by Jon Soderstrom
Forty-three years ago, a young Senator, Joe Biden, voted for a transformative policy reform that catalyzed upwards of $2 trillion in economic growth.
Yet now, President Joe Biden's administration is poised to undo that reform functionally. By halting this inadvertent political and economic sabotage, the president can protect a key part of his Washington legacy.
The reform in question was the Bayh-Dole Act of 1980, which helped revive the moribund economy of the 1970s. Prior to the law, the federal government held all the patents on discoveries made at university and non-profit labs that received federal funding. The government had little incentive to license those patents to private companies for further development. And companies were hesitant to license those patents on a non-exclusive basis -- since the government could always grant additional licenses to rival firms, which could then debut their own competing versions of a product.
Because of these misaligned incentives, thousands of taxpayer-funded discoveries collected dust on the proverbial laboratory shelf -- and were never turned into products.
The Bayh-Dole Act put an end to this waste by allowing universities and other research facilities receiving government funds to hold the patents themselves and license them to companies for further development. Thanks to the law and the academic "tech transfer" system it established, we've made tremendous strides in quantum computing, developed a host of communications tools, created breakthrough medicines, and even invented Honeycrisp apples.
Unfortunately, some in the Biden administration want to upend the foundation of this system. Under a proposed framework, the federal government could "march-in" and relicense patents on products that bureaucrats feel are overpriced. The administration has announced the framework as part of a campaign to reduce prescription drug prices -- but the framework would apply to all patents that benefited from federal research grants, not just pharmaceuticals.
March-in rights have always been part of the Bayh-Dole Act. Their original intent was to ensure government-financed innovations were put to work instead of being licensed and warehoused by a dominant market player.
For decades, however, these march-in rights went unexercised -- because there was no need for the government to step in. With the incentive structure that the Bayh-Dole Act created, commercial development proceeded rapidly.
The administration's march-in proposal would destroy these incentives. Companies won't license government-funded university research if the government reserves the right to step in and appropriate the fruit. The administration seems to forget that for every dollar the government spends on research, the private sector invests nearly $5.
Imagine the effects of march-in up and down the innovation chain. As industry shuns university research, royalties from licensing patents will dry up. Fewer royalties mean universities will have less funding available for new research, which means fewer researchers. Do we really want to strip the motivation of the next generation of PhD candidates? Do we want our most gifted professors to head for the exits and more lucrative employment at private labs? Do we want to put a halt once again to the ability of the public to realize benefits from government-funded research?
The economic might of the United States depends on the public-private partnerships facilitated by the Bayh-Dole Act. The system works marvelously, and the president shouldn't repudiate his own role in helping to create it.
Jon Soderstrom served as managing director of the Office of Cooperative Research at Yale University from 1996-2021.