizations. French innovation law is another example. These frameworks have provided a source of inspiration for institutional innovation all over the world.” As an executive secretary between 1999 and 2002 at the then Ministry of Science and Technology, Pacheco recalls that in 2001 the National Conference on ST&I held the first discussions on the institutional environment which provided inputs into the formulation of the Innovation Act of 2004. “We have now taken a step further in modernizing our innovation system.”