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Bayh–Dole Beyond Borders

35 Pages Posted: 21 Feb 2017 Last revised: 9 Mar 2017

Daniel Jacob Hemel

University of Chicago Law School

Lisa Larrimore Ouellette

Stanford Law School

Date Written: February 11, 2017


U.S. taxpayers provide over $100 billion each year in direct support for scientific research through grants and government labs. Under the Bayh–Dole Act, grant recipients can obtain patents on inventions that result from this public support. This framework has been replicated in many other countries, though it has been widely criticized here and abroad. The most salient charge against Bayh–Dole is that it forces consumers to “pay twice” for patented products — first through the tax system and again when the patentee charges a supracompetitive price. Supporters of Bayh–Dole counter that patents promote commercialization of inventions generated by government grantees, but it is doubtful that the commercialization benefits can justify the Act’s present scope.

One important feature of Bayh–Dole, however, has been overlooked in the debate thus far — a feature that arises from the global-public-good nature of knowledge. Unless government grantees can obtain patent protection for inventions generated by government-funded research, the United States would have no practical way of internalizing the positive externalities conferred on consumers in other countries who use products produced through U.S. taxpayer-financed research. Put differently, the charge that Bayh–Dole forces U.S. consumers to “pay twice” misses the point that eliminating some Bayh–Dole patents would permit non-U.S. consumers — in particular, consumers in other rich-world countries — to avoid paying at all. By allowing the United States as a whole to internalize some benefits that federally funded inventions bring to consumers in other rich-world countries, the Bayh–Dole regime arguably yields attractive distributional effects and plausibly leads to greater direct research support within the United States.

To be sure, this “internalization theory” of Bayh–Dole was not the rationale upon which sponsors of the Act relied. And like commercialization theory, internalization theory 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 debates over Bayh–Dole reform. Internalization theory suggests that patents on products generated by government-sponsored research have a role to play in a global marketplace — although not quite the role that they play under the status quo.

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

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

Suggested Citation

Hemel, Daniel Jacob and Ouellette, Lisa Larrimore, Bayh–Dole Beyond Borders (February 11, 2017). Journal of Law and the Biosciences, Forthcoming; Stanford Law and Economics Olin Working Paper No. 504; University of Chicago Coase-Sandor Institute for Law & Economics Research Paper No. 801; U of Chicago, Public Law Working Paper No. 619. Available at SSRN:

Daniel Jacob Hemel

University of Chicago Law School ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Lisa Larrimore Ouellette (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305
United States


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