Proofs and Prototypes for Sale: The Licensing of University Inventions

TLDR

The Bayh‑Dole Act is defended on the basis that without university patent licensing, industrial use of federally funded research would decline, yet most university inventions suffer a moral‑hazard problem where inventor effort is insufficient, and licensee‑sponsored research alone cannot remedy this. Development proceeds only when the inventor’s income is linked to the licensee’s output through royalties or equity. A survey of U.S. universities confirms the view, noting that most licensed technologies are embryonic and require inventor cooperation for commercialization.

Abstract

Proponents of the Bayh-Dole Act argue that industrial use of federally funded research would be reduced without university patent licensing. Our survey of U.S. universities supports this view, emphasizing the embryonic state of most technologies licensed and the need for inventor cooperation in commercialization. Thus, for most university inventions, there is a moral-hazard problem with inventor effort. For such inventions, development does not occur unless the inventor's income is tied to the licensee's output by payments such as royalties or equity. Sponsored research from the licensee cannot by itself solve this problem. (JEL O31, O34, O38)