The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of Technology
The Bayh-Dole Act:
Selected Issues in Patent Policy
and the Commercialization of Technology
Updated April 3, 2008
Wendy H. Schacht
Specialist in Science and Technology Policy
Resources, Science, and Industry Division
The Bayh-Dole Act: Selected Issues in Patent Policy
and the Commercialization of Technology
Summary
Congressional interest in facilitating U.S. technological innovation led to the
passage of P.L. 96-517, Amendments to the Patent and Trademark Act (commonly
referred to as the Bayh-Dole Act after its two main sponsors). The act grants patent
rights to inventions arising out of government-sponsored research and development
(R&D) to certain types of entities with the expressed purpose of encouraging the
commercialization of new technologies through cooperative ventures between and
among the research community, small business, and industry.
Patents provide an economic incentive for companies to pursue further
development and commercialization. Studies indicate that research funding
accounts for approximately one-quarter of the costs associated with bringing a new
product to market. Patent ownership is seen as a way to encourage the additional,
and often substantial investment necessary for generating new goods and services.
In an academic setting, the possession of title to inventions is expected to provide
motivation for the university to license the technology to the private sector for
commercialization in expectation of royalty payments.
The Bayh-Dole Act has been seen as particularly successful in meeting its
objectives. However, while the legislation provides a general framework to promote
expanded utilization of the results of federally funded research and development,
questions are being raised as to the adequacy of current arrangements. Most agree
that closer cooperation among industry, government, and academia can augment
funding sources (both in the private and public sectors), increase technology transfer,
stimulate more innovation (beyond invention), lead to new products and processes,
and expand markets. However, others point out that collaboration may provide an
increased opportunity for conflict of interest, redirection of research, less openness
in sharing of scientific discovery, and a greater emphasis on applied rather than basic
research. Additional concerns have been expressed, particularly in relation to the
pharmaceutical and biotechnology industries, that the government and the public are
not receiving benefits commensurate with the federal contribution to the initial
research and development.
Actual experience and cited studies suggest that companies which do not control
the results of their investments — either through ownership of patent title, exclusive
license, or pricing decisions — tend to be less likely to engage in related R&D. The
importance of control over intellectual property is reinforced by the positive effect
P.L. 96-517 has had on the emergence of new technologies and techniques generated
by U.S. companies.
This report will be updated as events warrant.
Contents
In troduction ......................................................1
An Historical Perspective...........................................1
The Rationale.................................................1
The Patent System: A Brief Overview..............................3
University-Industry Cooperation..................................4
Small Business ...............................................5
Bayh-Dole and Related Law.........................................7
Provisions ....................................................7
Implementation and Results......................................8
Current Issues and Concerns........................................14
Recoupment .................................................15
Government Rights: Royalty Free Licenses and Reporting Requirements.17
University Research...........................................18
Biotechnology and Pharmaceuticals..............................23
Concluding Observations...........................................26
The Bayh-Dole Act: Selected Issues in
Patent Policy and the Commercialization of
Technology
Introduction
Congressional interest in facilitating U.S. technological innovation led to the
passage of P.L. 96-517, Amendments to the Patent and Trademark Act, commonly
referred to as the “Bayh-Dole Act” after its two main sponsors former Senators
Robert Dole and Birch Bayh. Under this 1980 law, as amended, title to inventions
made with government support is provided to the contractor if that contractor is a
small business, a university, or other non-profit institution. The legislation is
intended to use patent ownership as an incentive for private sector development and
commercialization of federally funded research and development (R&D). As a
response to congressional efforts to create a unified government patent policy
pertaining to inventions made with federal support, the Bayh-Dole Act promotes
cooperative activities among academia, small business, and industry leading to new
products and processes for the marketplace.
This paper discusses the rationale behind the passage of P.L. 96-517, its
provisions, and implementation of the law. Observers generally agree that the Bayh-
Dole Act has successfully met its objectives. However, some experts argue that the
issues associated with the law’s patent policies should be revisited given the current
R&D environment. Much of the renewed interest is a result of the legislation’s effect
on the biotechnology and pharmaceutical industries where critics assert that the
private sector is receiving benefits to the detriment of the public interest. Other
analysts, particularly in the defense arena, maintain that the existing rights
maintained by the government are too restrictive and prevent industry from meeting
national needs. Many of these issues and concerns are similar, if not identical to
those addressed during the 15 to 20 years of deliberation prior to enactment of the
law. These too will be explored to provide a context for current discussions.
An Historical Perspective
The Rationale
In the late 1970s, the United States Congress was involved in a series of
legislative debates over ways to promote private sector development and utilization
of federally funded research and development. This was soon followed by expanded
congressional interest in additional means to foster technological advancement and
commercialization in industry. During the 1980s and 1990s, various initiatives
resulted in laws designed to encourage increased innovation-related activities in the
business community and to remove barriers to technology development, thereby
permitting market forces to operate.1 Laws promoting cooperative R&D and/or joint
ventures involving the federal government, industry, and academia have been a
cornerstone of the majority of these efforts and include legislation that created a
system to transfer technology from federal laboratories to the private sector;
implemented tax incentives for collaborative work; instituted direct and indirect
government support for increased R&D; and changed government patent policy to
provide an economic inducement for commercialization of federally funded
technology, the subject of this report.
P.L. 96-517, the Bayh-Dole Act, was one of the first of these initiatives. Prior
to 1980, only 5% of government owned patents were ever used in the private sector
although a portion of the intellectual property portfolio had potential for further
development, application, and marketing. The Bayh-Dole Act was constructed, in
part, to address the low utilization rate of these federal patents. The House report to
accompany H.R. 6933 (the House counterpart to the Senate bill that eventually
became the Bayh-Dole Act) noted that, at the time the bill was considered, 26
different agency policies existed regarding the use of the results of federally funded
R&D. Generally the government retained title to inventions made with government
support whether the research was performed in federal laboratories, in universities,
or by individual companies. Licenses to use government patents were then
negotiated with firms either on a non-exclusive basis (meaning additional companies
could use the technology) or, more rarely, for the exclusive use by one manufacturer.
However, it was widely argued that without title (or at least an exclusive license) to
an invention and the protection it conveys, a company would not invest the
additional, and often substantial time and money necessary to commercialize a
product or process for the marketplace.
In 1980, the federal expenditure for research and development totaled $55.5
billion (in constant 2000 dollars).2 The money typically was used to support research
and development to meet the mission requirements of the federal departments and
agencies (e.g., defense, public health, environmental quality) or to finance work in
areas where there was an identified need for research, primarily basic research, not
being performed in the private sector. While the government’s investment led to
many new inventions that have profoundly influenced our society, many in Congress
were of the opinion that additional applications could be pursued by the private sector
if provided the proper incentives.
The intent of the new law was to replace this situation with a “single, uniform
national policy designed to cut down on bureaucracy and encourage private industry
to utilize government financed inventions through the commitment of the risk capital
1 For additional discussion see CRS Report RL33528, Industrial Competitiveness and
Technological Advancement: Debate Over Government Policy, by Wendy H. Schacht.
2 National Science Board, Science and Engineering Indicators — 2006, Washington,
National Science Foundation, A4-5.
necessary to develop such inventions to the point of commercial application.”3
Expanded technology commercialization was to be accomplished by employing the
patent system to augment collaboration between universities (as well as other
nonprofit institutions) and the business community to ensure that inventions are
brought to market. The Bayh-Dole Act also provides for the increased participation
of small firms in the national R&D enterprise under the assumption that these
companies tend to be more innovative than larger companies.
The Patent System: A Brief Overview
The patent system was created to promote invention and innovation. Article I,
Section 8, Clause 8 of the U.S. Constitution states: “The Congress Shall Have Power
...To promote the Progress of Science and useful Arts, by securing for limited Times
to Authors and Inventors the exclusive Right to their respective Writings and
Discoveries...” Patents are widely believed to encourage innovation by
simultaneously protecting the inventor and fostering competition. They provide the
inventor with a right to exclude others, temporarily, from use of the invention
without compensation. Patents give the owner an exclusive right for 20 years (from
date of filing) to further develop the idea, commercialize a product or process, and
potentially realize a return on the initial investment. Concurrently, the process of
obtaining a patent places the concept in the public arena. As a disclosure system, the
patent can, and often does, stimulate other firms or individuals to invent “around”
existing patents to provide for parallel technical developments or meet similar market
needs.4
Not everyone agrees that the patent system facilitates innovation. Critics argue
that patents provide a monopoly which induces additional social costs. Others assert
that the patent system is unnecessary due to market forces that already suffice to
create an optimal level of innovation. The desire to obtain a lead time advantage
over competitors, as well as the recognition that technologically backward firms lose
out to their rivals, may well provide sufficient inducement to invent without the need
for further incentives.5 Some commentators believe that the patent system
encourages industry concentration and presents a barrier to entry in some markets and
that cross licensing between companies can result in exploitation of other markets.6
Still other observers believe that the patent system too frequently attracts speculators
who prefer to acquire and enforce patents rather than engage in socially productive
activity.7
3 House Committee on the Judiciary, Report to Accompany H.R. 6933, 96th Cong., 2d Sess.,
H.Rept. 96-1307, Part 1, 3.
4 For more information see CRS Report RL32324, Federal R&D, Drug Discovery, and
Pricing: Insights from the NIH-University-Industry Relationship, by Wendy H. Schacht.
5 See Frederic M. Sherer, Industrial Market Structure and Economic Performance (1970),
6 See John R. Thomas, “Collusion and Collective Action in the Patent System: A Proposal
for Patent Bounties,” University of Illinois Law Review (2001), 305.
7 Ibid.
The importance of patents varies among industrial sectors. Patents are
perceived as critical in the drug and chemical industries in part because of the ease
of replicating the finished product. While it is expensive, complicated, and time
consuming to duplicate an airplane, it is relatively simple to chemically analyze a pill
and reproduce it.8 Studies have found that in many other industries the protection
offered by patents is diminished by the ability to invent around the patent and limited
by the disclosure of vital information in the patent itself.9 In the aircraft and
semiconductor industries, patents have not been the most successful mechanism for
capturing the benefits of investments. Instead, lead time and the strength of the
learning curve were determined to be more important.10 Later studies bear this out;
secrecy and lead time were deemed to have greater effect than patents in the
semiconductor and related equipment industry, as well as the aerospace and machine
tool industries, among others.11
Patents can provide an economic incentive for companies to pursue further
development and commercialization. Studies indicate that research funding accounts
for approximately one-quarter of the costs associated with bringing a new product to
market. According to The Economist, “A dollar’s worth of academic invention or
discover requires upwards of $10,000 of private capital to bring [it] to market.”12
Patent ownership is seen as a way to encourage the additional, and often substantial
investment necessary for new goods and services, particularly in the case of small
business. In an academic setting, the possession of title to inventions is expected to
provide motivation for the university to license the technology to the private sector
for commercialization in anticipation of royalty payments.
University-Industry Cooperation
Changes to the patent laws embodied in the Bayh-Dole Act had as an objective
the facilitation of collaborative ventures between and among academia, industry, and
government. In 1980, universities performed 14% of the R&D undertaken in the
United States (similar to today); much of this the fundamental research basic to
technological advance.13 The work is accomplished as part of the education process
8 Federic M. Scherer, “The Economics of Human Gene Patents,” 77 Academic Medicine,
December 2002, 1350.
9 Wesley M. Cohen, Richard R. Nelson, and John P. Walsh, Protecting Their Intellectual
Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not),
NBER, February 2000, available at [http://www.nber.org/papers/w7552].
10 Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, and Sidney G. Winter,
“Appropriating the Returns for Industrial Research and Development,” Brookings Papers
on Economic Activity, 1987, printed in The Economics of Technical Change, Edwin
Mansfield and Elizabeth Mansfield, eds., (Vermont, Edward Elgar Publishing Co., 1993),
11 Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S.
Manufacturing Firms Patent (or Not), Table 1.
12 “Innovation’s Golden Goose,” The Economist (US), December 14, 2002.
13 National Science Board, Science and Engineering Indicators — 2002, Washington,
(continued...)
and provides training for scientists, engineers, and managers subsequently employed
by the private sector.
Universities, however, generally do not have the means of production necessary
to take the results of research and generate marketable products. Such activities are
carried out by industry. Thus, the emphasis in the Bayh-Dole Act on the promotion
of cooperative efforts between academia and the business community. By providing
universities with intellectual property ownership with which to pursue and structure
collaborative ventures, the legislation is intended to encourage the two sectors to
work together to generate new goods, processes, and services for the marketplace.
Such joint work allows for shared costs, shared risks, shared facilities, and shared
expertise.
Prior to World War II, industry was the primary source of funding for basic
research in universities. This financial support helped shape priorities and build
relationships. However, after the war, the federal government supplanted the private
sector as the major financial contributor and became the principal determinant of the
type and direction of the research performed in academic institutions. This situation
oftentimes resulted in a disconnect between the university and industrial
communities. Because the private sector and not the government typically is
involved in commercialization, the difficulties in moving an idea from the research
stage to a marketable product or process appeared to have been compounded. Thus,
efforts to encourage increased collaboration between and among the sectors through
the Bayh-Dole Act were expected to augment the contribution of both parties to
technological advancement.
Small Business
Special consideration concerning patent title was given to small businesses in
part because of the role these companies were seen as playing in the generation of
new jobs and in technological advancement. Early research supported by several
federal agencies concluded that small, high technology companies are the source of
significant innovation. An often cited 1982 study financed by the Small Business
Administration determined that small firms were 2.4 times as innovative per
employees as large companies.14 Similar work performed at the time the legislation
was being considered found that firms of less than 1,000 employees were responsible
for more major innovations than large firms in the years 1953-1966 and for an equal
number from 1967-1973.15 A study of national and regional data by the Federal
Reserve Bank of Chicago concluded that “small firms — those with 20 or fewer
13 (...continued)
National Science Foundation, A4-9.
14 National Science Board, Science and Engineering Indicators — 1993, Washington,
National Science Foundation, 185.
15 National Science Board, Science Indicators — 1976, Washington, National Science
Foundation, 116.
employees — create a larger proportion of new jobs than their share of employment
in the economy and continue to create jobs even during recession.”16
However, certain caveats need to be stated particularly within the context of
small business, innovation, and technology development. Over the years, experts
have argued that the contribution of small firms to the economy is overstated. Marc
Levinson, writing in Dun’s Business Month during the 1980s, maintained that small
companies tended to produce fewer goods than larger ones because they are less
capital intensive and, on the whole, add less to the gross national product because
they offer lower salaries and often do not provide health insurance or pension plans.17
Professors Zoltan Acs and David Audretsch argued that the relationship between
company size and innovation capacity varied by industry.18 Others maintained that
there is no conclusive evidence that firm size affects the “success” of R&D.19
An important factor affecting the ability of small companies to effect
technological advance appears to be the relationship between these firms and large
corporations, a concept that is reflected in the provisions of the Bayh-Dole Act:
the corporate contribution and that of the innovative entrepreneur are
characteristically very different from one another and characteristically play
complementary roles. Moreover, the contribution of the two together is
superadditive, that is, the combined result is greater than the sum of their20
individual contributions.
A study by the National Academy of Engineering concluded that “small high-tech
companies play a critical and diverse role in creating new products and services, in
developing new industries, and in driving technological change and growth in the
U.S. economy.”21 The reasons for this include the ability of these firms to rapidly
develop markets, generate new goods and services and offer product diversity. Small
businesses tend to be willing to take those technological risks that are not pursued by
large firms and may be in a position to quickly exploit market opportunities. In
specific cases, experts note, “an innovative disadvantage of large firms is an
16 Eleanor H. Erdevig, “Small Business, Big Job Growth,” Chicago Economic Perspectives,
November-December 1986, 22.
17 Marc Levinson, “Small Business: Myth and Reality,” Dun’s Business Month, September
18 Zoltan J. Acs and David B. Audretsch, Innovation and Small Firms (Cambridge: The MIT
Press, 1990), 50-51.
19 Charles Brown, James Hamilton, and James Medoff, Employers Large and Small,
(Cambridge: Harvard University Press, 1990), 10.
20 William J. Baumol, Education for Innovation: Entrepreneurial Breakthroughs vs.
Corporate Incremental Improvements, NBER, June 2004, 2-3, available at
[http://www.nber.org/ papers/10578].
21 National Academy of Engineering, Risk & Innovation, The Role and Importance of Small
High-Tech Companies in the U.S. Economy (Washington: National Academy Press, 1995),
innovative advantage for small firms, and vice versa, which can make collaboration
between two firms of different size desirable for both parties.”22
Bayh-Dole and Related Law
Provisions
In enacting P.L. 96-517, the Congress accepted the proposition that vesting title
to the contractor will encourage commercialization and that this should be used to
support innovation in certain identified sectors. The law states:
It is the policy and objective of the Congress to use the patent system to promote
the utilization of inventions arising from federally-supported research or
development; ...to promote collaboration between commercial concerns and
nonprofit organizations, including universities; ...to promote the
commercialization and public availability of inventions made in the United States
by United States industry and labor; [and] to ensure that the Government obtains
sufficient rights in federally-supported inventions to meet the needs of the
Government and protect the public against nonuse or unreasonable use of23
inventions....
Each nonprofit organization (including universities) or small business is
permitted to elect (within a reasonable time) to retain title to any “subject invention”
made under federally funded R&D; except under “exceptional circumstances when
it is determined by the agency that restriction or elimination of the right to retain title
to any subject invention will better promote the policy and objectives of this
chapter.”24 The institution must commit to commercialization within a
predetermined, agreed upon, time frame. As stated in the House report to accompany
the bill, “the legislation establishes a presumption [emphasis added] that ownership
of all patent rights in government funded research will vest in any contractor who is
a nonprofit research institution or a small business.”25
Certain rights are reserved for the government to protect the public’s interests.
The government retains “a nonexclusive, nontransferable, irrevocable, paid-up
license to practice or have practiced for or on behalf of the United States any subject
invention throughout the world....” The government also retains “march-in rights”
which enable the federal agency to require the contractor (whether he owns the title
or has an exclusive license) to “grant a nonexclusive, partially exclusive, or exclusive
license in any field of use to a responsible applicant or applicants....” (with due
compensation) or to grant a license itself under certain circumstances. The special
22 David R. King, Jeffrey G. Covin, W. Harvey Hegarty, “Complementary Resources and
the Exploitation of Technological Innovations,” Journal of Management, August 1, 2003,
23 P.L. 96-517, sec. 200.
24 Ibid.
25 Report to Accompany H.R. 6933, 5.
situation necessary to trigger march-in rights involves a determination that the
contractor has not made efforts to commercialize within an agreed upon time frame
or that the “action is necessary to alleviate health or safety needs which are not
reasonably satisfied by the contractor....”26
The government is “authorized” to withhold public disclosure of information
for a “reasonable time” until a patent application can be made. Licensing by any
contractor retaining title under this act is restricted to companies which will
manufacture substantially within the United States. Initially, universities were
limited in the time they could grant exclusive licenses for patents derived from
government sponsored R&D to large companies (5 of the then 17 years of the patent).
This restriction, however, was voided by P.L. 98-620, the Trademark Clarification
Act of 1984. According to S.Rept. 98-662, extending the time frame for licensing
to large firms “is particularly important with technologies such as pharmaceuticals,
where long development times and major investments are usually required prior to
commercializ ation.”27
Most experts continue to argue that patent exclusivity is important for both large
and small firms. In a February 1983 memorandum concerning the vesting of title to
inventions made under federal funding, then President Ronald Reagan ordered all
agencies to treat, as allowable by law, all contractors regardless of size the same as
prescribed in P.L. 96-517. This, however, does not have a legislative basis. P.L. 98-
620, noted above, further amended Bayh-Dole by loosening the time limitations for
both disclosure of an invention to the government agency and for the amount of time
provided within which to elect to take title. Nonprofit institutions were subsequently
permitted to assign title rights to another organization (e.g., one which markets
technology) and government-owned, contractor-operated laboratories (primarily
those of the Department of Energy) run by nonprofits were permitted to retain title
to inventions made in the facility with the exception of those dedicated to naval
nuclear propulsion or weapons development. In addition, the Federal Technology
Transfer Act (P.L. 99-502) allows firms regardless of size to be awarded patents
generated under a cooperative research and development agreement (CRADA) with
a federal laboratory.28
Implementation and Results
The Bayh-Dole Act appears to have met its expressed goals of using “the patent
system to promote the utilization of inventions arising from federally-supported
research or development; ... and to promote collaboration between commercial
concerns and nonprofit organizations, including universities....”29 In one of the
earliest studies of the legislation, the General Accounting Office (now the
26 P.L. 96-517, sec. 203.
27 Senate Committee on the Judiciary, Report to Accompany S. 2171, 98th Cong., 2d Sess.
S.Rept. 98-662, 1984, 3.
28 For additional discussion see Industrial Competitiveness and Technological Advancement:
Debate Over Government Policy.
29 P.L. 96-517, sec. 200.
Government Accountability Office, GAO) found agreement among university
administrators and small business representatives that P.L. 96-517 had “a significant
impact on their research and innovation efforts.”30 While noting it was not correct
to generalize about academia from the 25 universities studied, GAO did find that by
1987 all university administrators questioned indicated that the Bayh-Dole Act had
“been significant in stimulating business sponsorship of university research, which
has grown 74 percent...” from FY1980 to FY1985.31 According to the National
Science Foundation (NSF), industry support for academic research grew faster than
any other funding source until FY2002. Industry financing expanded from 3.9% of
university R&D in 1980 to 7.2% in 2000, although by FY2006 industry support had
dropped to 5.1% of academic R&D. In 1980, federal financing comprised 67.5% of
the total academic undertaking; by 2000 federal support declined to 58.2% of
university funding, yet increasing to 62.9% in FY2006.32 It should be noted,
however, that the federal government still remains the major source of academic
research funding.
The majority of the university personnel involved in the GAO study indicated
that the increase in industry support for research at universities was “directly”
attributed to the patent changes in P.L. 96-517 and P.L. 98-620. Academic faculty
interviews conducted by GAO found that “since businesses knew that universities
could take title to federally funded inventions, they no longer were concerned that
their research efforts could be ‘contaminated’ by federal funding with the possibility
that a federal agency could assert title rights to resulting inventions.”33 All
respondents agreed that the removal of licensing restrictions on nonprofit institutions
(including universities) by P.L. 98-620 was of vital importance in promoting
industry-university interaction.34 This was reinforced by the finding that 9 out of 10
business executives questioned identified the Bayh-Dole Act as an “important factor”
in their decisions to fund R&D in academia.35
Another GAO study published in May of 1998 reported that agency and
university representatives believed the Bayh-Dole Act was meeting its goals as
articulated by the Congress and the law had a positive impact on all involved.
Academia was “receiving greater benefits from their inventions and were transferring
30 U.S. General Accounting Office, Patent Policy: Recent Changes in Federal Law
Considered Beneficial, RCED-87-44, April 1987, 3.
31 Ibid., 3.
32 National Science Foundation, “Changes in Federal and Non-Federal Support for
Academic R&D Over the Past Three Decades,” InfoBrief, June 2002 available at
[http://www.nsf.gov], National Science Foundation, “National Patterns of R&D Resources:
and National Science Foundation, “Universities Report Stalled Growth in Federal R&D
Funding in FY2006,” InfoBrief, September 2007, available at [http://www.nsf.gov/statistics/
infbrief/nsf07336/nsf07336.pdf].
33 Patent Policy: Recent Changes in Federal Law Considered Beneficial, 20-21.
34 Ibid., 16.
35 Ibid., 23.
technology better than the government did when it retained title to inventions.”36 In
addition, the report states that the increased commercialization of federally funded
research that resulted from the implementation of the act positively affected both the
federal government and the American people.37
Other experts agree. Yale President Richard Levin argued that the purpose of
the Bayh-Dole Act is to transition the results of government funded research “into
practice for the benefit of humanity...” and that results indicate a “pretty emphatic
positive answer that the Bayh-Dole Act has created public benefits” with minimal
costs.38 As stated in an article in The Economist, the Bayh-Dole Act is “[p]robably
the most inspired piece of legislation to be enacted in America over the past half-
century....”39
One of the major factors in the reported success of the Bayh-Dole Act is the
certainty it conveys concerning ownership of intellectual property. The Director of
Stanford University’s Office of Technology Licensing, Katherine Ku, noted that
exclusivity is what motivates firms to invest financial and human resources in
technology development.40 It provides an incentive for universities to take the time
and effort to pursue a patent and to license those patents in its portfolio. This has led
to a significant increase in academic patenting. In 1980, 390 patents were awarded
to universities;41 by 2005, this number increased to 2,725.42
Academia has become a major source of innovation for local and regional
economic development. In the latest published survey (FY2006) performed by the
Association of University Technology Managers (AUTM), universities identified 697
new products that were marketed that year based on academic R&D. In addition, the
survey indicated that during FY2006 more than 553 new companies were created to
commercialize university research, 4,963 new licenses/options were granted, with
small businesses primarily responsible for the commercialization. Since 1980, more
36 U.S. General Accounting Office, Technology Transfer: Administration of the Bayh-Dole
Act by Research Universities, RCED-98-126, May 1998, 2.
37 Ibid., 15.
38 National Academy of Sciences, Board on Science, Technology, and Economic Policy,
Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, April 17, 2001 [transcript], 261-262 available at
[http://www.nas.edu].
39 Innovation’s Golden Goose
40 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, 9.
41 Science and Engineering Indicators — 1993, 430.
42 U.S. Patent and Trademark Office, Utility Patents Assigned to U.S. Colleges and
Universities, available at [http://www.uspto.gov/web/offices/ac/ido/oeip/taf/univ/asgn/table_
than 5,724 new companies have been established to develop and market academic
R&D.43
Many of the start-up businesses created from university R&D were associated
with just seven schools including the Massachusetts Institute of Technology (MIT),
the University of California, California Tech, the University of Minnesota, the Johns
Hopkins University, the University of Utah, and the University of Virginia.44 While
only a few universities earn large returns from licensing,45 studies indicated that
licensing by the University of California system generates $91 million in net
licensing income annually with Columbia University receiving approximately $80
million and Florida State University $45 million.46 During FY2004, the Association
of University Technology Managers found that $1.4 billion in royalties were
generated from 11,414 university licenses.47
However, several analysts argue that “Bayh-Dole was only one of a number of
important factors behind the rise of university patenting and licensing activity.”48 In
a study of the technology transfer and patenting activities of the University of
California, Stanford University, and Columbia University, Professor David Mowery
and his colleagues concluded that increased federal funding for basic biomedical
research, expanded research in biotechnology, specific court rulings, and government
policies augmenting what can be patented all contributed to the rise in academic
intellectual property activities. According to their assessment, the Bayh-Dole Act
had “little impact on the content of academic research.” The pursuit of patenting and
licensing at universities has expanded because of changes in biomedical and
biotechnology R&D, not because of the act.49 Later work by Professor Mowery
follows this approach, arguing that “the emphasis on the Bayh-Dole Act as a catalyst
to these interactions [increased university-industry cooperation and technology
transfer] also seems somewhat misplaced, ignoring as it does the long history,
43 Association of University Technology Managers, U.S. AUTM Licensing Survey: FY2006,
available at [http://www.autm.net/events/file/AUTM_06_US%20LSS_FNL.pdf].
44 Goldie Blumenstyk, “Income From University Licenses on Patents Exceeded $1-Billion,”
The Chronicle of Higher Education, March 22, 2002.
45 Harun Bulut and GianCarlo Moschini, U.S. Universities’ Net Returns from Patenting and
Licensing: A Quantile Regression Analysis, Iowa State University Working Paper-06-WP
46 Gregory K. Sobolski, John H. Barton, Ezekiel J. Emanuel, “Technology Licensing,
Lessons From the US Experience,” Journal of the American Medical Association, December
47 Association of University Technology Managers, AUTM Licensing Survey: FY2004,
available at [http://www.autm.net/about/dsp.pubDetail2.cfm?pid=28].
48 David C. Mowery, Richard R. Nelson, Bhaven N. Sampat, and Arvids A. Ziedonis, “The
Growth of Patenting and Licensing by U.S. Universities: An Assessment of the Effects of
the Bayh-Dole Act of 1980,” Research Policy 30, 2001, 99.
49 Ibid., 100.
extending to at least the earliest decades of the 20th century, of collaboration and
knowledge flows between universities and industry in the United States.”50
Other experts criticize this assessment and point out that the act had the most
significant impact on universities that were not actively engaged in patenting prior
to its passage.51 Proponents of this position argue that as a result of the Bayh-Dole
Act, in part, “university patenting increased particularly rapidly during the second
half of the 1980s and early 1990s.”52 This growth in patenting has been concentrated
in “middle-tier” schools, not just the top research universities.53 Researchers who
take this position suggest that the Mowery et al. study focused solely on universities
that were previously involved in patenting and licensing and may not have fully
considered patent problems that existed before the legislation was implemented.
According to critics of the study, the analysts also failed to take into account changes
in the venture capital industry that promoted the development of start-up companies
to commercialize the results of university R&D.54
Other research questions the effect of increased university licensing on U.S.
innovation. A study by Bhavan Sampat suggests that while the Bayh-Dole Act
augmented patent and licensing by universities, these activities are just “...one of
many channels through which universities make economic contributions and in most
industries less important contributions than those made by placing scientific and
technological information in the public domain.”55 This author’s work indicates that
“...there is little evidence that increased university patenting and licensing has
facilitated increased technology transfer or any meaningful growth in the economic
contributions of universities.”56
However, commentators argue that the provisions of the Bayh-Dole Act provide
incentives to take university inventions and develop them into products for the
50 David C. Mowery, The Bayh-Dole Act and High-Technology Entrepreneurship in U.S.
Universities: Chicken, Egg, or Something Else?, paper prepared for the Eller Center
conference on “Entrepreneurship Education and Technology Transfer,” University of
Arizona, January 21-22, 2005, available at [http://entrepreneurship.eller.arizona.edu/docs/
conferences/2005/colloquium/D_Mowery.pdf].
51 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, 17.
52 Science and Engineering Indicators — 1993, 152.
53 Ibid., 152 and Workshop on Academic IP: Effects of University Patenting and Licensing
on Commercialization and Research, 57-58.
54 Ashley J. Stevens, “Is Bayh-Dole Under Siege Again?” Technology Access Report, July
Patterns of Growth for Low- and Middle-Level Performers,” Higher Education, January
55 Bhavan N. Sampat, “Patenting and US Academic Research in the 20th Century: The World
Before and After Bayh-Dole,” Research Policy, July 2006, 773.
56 Ibid, 773.
marketplace.57 University technology generally is in the early stage and not yet ready
for commercialization, requiring additional funding and the involvement of faculty
to move the idea into a marketable product.58 While most universities do not receive
large amounts of funds as a result of licensing their technologies, it
is clear from the evidence...that faculty involvement in the further development
of university technologies is an important element in getting those technologies
to market. Mechanisms to ensure such efforts are an important element of
commercialization regardless of whether those mechanisms included licensing59
by universities.
In addition, Professor Scott Shane observes:
Because universities exploit their inventions primarily through the licensing of
technology, and licensing is not equally effective across all technologies...the
incentive to become more commercially focused led universities to concentrate
their patenting in fields in which knowledge is transferred effectively through60
licensing.
While the effects of the Bayh-Dole Act on the small business sector have not
been as extensively studied, the results appear similar. All eight small business
owners interviewed by GAO for its 1987 study indicated that the patent changes had
a significant beneficial effect on research, development, and innovation in their
firms.61 Perhaps most illustrative of the influence of the Bayh-Dole Act on small
business is the biotechnology industry. According to Dr. Bernadine Healy, the
former Director of the National Institutes of Health (NIH), P.L. 96-517 was
responsible for the development and growth of the biotechnology sector.62 The
biotechnology industry primarily is composed of small firms that are developing
technologies and techniques derived from R&D funded by NIH. Many of these
companies have been established by NIH alumni or university professors previously
supported by NIH grants. In Senate testimony delivered on August 1, 2001, Dr.
Marie Freire, then Director of the Office of Technology Transfer at NIH, stated that
“[i]t is widely recognized that the Bayh-Dole Act and the Federal Technology
Transfer Act continue to contribute to the global leadership of the U.S. biomedical
enterprise....” An industry that was in its infancy when the Bayh-Dole Act was
passed, by the end of 2005 1,415 biotechnology firms generated annual sales of $32.1
57 Marie Thursby, Jerry Thursby, and Emmanuel Dechenaux, Shirking, Shelving, and
Sharing Risk: The Role of University License Contracts, April 9, 2004, National Bureau of
Economic Research, available at [http://www.nber.org/~confer/2004/entf04/thursby.pdf].
58 Jerry G. Thursby and Marie C. Thursby, University Licensing Under Bayh-Dole: What
are the Issues and Evidence?, May 2003, available at
[http://opensource.mit.edu/papers/T hursby.pdf].
59 Ibid.
60 Scott Shane, “Encouraging University Entrepreneurship? The Effect of the Bayh-Dole Act
on University Patenting in the United States,” Journal of Business Venturing 19, 2004, 128.
61 Patent Policy: Recent Changes in Federal Law Considered Beneficial, 4.
62 House Committee on the Judiciary, Biotechnology Development and Patent Law, 102d
Cong., 1st Sess., November 20, 1991, 48.
billion.63 The number of U.S. biotechnology patents granted has increased from 619
in 1985 to 5,194 in 2006.64
The value of the Bayh-Dole Act might be reflected in state efforts to promote
industry-university cooperation based on the contributions of these activities to local
economic growth. As Mark Myers, retired Senior Vice-President of Xerox, told a
meeting of the National Academy of Sciences, “[t]he role of the research university
is growing ever important as an economic force in our economy....”65 In a report for
the Biotechnology Industry Organization (BIO), analysts found that there are
biotechnology-related initiatives in 40 states, including many that involve cooperative
efforts between academia and the private sector. Between 2000 and 2004, 19 states
had developed specific bioscience strategic plans. Twenty-six states have at least one
seed or venture capital program to invest in small firms undertaking work in
bioscience. State laws also have been changed to allow universities to become equity
partners in start up firms designed to commercialize academic R&D.66
Current Issues and Concerns
While the Bayh-Dole Act provides a general framework to promote expanded
utilization of the results of federally funded research and development, questions
have been raised as to the adequacy of current arrangements. Most experts agree that
closer cooperation among government, industry, and academia can augment funding
sources (both in the private and public sectors), increase technology transfer,
stimulate more innovation (beyond invention), lead to new products and processes,
and expand markets. However, others point out that cooperation may provide an
increased opportunity for conflict of interest, redirection of research, less openness
in sharing of scientific discovery, and a greater emphasis on applied rather than basic
research.
The successes of the Bayh-Dole Act and the visibility of the results of its
implementation have generated certain concerns, many of which are associated with
the role of the university in research, as well as biomedical and biotechnology R&D,
particularly as related to the availability and cost of pharmaceuticals. Several of
these issues are discussed below. However, it is important to place the Bayh-Dole
Act in context. The law is one significant factor in expanded industry, university,
small business collaboration, but not the only one. Therefore, it may be difficult to
63 Biotechnology Industry Organization, Biotechnology Industry Facts, available at
[http://www.bio.org/ speeches/pubs/er/statistics.asp].
64 National Science Foundation, Science and Engineering Indicators, 2008, Appendix tables
and [http://www.nsf.gov/statistics/seind08/append/c6/at06-49pdf].
65 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, 255.
66 Battelle Technology Partnership Practice and SSTI, Laboratories of Innovation: State
Bioscience Initiatives 2004, June 2004, 27-29, available at [http://www.mdbio.org/pdf/
reports/2004_bioscience_initiatives.pdf?MDBIOSESSION=].
assess what concerns are the direct result of the Bayh-Dole Act and which arise from
the overall research environment. The rising costs associated with the performance
of research and development, the availability of venture capital, increased R&D
outsourcing by large firms, and expanded federal funding for biomedical research all
contribute to increased interaction among the parties. Additional legislative
initiatives including the research and experimentation tax credit, the National
Cooperative Research Act, the small business technology transfer program, the
advanced technology program, and cooperative R&D agreements established by the
Stevenson-Wydler Technology Innovation Act all facilitate joint R&D activities
leading to the commercialization of new technologies for the marketplace.67
Recoupment
Over the years, several legislators have suggested that the government “recoup”
its investments from firms using federally supported research and development after
profits are generated. This is particularly true in the area of pharmaceuticals.68 Such
arguments are similar to those that were identified and considered as part of the
original legislative debate over patent policy and cooperative R&D. The concept of
recoupment is based upon the argument that the government should be reimbursed
for research and development expenses provided to a contractor if the resulting
product is brought to the market and generates profits. Proponents of this approach
also maintained that providing the contractor with a limited time monopoly on the
results of federally funded R&D through assignment of patent rights should be
balanced by compensation for the government’s initial investment. In the debate
over related legislation, then-Senator Robert Dole stated on the floor of the Senate
on April 23, 1980, the provision for recoupment was intended to insure that “the
Government’s investment, paid for by the taxpayers of this country, is returned to the
Federal coffer.”69 During the same debate, Senator Birch Bayh argued that a
payback provision means that, “in the final analysis, the taxpayer will not be out the
cost of the research and they also will have the benefit of the product.”70
Such suggestions are based on several factors. In addition to funding research
performed by individual companies, under certain circumstances, the government
furnishes the private sector ownership of the intellectual property resulting from this
public investment. Patent protection gives firms monopoly rights on these
innovations for a specified amount of time. By providing patent protection to the
results of federally-funded research, a company receives an individual benefit based
upon public investments. Thus, proponents of recoupment assert that the monopoly
67 For additional information see CRS Report RL33526, Cooperative R&D: Federal Efforts
to Promote Industrial Competitiveness, by Wendy H. Schacht, and CRS Report RL33528,
Industrial Competitiveness and Technology Advancement: Debate Over Government Policy,
by Wendy H. Schacht.
68 For a more detailed discussion of this issue in the pharmaceutical arena see CRS Report
RL32324, Federal R&D, Drug Discover, and Pricing: Insights from the NIH-University-
Industry Relationship, by Wendy H. Schacht.
69 U.S. Congress, Congressional Record, April 23, 1980, S739.
70 Ibid, S743.
power of patents should be modified by this “public subsidization” They contend
that the public has a right to a return on its investment. However, it is argued that
“this right is not preserved under the patent system, which ascribes solely to the
patent holder all proprietary rights and interests in the patented product or process.”71
To date, Congress has weighed these issues and decided that, in the case of
patent and technology policies, the benefits to the Nation brought about by increased
innovation are paramount. The passage of the Bayh-Dole Act represented a
determination that, with respect to certain types of organizations, the economic
incentive to realize a return on investment provided by a patent is necessary to
stimulate companies to provide the often substantial financial commitment to turn
federally-funded R&D into marketable technologies and techniques. This is
suggestive of the idea that the promise of a large return on investment “is precisely
the tool sanctioned by the Constitution to promote the progress of science.”72 The
decision was based on several determinations deriving from the rationale for federal
support of basic research, the importance of technological progress to the Nation, and
the critical role of private sector commercialization in technological advancement.
Federal support for basic research is founded, in large part, on the understanding
that the rate of return to society as a whole generated by investments in research is
significantly larger than the benefits that can be captured by any one firm performing
it.73 It has been estimated that the returns to society generated by investments in
basic research are approximately twice those to the company performing the work.
Government support reflects a consensus that basic research is the foundation for
many innovations, but that incentives for private sector financial commitments are
dampened by the fact that spending for R&D runs a high risk of failure. Even results
of fruitful R&D often are exploited by other domestic and foreign companies, thus
resulting in underinvestment in research by the private sector. The returns from basic
research are generally long term, sometimes not marketable, and not always evident.
It is now widely accepted that “from one-third to one-half of all [U.S.] growth
has come from technical progress, and that it is the principal driving force for long-
term economic growth and the increased standards of living of modern industrial
societies.”74 Technological advancement can clearly contribute to the resolution of
those national problems which are amenable to technological solutions. Such
progress is achieved through innovation, the process by which industry provides new
and improved products, processes, and services. An invention becomes an
71 Steven R. Salbu, “Aids and Drug Pricing: In Search of a Policy,” Washington University
Law Quarterly, Fall 1993, 5-20.
72 Evan Ackiron, “Patents for Critical Pharmaceuticals: The AZT Case,” American Journal
of Law and Medicine, 1991, 18.
73 Edwin Mansfield, “Social Returns From R&D: Findings, Methods, and Limitations,”
Research/Technology Management, November-December 1991, 24.
74 Gregory Tassey, The Economics of R&D Policy (Connecticut: Quorum Books, 1997), 54.
See also: Edwin Mansfield, “Intellectual Property Rights, Technological Change, and
Economic Growth,” in: Intellectual Property Rights and Capital Formation in the Next
Decade, eds. Charls E. Walker and Mark A. Bloomfield (New York: University Press of
America, 1988), 5.
innovation when it has been integrated into the economy such that the knowledge
created results in a new or improved good or service that can be sold in the
marketplace or is applied to production to increase productivity and quality. It is only
through commercialization, a function of the business sector, that a significant
stimulus to economic growth occurs. Thus, there is congressional interest in
accelerating development and commercialization activities in the private sector
through the Bayh-Dole Act as well as other legislation.
Actual experience and cited studies suggest that companies which do not control
the results of their investments — either through ownership of patent title, exclusive
license, or pricing decisions — tend to be less likely to engage in related R&D. This
likelihood is reflected in the provisions of the Bayh-Dole Act (as well as other laws).
Providing universities, nonprofit institutions, and small businesses with title to
patents arising from federally-funded R&D offers an incentive for cooperative work
and commercial application. Royalties derived from intellectual property rights
provide the academic community an alternative way to support further research and
the business sector a means to obtain a return on their financial contribution to the
endeavor. While the idea of recoupment was considered by the Congress in hearings
on the legislation, it was rejected as an unnecessary obstacle, one which would be
perceived as an additional burden to working with the government. It was thought
to be particularly difficult to administer.75 Instead, Congress accepted as satisfactory
the anticipated payback to the country through increased revenues from taxes on
profits, new jobs created, improved productivity, and economic growth. For
example, from 1980, when the Bayh-Dole Act was passed, through 2006, 5,724 new
spin-off companies were created, and, in 2006 alone, 697 new products were
introduced into the market by these firms.76 The emergence of the biotechnology
industry and the development of new therapeutics to improve health care are other
prominent indications of such benefits. To date, these benefits have been considered
more important than the initial cost of the technology to the government or any
potential unfair advantage.
Government Rights: Royalty Free Licenses and Reporting
Requirements
As discussed above, the government retains certain rights under the Bayh-Dole
Act to protect the public interest. The act states that the government is provided a
“nonexclusive, nontransferable, irrevocable, paid-up license to practice or have
practiced for or on behalf of the United States any subject invention throughout the
world....” This license, commonly known as a “royalty free license,” has been the
subject of some discussion including whether or not this permits government
purchasers to obtain discounts on products developed from federally funded R&D,
75 For example see U.S. House of Representatives, Committee on Science and Technology,
Government Patent Policy, Hearings, September 23, 27, 28, 29, and October 1, 1976, 94thnd
Cong. 2 sess., 1976; United States Senate, Select Committee on Small Business,thst
Government Patent Policies, Hearings, December 19, 20, and 21, 1977, 95 Cong. 1 sess.,
Policy, Hearings, July 23 and 27, and October 25, 1979, 96 Cong. 1 sess., 1979.
76 U.S. AUTM. Licensing Survey: FY2006, 5.
particularly pharmaceuticals. A July 2003 GAO report addressed this issue and
concluded that the license entitles the government to practice or have practiced the
invention on the government’s behalf, but “does not give the federal government the
far broader right to purchase, ‘off the shelf’ and royalty free (i.e. at a discounted
price), products that happen to incorporate a federally funded invention when they
are not produced under the government’s license.”77 The study goes on to say that
rights in one patent do not “automatically” permit rights in subsequent, related
patents.78 Because the government apparently holds few licenses on the biomedical
products it purchases (generally through the Veteran’s Administration and the
Department of Defense),79 federal officials indicated that procurement costs were best
reduced by use of the Federal Supply Schedule and national contracts.80 Government
licenses are used primarily in the performance of research in the biomedical area.81
A related issue is that of tracking the government’s interest in patents resulting
from federally funded research and development. In an August 1999 study, GAO
noted that federal contractors and grantees were not meeting the reporting
requirements associated with the Bayh-Dole Act, making it difficult to identify and
assess what licenses the government retained, among other things.82 Two years later,
in a follow-up report, GAO stated that four of the five agencies had taken steps to
insure improved compliance with the law including several new monitoring systems,
although more needed to be done.83 Of particular interest is iEdison, created by the
NIH, which electronically tracks federal inventions and is used by other agencies in
addition to NIH.84
University Research
A question often posed is whether or not patent ownership rights provided by
P.L. 96-517 have interfered with the traditional operating procedures of academia.
A fear is that private sector funding of university R&D has led to conflicts of interest
by scientists performing the research, particularly when academics have equity
positions in the relevant companies. There are concerns that industry agendas will
distort or supplant the basic research and educational responsibilities of academia.
Complaints have also been expressed that the free exchange of ideas and scientific
77 General Accounting Office, Technology Transfer: Agencies’ Rights to Federally
Sponsored Biomedical Inventions, GAO-03-536, July 2003, 7.
78 Ibid., 8.
79 Ibid., 8.
80 Ibid., 12.
81 Ibid., 10.
82 General Accounting Office, Technology Transfer: Reporting Requirements for Federally
Sponsored Inventions Need Revision, August 1999, GAO/RCED-99-242, 2.
83 General Accounting Office, Intellectual Property: Federal Agency Efforts in Transferring
and Reporting New Technology, October 2002, GAO-03-47, 29.
84 Ibid., 33.
discovery are constrained as a result of both the university and the business
community’s interest in protecting their competitive positions.
The issue of conflict of interest is a complex one particularly when trying to
determine what direct role the Bayh-Dole Act has in generating such concerns and
what are the results of other factors that have lead to increased industrial funding of
university research. As noted above, laws that provide tax incentives for private
sector financing of university basic research and facilitate technology transfer and
cooperative R&D among government, industry, and academia, as well as changes in
the way companies obtain the basic research necessary for product development
shape the environment within which academic research is pursued. Thus, as argued
by Katherine Ku, it is necessary to evaluate criticisms of the Bayh-Dole Act and to
understand that the success of the law has made many in government uncomfortable
despite the clear guidelines for technology transfer it established.85
Senior Research Scholar Mildred Cho and her coauthors assert that the Bayh-
Dole Act:
has created opportunities for conflict of interest for university faculty members
because academic-industry partnerships can offer direct financial rewards to
individual faculty members in the form of consulting fees, royalties, and equity86
in companies while simultaneously funding these faculty members’ research.
This, it is argued, has resulted in situations where the researcher’s ties to private
sector interests may not be evident and may adversely affect “the quality, outcome,
and dissemination of research.”87 Other studies indicate that obligations to industry88
“pose a threat to scientific integrity.” Some commentators maintain that private
sector funded research tends to generate conclusions favorable to industry; however,
the factor that is primarily associated with the withholding or delay of information
is the involvement of the scientist in bringing his research to market in a product, not89
the industrial financing itself.
Data collected by Professor David Blumenthal and his colleagues also support
the assessment that involvement in commercialization activities is related to delays90
in publication. This study indicated that approximately 20% of life science
85 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, 98, 100-101.
86 Mildred K. Cho, Ryo Shohara, Anna Schissel, and Drummond Rennie, “Policies on
Faculty Conflicts of Interest at U.S. Universities,” Journal of the American Medical
Association, November 1, 2000.
87 Ibid.
88 Justin E. Bekelman, Yan Li, and Cary P. Gross, “Scope and Impact of Financial Conflicts
of Interest in Biomedical Research: A Systematic Review,” Journal of the American
Medical Association, January 22/January 29, 2003.
89 Ibid.
90 David Blumenthal, Eric G. Campbell, Melissa S. Anderson, Nancyanne Causino, and
(continued...)
researchers delayed publication of their studies more than six months at least once
for reasons associated with patents and commercialization considerations. Almost
9% of faculty refused to share research or materials with other university scientists
in the past three years. However, the authors conclude that “withholding of research
results is not a widespread phenomenon among life-science researchers.”91 A survey
of industry-university research centers by Professor Wesley Cohen and his colleagues
found that over half of the centers permitted firms to request publication delays and
At those centers with a mission to improve industrial products and processes, 63%
allowed publication delays and 54% permitted the deletion of information.92
Delays in publication and the free flow of information from academia, according
to Professor Richard Florida, “may well discourage or even impede the advancement
of knowledge, which retards the efficient pursuit of scientific progress, in turn
slowing innovation in industry.”93 Professor Florida also points to concerns over the
increasing number of academic institutions taking equity positions in and/or
incubating spin-off companies. These actions “simply tend to distract the university
from its core missions of conducting research and generating talent.” Florida
concludes that publication delays and greater secrecy in the research process resulting
from implementation of the Bayh-Dole Act have shifted the university away from the
pursuit of its traditional goals.
Other experts, including Robert Barchi, Provost of the University of
Pennsylvania, maintain that the Bayh-Dole Act has not generated a significant set of
issues concerning conflicts of interest and publication delays primarily because of the
importance of academic freedom to the faculty.94 Publications are the basis for
promotion and tenure and methods to respect reasonable intellectual property
protection have been established. Similarly, as noted by Professor Pam Samuelson,
conflicts of interest would jeopardize tenure thus regulations are in place to instruct
faculty what is required of them.95 Research conducted by Professors Pierre Azoulay,
Waverly Ding, and Toby Stuart indicates that
90 (...continued)
Karen Seashore Louis, “Withholding Research Results in Academic Life,” Journal of the
American Medical Association, April 16, 1997, 1224.
91 Ibid., 1224
92 Wesley M. Cohen, Richard Florida, Lucien Randazzese, and John Walsh, “Industry and
the Academy: Uneasy Partners in the Cause of Technological Advance,” in: Challenges to
Research Universities, eds. Linda R. Cohen, Wesley Cohen, Roger Noll, William Rogerson,
and Albert Teich (Washington: The Brookings Press, 1998), 188-189.
93 Richard Florida, “The Role of the University: Leveraging Talent, Not Technology,” Issues
in Science and Technology, Summer 1999.
94 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research,19-20.
95 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, 193.
patenting is often accompanied by a flurry of publication activity ... academic
scientists who patent are more productive than otherwise equivalent scientists
that are not listed as inventors on patents, but that publication quality appears96
relatively similar in the two groups.
In response to these issues, many universities have hired professional technology
managers to work with faculty and to address patents. Universities with extensive
research capabilities and resources were the first to create offices of technology
transfer; after passage of the Bayh-Dole Act these offices were established with much
greater frequency.97 These university technology transfer offices have established
guidelines to cover industry-university relationships, with education and publication
remaining academic priorities.98 The financial rewards derived from patenting often
are only a small portion of the total amount of R&D funding for academic institutions
and what substantial money does flow into individual institutions tends to be the
result of one “blockbuster” patent. University technology managers report that the
major reason for patent licensing is commercialization, not profit, particularly since99
the cost of a patent, which can run approximately $10,000, is so high. While the
Bayh-Dole Act focused universities on “commercially relevant technologies and100
closer ties between research and technological development,” the costs of patenting
are such that “most university licensing offices barely break even.”101
University limitations on outside research, expeditious publication obligations
mandated for certain federally-funded R&D, and conflict of interest provisions also
help to preserve a balance between federal policies like the Bayh-Dole Act that
promote industry-university cooperation and concerns over excessive control of the
research environment by the business community. For example, NIH requires grant
recipients to publish the results of their government funded R&D. This is augmented
by tax code regulations necessitating prompt dissemination of actual research results
in order for a university or research institution to retain its tax exempt status. NIH
also has policies and guidelines promoting the availability of patents arising from
96 Pierre Axoulay, Waverly Ding, and Toby Stuart, The Impact of Academic Patenting on
the Rate, Quality, and Direction of (Public) Research, National Bureau of Economic
Research, January 2006, available at [http://www.nber.org/papers/w11917.pdf].
97 Everett Rogers, Jing Yin, and Joern Hoffmann, “Assessing the Effectiveness of
Technology Transfer Offices at U.S. Research Universities,” Journal of the Association of
University Technology Managers, v. XII, 2000, available at [http://www.autm.net].
98 Technology Transfer: Administration of the Bayh-Dole Act by Research Universities.
99 Ann M. Thayer, “University Technology Moves to Market via Patenting, Licensing,:
Chemical and Engineering News, August 24, 1992, 17-18. See also: Jerry G. Thursby and
Marie C. Thursby, “Intellectual Property: University Licensing and the Bayh-Dole Act,”
Science, August 22, 2003, 1052.
100 National Science Board, Science and Engineering Indicators - - 2002, Washington, 5-54.
101 Lita Nelson, “Increase of Intellectual Property Licensing at Universities Stems from
Changes in Funding and Legislation,” MIT Tech Talk, August 26, 1998, available at
[http://web.mit.edu].
federal funding for use by other scientists for research purposes without acquisition
of a license.102
Critics argue that the Bayh-Dole Act is distorting the traditional role of the
university to the detriment of future technological development. Professor Florida
maintained that because universities are seen as “engines” of growth, they focus on
applied rather than fundamental research. This has lead to unrealistic national and
local policies and practices that encourage the commercialization of academic
research while ignoring the real value of universities as the “nation’s primary source
of knowledge creation and talent.”103 Mildred Cho also asserted that university
research is “skewed” toward marketable products and not basic research.104 Studies
by researchers Dianne Rahm and Robert P. Morgan et. al. indicated the greater the
faculty interaction with industry the more the applied research.105 According to an
article in Fortune magazine, the Bayh-Dole Act has had “unintended consequences”
in that “universities have evolved from public trusts into something closer to venture
capital firms. What used to be a scientific community of free and open debate now
often seems like a litigation scrum of data-hoarding and suspicion.”106
Other experts disagree. A study of 3,400 faculty at six major research
institutions by Professors Jerry Thursby and Marie Thursby found that “the
basic/applied split in research did not change over the period 1983-1999 even though
licensing had increased by a factor greater than 10.”107 Data collected by the National
Science Foundation appear to support this assessment. According to NSF, in 1980,
basic research comprised 66.6% of academic R&D endeavors while applied research
and development were 33.4% of the total. In 2006, the percent of academic R&D
expenditures devoted to basic research increased to 74.5% while applied research and
development declined to 25.4% of the total.108
Commentators claim that the Bayh-Dole Act encourages the type of research
that is attractive to faculty. James Severson, President of the Cornell Research
Foundation, testified before the House Committee on the Judiciary that
Today, the protection and commercialization of academic research is one way for
universities to attract, retain, and reward talented faculty who wish to see the
results of their research programs benefit society. A commitment to the
102 Available at [http://www.nih.gov].
103 The Role of the University: Leveraging Talent, Not Technology.
104 Eric Niller, “Biotech & Health: Report Fails to Address the Downside of Academic-
Industry Collaborations,” Wall Street Journal (Europe), August 6, 2001, 17.
105 Industry and the Academy: Uneasy Partners in the Cause of Technological Advance, 186.
106 Clifton Leaf, “The Law of Unintended Consequences,” Fortune, September 19, 2005,
107 University Licensing Under Bayh-Dole: What are the Issues and Evidence?
108 Science and Engineering Indicators, 2008, Appendix table 5-1, available at
[http://www.nsf.gov/ statistics/ seind08/append/c5/at05-01.pdf].
protection of research results is important for universities to develop closer ties109
to companies, and to attract additional funds to support research programs.
As noted by Terry Young, Assistant Vice Chancellor for Technology Transfer at
Texas A&M University, the act requires funds generated by licensing to be used for
future education and research necessary to “deliver ‘real world’ products to the
public.”110 Assessing the legislation, the Biotechnology Industries Association,
contends that “without the Bayh-Dole Act, few licensing agreements would be
executed between private companies and federally supported research institutions,
and the enormous investment our government makes in medical research would be
wasted.”111
Biotechnology and Pharmaceuticals
Many of the current concerns about the Bayh-Dole Act primarily arise out of its
application to the biotechnology and pharmaceutical industries. Congressional
interest in providing lower cost drugs, particularly to seniors, has focused attention
on the role the act has had on the development of new pharmaceuticals for the
marketplace. Certain critics maintain that the price of many therapeutics derived
from federally funded R&D are excessive considering the government’s financial
contribution.112 Others argue that the Bayh-Dole Act does not significantly affect
pharmaceutical prices and point to a July 2001 study by NIH that found only four of
the 47 FDA approved drugs generating $500 million a year were developed in part
with NIH funded technologies.113 Although the government generally does not
directly support pharmaceutical research aimed at product development,114 legislative
attempts have been made to require cost controls or recoupment on drugs generated,
in part, with federal funds. This is in sharp contrast to congressional and executive
branch efforts, particularly in the defense arena, to make it easier for firms to acquire
and utilize intellectual property associated with federally financed R&D.115
109 House Committee on the Judiciary, Subcommittee on Courts and Intellectual Property,
Hearings on Gene Patents and Other Genomic Inventions, July 13, 2000, available at
[http://www.house.gov/ j udiciary/ seve 0713.htm] .
110 U.S. Department of Commerce, Technology Administration, Innovation in America:
University R&D, June 11, 2002, available at [http://www.ta.doc.gov/reports].
111 Biotechnology Industry Organization, Testimony on Bayh-Dole and Technology Transfer
Before the President’s Council on Science and Technology, Office of Science and
Technology Policy, April 11, 2002, available at [http://www.bio.org].
112 See CRS Report RL32324, Federal R&D, Drug Discovery, and Pricing: Insights from
the NIH-University-Industry Relationship, by Wendy H. Schacht.
113 Department of Health and Human Services, National Institutes of Health , NIH Response
to the Conference Report Request for a Plan to Ensure Taxpayers’ Interests are Protected,
July 2001, available on the web at [http://www.nih.gov/news/070101wyden.htm].
114 See CRS Report RL30913, Pharmaceutical Research and Development: A Description
and Analysis of the Process, by Richard E. Rowberg.
115 See House Committee on Government Reform, Subcommittee on Technology and
Procurement Policy, Toward Greater Public-Private Collaboration in Research and
(continued...)
Overall support for biological and medical sciences has grown significantly
since the passage of the Bayh-Dole Act. As measured in constant 2000 dollars, total
(federal and non-federal) spending for academic R&D in these areas has increased
from $4.6 billion in 1980 to $21.5 billion in 2006. Funding for university R&D in
the life science, particularly biological and medical sciences, comprises by far the
largest portion of academic research support. In 2006, 52% of total R&D
expenditures at academic institutions went to finance the medical and biological
sciences. When the Bayh-Dole Act was passed in 1980, 40.5% of the research
spending at universities was in these areas.116 While the federal government
continues to be the primary source of funding for university R&D in these areas, the
federal portion of academic research funding in biological sciences declined from
approximately 74% in 1980 to 69% in 2006, although government support for
medical research increased from approximately 64% to 66% during the same time
period.117 Expanded support for university R&D in this arena appears to be important
in relation to findings by the late Professor Edwin Mansfield showing that academic
research was particularly significant in the development of new products and
processes in the pharmaceutical and medical device industries.118
Interest and activity in the biomedical and biotechnology sectors has sparked
some concern over the effects of the Bayh-Dole Act on research in these areas.
According to information provided by the Boston Consulting Group, in the years
between 1990 and 1999, new gene patents granted increased from about 400 to 2,800
while the number granted to universities expanded from 55% to 73% during that time
period.119 Similarly, the number of U.S. biotechnology patents granted each year
grew from 1,199 in 1990 to 5,194 in 2006.120 The focus on intellectual property has
led critics to charge that the Bayh-Dole Act encourages the patenting of fundamental
research which, in turn, prevents further biomedical innovation. Law professors
Rebecca Eisenberg and Arti Rai argue that due to the legislation, “proprietary claims
have increasingly moved upstream from the end products themselves to the ground-
breaking discoveries that made them possible in the first place.”121 While patents are
115 (...continued)
Development: How the Treatment of Intellectual Property Rights is Minimizing Innovation
in the Federal Government, hearings, July 17, 2001, available at [http://www.house.gov/
reform].
116 Science and Engineering Indicators, 2008,Appendix table 5-4, available at
[http://www.nsf.gov/ statistics/ seind08/append/c5/at05-04.pdf].
117 Science and Engineering Indicators, 2008, Appendix table 5-3, available at
[http://www.nsf.gov/ statistics/ seind08/append/c5/at05-03.pdf].
118 Edwin Mansfield, “Academic Research and Industrial Innovation: An Update of
Empirical Findings,” Research Policy, 1998, 773-776.
119 Hamilton Moses, III and Joseph B. Martin, “Academic Relationships with Industry,”
Journal of the American Medical Association, February 21, 2001, 933.
120 Science and Engineering Indicators, 2008, Appendix Tables 6-48 and 6-49, available at
[http://www.nsf.gov/statistics/seind08/append/c6/at06-48.pdf] and [http://www.nsf.gov/
statistics/seind08/append/c6/at06-49.pdf].
121 Arti K. Rai and Rebecca S. Eisenberg, “Bayh-Dole Reform and the Progress of
(continued...)
designed to spur innovation, Rai and Eisenberg maintain that certain patents hinder
the process. From their perspective, by permitting universities to patent discoveries
made under federal funding, the Bayh-Dole Act “draws no distinction between
inventions that lead directly to commercial products and fundamental advances that
enable further scientific studies.”122 These basic innovations are generally known as
“research tools.”
Eisenberg and Professor Richard Nelson argue that ownership of research tools
may “impose significant transaction costs” that result in delayed innovation and
possible future litigation.123 It also can stand in the way of research by others:
Broad claims on early discoveries that are fundamental to emerging fields of
knowledge are particularly worrisome in light of the great value, demonstrated
time and again in history of science and technology, of having many independent
minds at work trying to advance a field. Public science has flourished by124
permitting scientists to challenge and build upon the work of rivals.
Similar concerns were expressed by Harold Varmus, President of Memorial Sloan-
Kettering and former Director of NIH. In July 2000 prepared testimony, he spoke to
being “troubled by widespread tendencies to seek protection of intellectual property
increasingly early in the process that ultimately leads to products of obvious
commercial value, because such practices can have detrimental effects on science and
its delivery of health benefits.”125 While the Bayh-Dole Act and scientific advances
have helped generate a dynamic biotechnology industry, there have been changes that
“...are not always consistent with the best interests of science.”126
However, as Varmus and others acknowledge, the remedies to this situation are
not necessarily associated with the Bayh-Dole Act. Yale’s Richard Levin noted that
while some research should be kept in the public domain, including research tools,
the fact that it is privatized is not the result of the Bayh-Dole Act, but rather the result
of patent law made by the courts and the Congress. Therefore, he believes that
changes to the act are not the appropriate means to address the issues.127 Other
experts agree that “many of the issues that are identified today as negative
consequences of Bayh-Dole can be traced to the institutional polices [of universities]
121 (...continued)
Biomedicine,” American Scientist, January- February 2003, 52.
122 Ibid.
123 Rebecca S. Eisenberg and Richard R. Nelson, “Public vs. Proprietary Science: A Fruitful
Tension?,” Daedalus, Spring 2002.
124 Ibid.
125 Hearings on Gene Patents and Other Genomic Inventions.
126 Ibid.
127 Workshop on Academic IP: Effects of University Patenting and Licensing on
Commercialization and Research, 262.
structured to optimize institutional benefits and income, rather than to the Act
itsel f.”128
Current law, as reaffirmed by court decisions, permits the patenting of research
tools. However, there have been efforts to encourage the widespread availability of
these tools. Marie Freire testified that the value to society is greatest if the research
tools are easily available for use in research. She asserted that there is a need to
balance commercial interests with public interests.129 To achieve this balance, NIH
has developed guidelines for universities and companies receiving federal funding
that make clear research tools are to be made available to other scientists under
reasonable terms.130 In addition, the U.S. Patent and Trademark Office recently made
changes in the guidelines used to determine the patentability of biotechnology
discoveries.
Studies by Professors John Walsh, Ashish Arora, Wesley Cohen, and Charlene
Cho found that although there are now more patents associated with biomedical
research, and on more fundamental work, there is little evidence that work has been
curtailed due to intellectual property issues associated with research tools.131
Scientists are able to continue their research by “licensing, inventing around patents,
going offshore, the development and use of public databases and research tools, court
challenges, and simply using the technology without a license (i.e., infringement).”
According to the authors, private sector owners of patents permitted such
infringement in academia (with the exception of those associated with diagnostic
tests in clinical trials) “partly because it can increase the value of the patented
technology. ”
Concluding Observations
The discussion surrounding changes to the patent laws in the 1980s, and the
debate over technology transfer since the late 1970s, acknowledged many of the
issues currently being explored. As a result of expressed concerns, certain safeguards
were built into the activities authorized by the Bayh-Dole Act. As discussed
previously, march-in rights, the government’s retention of an irrevocable license to
patents generated under federally funded R&D, publication requirements, and
commercialization schedules, among other things, all are incorporated into the
process to protect the public interest. While there is a potential for creating an
128 Sara Boettiger and Alan B. Bennet, “Bayh-Dole: IF We Knew Then What We Know
Now,” Nature Biotechnology, 24 (2006), available at
[http://www.nature.com/nbt/j ournal/v24/n3/full/nbt0306-320.html ].
129 Senate Committee on Appropriations, Subcommittee on Labor, Health and Human
Services, Education and Related Agencies, Hearings, August 1, 2001.
130 Available on the NIH website at [http://www.nih.gov].
131 John P. Walsh, Ashish Arora, Wesley M. Cohen, “Working Through the Patent
Problem,” Science, February 14, 2003, 1021 and John P. Walsh, Charlene Cho, and Wesley
Cohen, “View for the Bench: Patents and Material Transfers,” Science, September 23, 2005,
“unfair” advantage for one company over another, this is balanced against the need
for new technologies and techniques and their contribution to the well-being of the
Nation.
Despite arguments that title should remain in the public sector where it is
accessible to all interested parties, the earlier lack of exclusivity appeared to interfere
with the further development and commercialization of federally funded R&D.
During the 1980s, Congress determined that the dispensation of patent rights to
universities, small businesses, and nonprofit institutions and cooperative efforts took
precedence, projecting the greater good generated by new products and processes that
improve the country’s health and welfare. Lawmakers anticipated the economic
benefits through increased revenues from profits, wages, and salaries. The
government receives a significant payback through taxes on profits and society
benefits from new jobs created and expanded productivity. The importance of patent
ownership has been reinforced by the positive effects studies have demonstrated P.L.
96-517 is reported to have had on the emergence of new technologies and new
techniques generated by American companies.
There remain areas of concern, as discussed above, that Congress may decide
to pursue. Some argue, particularly with respect to pharmaceuticals and
biotechnology, that under the Bayh-Dole Act companies are receiving too many
benefits at the expense of the public. Others, particularly in the defense arena, assert
that the existing rights retained by the government under the act are too restrictive
and are an impediment to meeting federal needs. But the impact of the legislation is
still seen as significant. As summed up by Howard Bremer, who was patent counsel
to the Wisconsin Alumni Research Foundation from 1960 through 1988:
One important factor, which is often overlooked, is that the success was achieved
without cost to the taxpayer. In other words, no separate appropriation of
government funds was needed to establish or manage the effort. In fact, it has
been estimated that the economic benefits flowing from the universities’
licensing activities adds about $41 billion to the United States economy.
Significant as that dollar amount is, it should not be overlooked that university
inventions, arising, as most of them do, from basic research, have led to many
products which have or exhibit the capability of saving lives or of improving the
lives, safety and health of the citizens of the United States and around the world.132
In that context their contribution to society is immeasurable.
132 Howard Bremer, “The First Two Decades of the Bayh-Dole Act as Public Policy,”
National Association of State Universities and Land-Grant Colleges, November 11, 2001,
available at [http://www.nasulgc.org].