Taxpayers are Already Getting a Good Bang for Their University Research Buck

Commerce Secretary Howard Lutnick recently proposed changing how the federal government funds scientific research at universities across the country.

“I think if we fund it and [the universities] invent a patent, the United States of America taxpayer should get half” of the royalties when universities license those patents to private companies for further development, he suggested.

Lutnick rightly wants to ensure that taxpayers get a good bang for their research buck. But the truth is, taxpayers already get a great return on the university research they fund.

Universities frequently patent promising ideas—but it is only through significant and often long-term investments from the private sector that these good ideas are commercialized into life-changing products that lead to significant public health and socioeconomic benefits.

Imposing what is effectively a major new tax on universities’ licensing revenue could discourage them from partnering with private firms to turn those early discoveries into real-world products. Instead of boosting government revenues, the proposal could inadvertently result in fewer new startups launched, fewer jobs created, fewer products commercialized, and less economic growth overall.

Bayh-Dole Solved a Big Problem

Under the 1980 Bayh-Dole Act, universities can patent—and license—the discoveries that their researchers make with the help of federal grants. Prior to that law, the federal government retained the licensing rights on any discoveries that resulted from federally funded research. Just 5% of government-held patents were ever licensed to private-sector companies willing and able to turn those nascent ideas into actual products.

The architects of the Bayh-Dole Act solved that problem by decentralizing the licensing of patents to the universities, which gained a financial incentive — namely, royalties — to find those private-sector partners. Royalties paid to the university are shared with the inventor, used to sustain the technology transfer process, build new research infrastructure, and support new discovery programs.

The U.S. technology transfer system is the platform for the creation of new companies that bring jobs to our communities, sustain economic development, and pay taxes. Over the last three decades, America’s academic tech transfer system has resulted in more than 580,000 inventions, more than 19,000 start-ups, and nearly $2 trillion in gross industrial output. This system supports over 6 million jobs and hundreds of billions in tax revenue.

The government, and universities, would never be able to generate these economic gains on their own — because federally funded patents represent only the beginning, not the end, of the research and development process. Years of costly private-sector investment are needed to transform initial discoveries into commercial products.

That’s particularly true when it comes to drug development. While funding from organizations like the National Institutes of Health certainly helps advance scientific progress, the hard and expensive work of turning basic science insights into useful products falls on entrepreneurs and investors. In the case of drug discovery, the most lengthy and costly part of the process is Phase III clinical trials — which occur years after the science has left the university laboratory.

And of course, most patents never result in any marketable product at all, due to countless failures along the way. In fact, only 12 percent of investigational drugs entering clinical trials ever secure FDA approval, and even many approved drugs never generate a positive return on investment.

The Bayh-Dole Act incentivizes universities to seek out the entrepreneurs and investors willing to shoulder those sorts of risks.

A Patent Tax Would Take Us Backwards

Lutnick has proposed claiming 50% of any revenues generated from patents licensed from universities that received federal funding, as well as imposing an annual patent tax. However, as President Reagan once noted, “when you put a big tax on something, the people will produce less of it.” These proposals, if implemented, would significantly deter collaborations between researchers across government, academia, and the private sector, resulting in less innovation. They would also reduce resources for university-funded research, making U.S. universities less attractive to the best and brightest. Finally, they’d reduce the socioeconomic benefits that accrue from a vibrant R&D ecosystem.

From an economic and national security perspective, such policies will serve only to make the United States less attractive for R&D and advanced manufacturing — and benefit our chief innovation rivals, Europe and China. China has already equaled or surpassed the United States in a host of emerging technologies, including 5G, electric vehicles, and renewable energy. And although America still holds a lead in biopharmaceutical innovation, the Chinese government has been working hard to become the global leader in that field as well.

Whatever additional revenue the government might generate from this proposal would be more than offset by a decline in innovation—and the economic growth and tax dollars that come with it.

The academic tech transfer framework created by the Bayh-Dole Act is the envy of the world. Undermining it would chill public-private collaborations, accelerate brain drain, and shift research investment abroad. That would result in less innovation and the resulting socioeconomic benefits—and threaten our national security by leaving U.S. patients dependent on China for access to future medical advances.

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