Protecting a legacy of innovation
The Bayh-Dole Act works. It’s not time to change it.
Forty-three years ago, a young U.S. Sen. Joe Biden voted for a transformative policy reform that subsequently catalyzed upward of $2 trillion dollars in economic growth. Yet now, President Biden’s administration is poised to functionally undo that reform. The president can protect a key part of his Washington legacy by putting a halt to this inadvertent political and economic sabotage.
The reform in question was the Bayh-Dole Act of 1980, which helped revive the moribund economy of the 1970s. Prior to the law, the federal government held all the patents on discoveries made at university and non-profit labs that received federal funding. The government had little incentive to license those patents to private companies for further development. And companies were hesitant to license those patents on a non-exclusive basis — since the government could always grant additional licenses to rival firms, which could then debut their own competing versions of a product.
Because of these misaligned incentives, thousands of taxpayer-funded discoveries collected dust on the proverbial laboratory shelf — and were never turned into products.
The Bayh-Dole Act put an end to this waste by allowing universities and other research facilities receiving government funds to hold the patents themselves and license them to companies for further development. Thanks to the law and the academic “tech transfer” system it established, we’ve made tremendous strides in quantum computing, developed a host of communications tools, created breakthrough medicines, and even invented Honeycrisp apples.
This legislation has served as the cornerstone for the public-private R&D partnerships that provide products and services to American consumers and markets around the world. The Bayh-Dole Act has been instrumental to U.S. leadership across a multitude of technological sectors and is estimated to have contributed about $2 trillion to U.S. gross industrial output from 1996 to 2020.
America’s research institutions have benefited handsomely from such partnerships. As the managing director of Yale’s Office of Cooperative Research, I managed the intellectual assets that Yale’s top-flight scientists, research staff and students developed. Through Yale Ventures, the university now manages the licensing of 1,938 patents, generating millions in royalties each year for the benefit of future research.
Unfortunately, some in the Biden administration want to upend the foundation of this system. Under a proposed framework, the federal government could “march-in” and relicense patents on products that bureaucrats feel are overpriced. The administration recently announced the framework as part of a campaign to reduce prescription drug prices — but the framework would apply to all patents that benefited from federal research grants, not just pharmaceuticals.
March-in rights have always been part of the Bayh-Dole Act. Their original intent was to ensure government-financed innovations were put to work instead of being licensed and warehoused by a dominant market player. They also allow the government to step in if a critical public need is not being met by a licensed manufacturer or if promises of domestic development are not kept.
For decades, however, these march-in rights went unexercised because there was no need for the government to step in. With the incentive structure that the BayhDole Act created, commercial development proceeded rapidly.
The administration’s march-in proposal would destroy these incentives. Companies won’t license government-funded university research if the government reserves the right to step in and appropriate the fruit. The administration seems to forget that for every dollar the government spends on research, the private sector invests nearly $5.
Senators Bob Dole and Birch Bayh themselves balked at the idea of using march-in rights to intervene in businesses’ pricing decisions. They recognized that “government alone has never developed the new advances in medicines and technology.” It is the private sector that turns the promise of innovation into reality.
Imagine the effects of march-in up and down the innovation chain. As industry shuns university research, royalties will dry up. Fewer royalties mean universities will have less funding available for new research, which means fewer researchers. Do we really want to strip the motivation of the next generation of PhD candidates? Do we want our most gifted professors to head for the exits and more lucrative employment at private labs? Do we want to put a halt once again to the ability of the public to realize benefits from government-funded research?
The economic might of the United States depends on the public-private partnerships facilitated by the Bayh-Dole Act. The system works marvelously, and the president shouldn’t repudiate his own role in helping to create it.