Government Taking a Cut of University Royalties Would Threaten Bayh-Dole’s ROI

Yesterday, Secretary of Commerce Howard Lutnick dropped a bombshell. Here’s his answer when asked by Axios about the next target after the government’s deals giving it 15% of Nvidia’s revenue from AI chips sold to China and plans to take a stake in U.S. Steel:.

“I think universities, who are getting all this money,” Lutnick replied. “The scientists get the patents, the universities get the patents and the funder of $50 billion, the U.S. government, you know what we get? Zero.”

“In business,” he continued, “if I gave them 100% of their money, I would get half the profits, with the scientists. So I think if we fund it and they invent a patent, the United States of America taxpayer should get half the benefit.”

While that might sound appealing on the surface, if put into practice, it’s much more likely to shoot American innovation in the foot than to create a promising source of government revenue.

Government is Not the Private Sector

First of all, the government isn’t funding R&D like the private sector. Federal research is primarily focused on furthering the frontiers of science or meeting agency mission needs. Before the passage of the Bayh-Dole Act in 1980, very little was commercialized from the billions of dollars funded by Washington. But Bayh-Dole changed that, not by altering agency research but by decentralizing technology management out of Washington, relying on the incentives of the patent system. This was done with no additional cost to taxpayers, as the law created no bureaucracy or increase in  federal spending.

For the first time, those making federally funded inventions had an incentive to look for commercial applications of their research. It’s also important to note that academic institutions do this largely on their own dime—the government doesn’t pay their patenting costs or for most of their technology transfer expenses.

To provide an incentive for academic institutions to assume this role, the law allows them to keep any resulting royalties but restricts how they must be used. That includes paying their tech transfer costs, rewarding inventors and using any remaining money for funding more research.

Interestingly, the original bill had a “payback provision” which was triggered whenever a Bayh-Dole invention was particularly successful in the marketplace. In those rare circumstances the government got a percentage of royalties above the threshold. But that provision was dropped when Bayh-Dole was pending before the U.S. Senate. As Senator Bayh’s staffer, I was contacted by several agency representatives who said that tracking university agreements would probably cost them more than any resulting income. They wisely suggested that the best return on investment was to have the technology successfully commercialized where it could create new products, jobs and companies that boosted the economy while improving public welfare.

Diminishing Bayh-Dole Incentives Would Undermine U.S. Innovation

That turned out to be wise counsel indeed. As the Economist Technology Quarterly later stated: “Possibly the most inspired piece of legislation to be enacted in America over the past half century was the Bayh-Dole Act…More than anything, this simple piece of legislation helped to reverse America’s precipitious slide into industrial irrelevancy.”

And that’s no exaggeration. The United States is far and away the most efficient at translating public sector research into new products. Between 1996- 2020, academic patent licensing contributed $1.9 trillion to our economy while supporting more than 6.5 million jobs. Universities have spun off more than 19,000 companies, which drive our innovation system while growing regional economies. On average, academic inventions help form more than two companies and three new products every day of the year. And these activities generate considerable tax revenue for the government.

This impact is not limited to prestigious universities on the coasts. A new study by the Information Technology & Innovation Foundation demonstrates the impressive impact of Bayh-Dole in states like Colorado, Kansas, North Carolina, Indiana and Delaware. Before Bayh-Dole, few would have predicted that “fly over” states would become innovation hubs, but given the proper authorities and incentives, the model of getting Washington out of the way so those who know the technology best can manage it proved the critics wrong.

Focus on Solving the Real Problems

One more thought: licensing university inventions is hard work. Even Nobel prize winners like immunotherapy and mRNA took decades to find any company interested in them. As Steve Susalka, CEO of AUTM, which represents the academic tech transfer profession, has said: “On average, the number of licensees per university technology was between 0 and 1.” And about 70% of the time, those licensees are small companies which take considerable risk to develop early-stage academic or federal laboratory inventions.

Changing our system by diminishing the incentives for universities to undertake these efforts—which most times don’t pay off—is “penny wise and pound foolish.”

But there is something the Trump Administration could do immediately to boost the return on investment from federally funded R&D. On March 14, 2025, the Bayh-Dole Coalition (which I lead) wrote to President Trump identifying five violations of Bayh-Dole left behind by the Biden Administration on its way out the door. We asked that they be immediately rescinded and initially got a promising reply from the White House.

However, since then, not only have they not been rescinded, but one of the worst, which undermines licensing of inventions made by the National Institutes of Health, was recently finalized and takes effect on October 1, 2025. And unlike academic patent licensing, NIH royalties go directly to the government.

If there’s really an interest in increasing government royalties and boosting ROI, this is the place to start.

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