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Why Is It So Hard To Innovate in Brazil? The Legal Issues

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Innovation investment is crucial for Brazilian organizations wanting to gain a competitive advantage - or at least survive in the current climate of socio-economic instability. But the country still lags behind in innovation when compared to other countries of comparable size and development stage.

At the start of the last decade, there was an increase in government investments in science and technology and a legal framework inspired by the French innovation law was introduced. However, things changed considerably since: between 2011 and 2018 Brazil collapsed 17 positions in the Global Innovation Index (GII) published by Cornell University, business school Insead and the World Intellectual Property Organization. The new GII report released today (10) ranks the country 64th, with the worst indicators across the BRIC countries.

Why is it so hard to innovate in Brazil? To start finding answers to that question I asked Luiz Ricardo Marinello, a São Paulo-based lawyer focused on intellectual property, about the challenges local organizations face, especially when it comes to the engagement between research centers, universities and the private sector, the so-called "triple helix."

According to Marinello, there is a disconnect between those stakeholders and this is partly due to a legal framework that lacked the mechanisms required for implementation in practice. Other critical barriers to driving innovation at a national level include a heavy tax burden, insufficient fiscal incentives that often don't reach all the players in the ecosystem, lack of skilled workforce and shrinking government budgets for science and technology.

"In a recession, the government sees spending cuts in these areas as a good thing, but that couldn't be further from the truth. Innovation coupled with job creation can generate medium and long-term opportunities and strengthen the country's ability to protect itself from future downturns," Marinello points out.

However, recent changes in the legal framework for innovation could potentially help improve the current situation.

A new legal innovation framework 

The Brazilian Innovation Law was initially introduced in 2004. The measures aimed to incentive cooperation between government, academia and companies. Such initiatives would  - ideally - become commercial offerings.

This first legal framework for innovation sought to increase the participation of public research institutions in the overall process of innovation, stimulate these initiatives within companies, support independent inventors and create specific funds as well as technology parks and centers where regional stakeholders would pool research and development (R&D) resources needed to drive impact.

While all this sounds good in theory, the application of these provisions is a whole different story, says Marinello. "The creation of a legal framework to support innovation was well-intentioned but did not work in practice. That is because the law was not good enough on its own: mechanisms to bring it to life needed to be created."

Updates to the innovation law in 2016 and 2018 aimed to introduce such mechanisms. These are rules to stimulate and induce dealings between publicly-owned research organizations and the private sector, bringing more legal security to the parties around the technologies that are jointly developed.

The review includes more explicit rules of engagement for stakeholders as well as more freedom for the parties to agree on terms around the use of intellectual property resulting from partnerships. For example, that could include granting full rights to private sector organizations for products and services created under these projects.

The updates also mean that government departments can directly contract businesses as part of innovation projects - previously only non-profit organizations could provide those services. A controversial item of the original framework established that research spending had to be proportional to the results obtained in R&D work. This inconsistency has been addressed, and even if results are not achieved due to technological risk, funding will be authorized.

Other news embedded in the recent amendments include a waiver for public tenders for R&D activities costing up to 80,000 reais ($20,767), while the use of government-owned buildings for innovation projects becomes simplified and spending related to these initiatives is now tax-deductible.

Unresolved issues

The recent changes to the framework mean there are no more legal bottlenecks to innovation, but Marinello points out there are other practical issues that remain unresolved. Bureaucracy is one of them: it still takes 90 days on average to open a company in Brazil - although some cities like São Paulo are trying to change that.

"Structural problems such as slow and outdated processes, the lack of national policies specific to innovation as well as skills shortages are still here and are a major hindrance to further development," he says.

"The players in the innovation ecosystem will come together, and the triple helix will spin faster only if there is an awareness of the importance of this theme across the various government departments," Marinello adds.

Fiscal incentives need to be more significant and processes improved so that innovation can gather momentum in Brazil, the lawyer maintains. "The government needs to understand that innovation processes are directly relevant to economic development as a whole, they can create jobs and reduce inequality as a result."

While it is still early days to assess the impact of the changes in the legal framework in improving the innovation ecosystem in Brazil, Marinello believes that bringing universities and the public sector closer to companies is already reason for celebration, even though there is still work to be done.

"If the country can find a way to at least reduce its bureaucracy, it might increase its innovation indicators in a very short space of time."

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