How Do Patent Incentives Affect University Researchers?

Abstract

Universities and other beneficiaries of public funding for scientific research are encouraged to patent resulting inventions under the Bayh–Dole Act. This controversial framework gives academic grant recipients a direct financial stake in the success of their inventions by requiring universities to share the resulting patent royalties with inventors. This incentive for grant recipients might help justify Bayh–Dole patents when the conventional justification for exclusivity — that it is necessary for commercialization — fails to hold. But there is little evidence as to whether it works.

This article examines how one aspect of the patent incentive — the prospect of royalties — affects the behavior of university researchers. Fortuitously, different schools offer inventors different shares of patent revenue. We have created a dataset of royalty-sharing policies from 152 universities, which shows substantial variation across universities and time. (For example, Caltech switched from sharing 15% to 25% of net income in 1994, the University of Washington switched from sharing 100% of initial revenues to a flat rate of 33% in 2004, and the University of Iowa switched from 25% to 100% of initial patent revenues in 2005.) Although prior work has reported that higher inventor royalties lead to more university licensing income, we show that this result was driven by coding errors. We also extend prior work by examining more years, doing a more convincing panel data analysis, using additional outcome variables, and looking at lateral moves by the most active patenters. In all of these analyses we find no compelling empirical evidence that increasing university inventors’ royalty share has a significant effect on any of the outcomes one would expect to be most affected.

These results do not imply that patents provide no incentives to university researchers. They may provide reputational benefits or encourage faculty-run spin-offs, or even provide financial incentives that are not captured by our statistics. But the lack of a measurable impact of higher royalty shares on patenting activity suggests that, from a social welfare perspective, it may be preferable for a larger share of royalties to be retained by universities, which are then required by Bayh–Dole to reinvest this money in science research and education. In any event, our analysis raises promising questions for future research and calls into question the existing view that increasing the inventor’s share in university patent policies encourages researchers to develop and commercialize more remunerative patents.

Keywords: Bayh-Dole, royalty sharing, university, patent, grant, R&D, innovation, commercialization

JEL Classification: H41, H50, H52, I23, J33, K30, O31, O34, O38