Bayh-Dole Beyond Borders

Abstract

The Bayh-Dole Act, which encourages patents on federally funded inventions, has been criticized for forcing consumers to "pay twice" for patented products – first through the tax system and again when the patentee charges a supracompetitive price. Supporters counter that patents promote commercialization, but it is doubtful that this benefit can justify the Act's present scope. One important feature of Bayh-Dole, however, has been overlooked in this debate – a feature that arises from the global-public-good nature of knowledge. Without patents on US taxpayer-funded inventions, the United States would have no practical way of internalizing the positive externalities these inventions confer on consumers in other countries. Put differently, the charge that Bayh-Dole forces US consumers to "pay twice" misses the point that eliminating some Bayh-Dole patents would permit non-U.S. consumers to avoid paying at all. To be sure, this "internalization theory" was not the rationale upon which sponsors of the Act relied. And like commercialization theory, it cannot justify the Act's present scope. Rather than relying on internalization theory to defend Bayh-Dole, we highlight ways in which this novel theory can inform Bayh-Dole debates.

Keywords: Bayh-Dole, patents, grants, R&D, international

JEL Classification: H41, K33, O31, O34, O38