VZCZCXRO0358
RR RUEHAST RUEHDH RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHSL RUEHTM
RUEHTRO
DE RUEHBR #1175/01 2641032
ZNR UUUUU ZZH
R 211032Z SEP 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 5119
INFO RUEHSO/AMCONSUL SAO PAULO 4570
RUEHRI/AMCONSUL RIO DE JANEIRO 8216
RUEHRG/AMCONSUL RECIFE 9955
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 04 BRASILIA 001175 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR OES/STC, WHA/BSC, WHA/ESPC, OES/STAS, EEB/TPP/IPE 
 
E.O. 12958: N/A 
TAGS: ECON TSPL TPHY TNGD TINT KIPR KSCA NSF BR
SUBJECT:  BRAZIL - GROWING RECOGNITION OF IMPORTANCE OF PROMOTING 
INNOVATION OPENS WAY FOR GREATER U.S. COOPERATION 
 
REF: A) Brasilia 1017  B) Brasilia 1042 C) Brasilia 1105 
 
BRASILIA 00001175  001.2 OF 004 
 
 
(U)  THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR INTERNET 
DISTRIBUTION. 
 
¶1.  (SBU) SUMMARY.  The Government of Brazil (GOB) and the private 
sector have identified promoting innovation as a key priority.  Many 
of the Mission's governmental interlocutors view innovation as 
pivotal to accelerating Brazil's continued development and economic 
success.  Working with the GOB on innovation presents an opportunity 
for the USG to further its on-going scientific and technological 
cooperation and science diplomacy with Brazil.  It simultaneously 
presents the USG with an opportunity to pursue its interests in 
intellectual property rights (IPR) by demonstrating their importance 
to creating an innovation-friendly business environment. Moreover, 
increasing collaborative research and development (R&D) and Small 
Business Innovative Research (SBIR) projects could be a boon for 
both countries.  END SUMMARY. 
 
INNOVATION: THE TOPIC OF THE DAY 
 
¶2.  (SBU) Innovation, and a desire to promote it, is a frequent 
topic of conversation with Mission Brazil's interlocutors within the 
GOB.  Many Brazilian agencies, including the Ministry of Science and 
Technology (MCT), the Ministry of Exterior Relations (MRE), the 
Ministry of Development, Industry and Foreign Commerce (MDIC), the 
Ministry of Health (MS), and the Brazilian Agency for Industrial 
Development (ABDI), list increasing innovation within Brazil as one 
of their top priorities.  This need is acutely felt because Brazil, 
despite having world class scientific talent, has not been a leader 
in innovation and commercializing new products and ideas. 
 
¶3.  (SBU) In most innovation related conversations, the Mission's 
interlocutors cite the United States as the world's leader in 
innovation, and they see partnership with the USG and other U.S. 
groups as valuable in finding a way to better promote innovation in 
Brazil.  Some interlocutors, with a more nuanced understanding of 
the concepts behind innovation, realize that the U.S. experience is 
different than that of many other countries, and for historical and 
institutional reasons would not be 100% applicable to Brazil, but 
they nonetheless see the United States as a partner that can help in 
their efforts. 
 
THE CHALLENGES - TRADITION AND FINANCE 
 
¶4.  (SBU) A fundamental obstacle to improving the innovative 
environment in Brazil relates to the existing stove piping of 
academic, business and governmental cultures.  Professors' and 
academics' careers are based on their ability to generate new 
discoveries in the basic sciences for publication in international 
journals, or to help their graduate students develop academically. 
Professors openly admit that they have little expertise in 
administration, financial management, entrepreneurship, and IPR. 
This plays a strong role in the fact that comparatively few 
Brazilian academics apply for patents for their discoveries. 
According to an oft-cited statistic, Brazil is responsible for 2% of 
scientific publications in the world, but only 0.2% of patents. 
Thus innovation in Brazil is 10 times lower than their participation 
in scientific production.  The patenting process in Brazil is 
time-consuming and professors do not see it as their role, or worth 
their time, to be involved in this process.  Some Mission contacts 
have also indicated that there is a perception that patents do not 
create enough benefit to be worth the effort required to secure 
one. 
 
¶5.  (SBU) On the other side of the equation, most Brazilian 
businesses do not have a tradition of conducting research and 
development (R&D).  Some large firms, such as the oil giant 
Petrobras, do spend a significant amount of money on R&D, but small 
and medium-sized companies rarely make such an investment.  This is 
unlike the experience of the United States and many other developed 
nations, where small start-ups are very likely to invest in R&D, as 
their ability to bring a new and innovative product to market is 
what will ensure their success and survival.  In a country ranked 
129 out of 183 economies in the World Bank Doing Business 2010 
report, with 120 days needed to start a business, 2,600 hours needed 
to prepare and file taxes, a cumbersome and costly labor system, and 
four years needed to close a business, the incentives and 
attractiveness of opening a start-up company, and devoting money to 
R&D in an existing SME, are notably hampered. 
 
¶6.  (SBU) The disconnect between researchers and industry is not the 
only obstacle to promoting an innovation culture.  The immature 
state of the venture capital system in Brazil is also cited by some 
experts as a limiting factor to innovation in Brazil.  According to 
 
BRASILIA 00001175  002.2 OF 004 
 
 
Fernando Rizzo and Antonio Galvao, Directors at the Center for 
Strategic Studies and Management (CGEE), there is a nascent venture 
capital system in Brazil, but clearly not nearly as developed as the 
venture capital system in the United States.  Additionally, they 
claim that there is no such thing as angel investing, or other 
critical mechanisms that support innovative, start-up companies in 
high-risk endeavors. 
 
IPR: PROTECTION NEEDS STRENGTHENING 
 
¶7.  (SBU) The lack of a strong intellectual property rights (IPR) 
culture in Brazil is also a significant problem for the promotion of 
an innovative environment.  Despite some progress on enforcement 
against piracy and counterfeiting and an increased willingness to 
discuss IPR protection under the umbrella of innovation, some within 
the GOB see IPR protection as an optional tool for economic 
development or even a barrier, rather than a critical catalyst for 
innovation.  The IPR conversation in Brazil has two competing 
threads: a relatively positive attitude on copyright and trademark 
enforcement (though improvements in criminal counterfeiting 
penalties should be enacted), and an ambiguous attitude toward 
patent protection.  The MRE has attempted to delink the innovation 
dialog from IPR discussion. 
 
¶8.  (SBU) In the pharmaceutical sector, Brazil often displays 
outright hostility towards patents.  Brazil does have some excellent 
medical researchers and laboratories.  In fact, the National 
Institutes of Health (NIH) enjoys long-standing research ties with 
Brazil, supporting over a hundred joint research activities each 
year with about USD 28 million, the most in the Western Hemisphere. 
However, Brazil's national health system seeks to lower costs of 
drugs and support generic production.   In one case in 2006, the GOB 
used the public emergency provision to require compulsory licensing 
of a patent on an HIV/AIDS medicine.  In April Brazil and a handful 
of other developing countries suggested in their plenary statements 
at a meeting of organized under the UN Framework Convention on 
Climate Change (UNFCCC)that they would like any new climate change 
agreement to provide for an exemption for developing countries from 
patent protection for environmental/green technology patents as a 
way of lowering the cost of reducing greenhouse gas emissions. 
 
GOVERNMENT R&D AND INNOVATION PROMOTION EFFORTS 
 
¶9.  (SBU) The distance between the businesses providing the funding 
and the researchers doing the work undermines the drive to produce 
commercial results.  One effort by the GOB to promote innovation is 
a system under which companies may invest funds into R&D in order to 
benefit from significant tax breaks.  The GOB gives these tax 
benefits to companies that invest two percent of their profits into 
R&D.  The research must be performed by academic research facilities 
that are registered with the Ministry of Science and Technology 
(MCT) rather than in-house R&D units or contractors.  For example, 
the Federal University of Rio de Janeiro's Coimbra Institute of 
Post-Graduate and Engineering Studies (UFRJ-COPPE) Director recently 
told ESTH Officer that UFRJ-COPPE receives almost 50% of its funding 
from industry sources.  Their largest customer is Petrobras, and 
they are receiving sufficient funds to build a new research 
facility.  One contentious aspect of this effort is the stipulations 
that a portion of the two percent must go to a governmental S&T 
fund, rather than toward company related research.  Company 
executives have complained to Embassy officers that this stipulation 
has a distorting effect on R&D spending. 
 
¶10.  (SBU) MCT also works with or through other agencies to promote 
entrepreneurship among innovators and small business innovation. 
The Brazilian Innovation Agency (FINEP), a division of MCT, has made 
promoting innovation a priority.  FINEP has a variety of programs 
and funding vehicles designed to help small businesses to become 
more innovative.  Some of its programs are purely financed by FINEP, 
while others are partnerships in which FINEP works with investors 
and private equity funds to secure the financing that small 
innovative firms need to grow and thrive.  There are, however, some 
complaints that support from FINEP and other government programs for 
small companies are not well distributed.  According to Mauricio 
Schneck, the International Relations Advisor for the Brazilian 
Association of Science Parks and Business Incubators (ANPROTEC), 
FINEP's programs for small businesses suffer from poor 
implementation and FINEP's planning and awarding process is out of 
sync with the emerging venture capital cycle in Brazil, which causes 
problems for business trying to obtain FINEP's support. 
 
¶11.  (SBU) MCT also works extensively with the Center for Strategic 
Studies and Management (CGEE).  CGEE is a think tank that is not 
technically government run or funded, but that has a majority of its 
contracts with the government and that also routinely employs 
 
BRASILIA 00001175  003.2 OF 004 
 
 
government employees to round out its staff.  CGEE has completed a 
wide variety of studies for MCT and other government agencies to 
help them identify policies and other actions that the government 
can take to encourage innovation. 
 
¶12.  (SBU) The Brazilian Agency for Industrial Development (ABDI) is 
a public-private agency charged since 2004 with implementing the 
Industrial Policy.  Among ABDI's programs, two focus specifically on 
innovation.  The program for "Production Development and an 
Innovative Environment" aims to facilitate access to tools for 
development and innovation, for example by the implementation of an 
"innovation web portal" and development of a national network of 
public and private agents involved in industrial development and 
innovation.  Another program supports the development and 
implementation of pro-innovation policies in strategic industries 
such as nanotech, biotech, and biofuels. 
 
¶13.  (SBU) Beyond the agencies mentioned above, there are other MCT 
agencies (such as the National Council of Scientific and Technologic 
Development - CNPq) as well as agencies in other Ministries, 
including the Ministry of Development, Ministry of Agriculture, and 
Ministry of National Integration, that are engaged in research and 
innovation related activities.  The Presidency of the Republic 
launched in 2008 the Policy of Productive Development ("Poltica de 
Desenvolvimento Produtivo" or "PDP") Program with the same target. 
 
USG INTEREST IN BRAZILIAN INNOVATION 
 
¶14.  (SBU) The large number of National Science Foundation, National 
Institutes of Health, and other USG grants that are carried out in 
cooperation with Brazilian researchers is a testament to the degree 
to which their scientific abilities are valued by their U.S. 
counterparts.  USG technical agencies have also greatly benefited 
from our robust scientific and technological cooperation.  This 
cooperation increasingly includes conversations about promoting 
applied science (rather than merely focusing on basic research), 
incentivizing entrepreneurship among researchers, and 
commercialization of scientific and technological developments.  The 
increased focus on these areas not only benefits the USG, but it 
also could create new opportunities for private sector business 
development.  Finally, talking about innovation provides the USG 
with a perfect opportunity to stress the importance of IPR to an 
innovative environment. 
 
U.S.-BRAZIL COOPERATION:  INITIAL STEPS FORWARD 
 
¶15.  (SBU) The GOB, the Brazilian private sector and universities 
are seeking to learn from the U.S. experience in developing an 
environment supportive of innovation.  ABDI is working with the 
Brazilian Competitiveness Movement (MBC) and the U.S. Council on 
Competitiveness (CoC) to organize a series of conferences that they 
are calling "Learning Laboratories."  These conferences are part of 
the preparations for the group's Second U.S.-Brazil Innovation 
Summit, tentatively scheduled for early 2010 in Washington, D.C. 
The goal of these conferences and the Summit is to help academics, 
entrepreneurs, and government officials learn from each other's 
experiences and to work together to increase innovation in both 
countries.  The U.S.-Brazil Economic Partnership Dialogue and the 
U.S.-Brazil Joint Commission on Science and Technology have also 
been working at a governmental level to identify ways in which the 
two governments can work together to address the need for increased 
innovation.  The National Forum of Innovation Managers and 
Technology Transfer (FORTEC), which represents Brazilian 
universities and research institutes in innovation policies, 
recently met with the Mission's PTO office to provide U.S. speakers 
on IPR valuation and patent drafting for its annual conference to be 
held in October 2009. 
 
THE WAY AHEAD 
 
¶16.  (SBU) Recently the MRE's Division for Science and Technology 
Cooperation (DCTEC) expressed interest in moving our cooperation on 
innovation to a new level.  The wide variety of workshops and 
dialogs organized by both public and private sector entities has 
created a solid base for this cooperation.  However, some GOB 
interlocutors are looking to refine their focus and concentrate on 
specific, more concrete, actions.  One example is to start focusing 
on Small Business Innovative Research (SBIR) programs, where the 
research being done by NSF and other agencies could potentially be 
put into practice by financing agencies such as FINEP or FAPESP, 
which focus on SBIR on a strategic level.  Other examples have 
included academic exchanges specifically aimed at researchers who 
specialize in applied sciences or have an entrepreneurial 
background; and increasing linkages between businesses and venture 
capital groups in both countries. 
 
BRASILIA 00001175  004.2 OF 004 
 
 
 
COMMENT 
 
¶17.  (SBU) The GOB would like to have Brazilian researchers and 
institutes bring more innovative ideas to the market, but it has not 
gone far to develop a conducive environment.  Top down, 
government-directed R&D expenditures have had limited results. 
Often there is an anti-commercial attitude among researchers and 
administrators at government-funded laboratories, which is difficult 
to overcome.  Discussions within the GOB about innovation generally 
do not include the key element that governments are best suited to 
do: creating a level playing field that facilitates innovative 
activity in the private sector.  GOB's ambivalence and differing 
views across Ministries toward the importance of IPR underpinning 
innovation and economic growth also impede progress. 
 
¶18.  (SBU) Still, there is an increasing awareness within the GOB 
and the Brazilian private sector that the current situation 
regarding research and innovation is not satisfactory.  Brazil is 
not living up to its potential.  Thus, today we see a growing 
interest within the GOB and the private sector in understanding the 
U.S. system better and learning what innovation promoting elements 
could be applicable to Brazil.  Post is supportive of the GOB's 
efforts because this should encourage the GOB to provide greater 
support for IPR protection within Brazil and internationally, as 
well as helping foster U.S.-Brazil R&D partnerships.  The prospects 
for genuine progress on innovation might benefit from increased 
coordination between the various entities involved.  A cohesive 
innovation strategy for Brazil and more collaborative R&D and SBIR 
projects would be a boon for both countries.  END COMMENT. 
 
KUBISKE