Double or Nothing: Technology Transfer under the Bayh-Dole Act

Double or Nothing: Technology Transfer under the Bayh-Dole Act

Description

The United States is fascinated with technology. Prior to the Tea Party (the first one), the colonies angered England by engaging in rampant technological piracy. Thomas Jefferson was an inventor and took a personal interest in the patent system. Many scientific institutions were established in the first century of the nation’s existence—the Smithsonian Institute and the American Association for the Advancement of Science in 1850; the National Academy of Sciences and the Department of Agriculture, in 1862. In 1862 and 1890, the Morrill Acts gave birth to the land-grant college system, which focused on innovation in agriculture, science, and engineering. To many Americans, it was technology—advances in aviation, radar, encryption, medicine, and nuclear energy—that won the Great Wars. Indeed, during World War II, President Roosevelt asked Vannevar Bush, his science advisor, to create a technology plan for the post-war period. The strategy Bush developed was centered on a linear theory of innovation in which development was perceived as moving from ‘upstream’ discovery of fundamental insights to their ‘downstream’ commercial application. In Bush’s view, upstream research—basic science—was too far removed from application to be an attractive target for commercial investment. At the same time, however, he saw this work as the wellspring from which multiple technological prospects flow. To assure continuing support for basic science, he recommended—and the U.S. Government pursued—a mixed program of intramural research within Government laboratories and Government funding of extramural research in universities and other nonprofit organizations. Funding agencies either placed the fruits of these efforts into the public domain (through publication) or patented and licensed them out on a non-exclusive basis. The expectation was that industry would adapt the advances, find applications, create new businesses and jobs, enhance productivity, and improve social welfare. Given its infatuation with science, it is not surprising that when the United States went into a period of stagflation in the late 1970s, it once again hung its hopes on technological development. While the economists of the day certainly agreed with Bush on the relationship between technology, productivity, and social welfare, many were skeptical about his notion of a linear progression from upstream science to downstream technological application. They argued that while upstream researchers may excel at identifying scientific and technological opportunities, they might lack sufficient understanding of business to recognize commercial opportunities. Further, there was concern that the advantages of cheap access to upstream research through nonexclusive licensing were outweighed by the costs associated with free-riding. It can be expensive to move advances from the lab bench to the marketplace: heavy investments could be required to scale up production, take account of user preferences, build distribution systems, and educate consumers about the value of the product. If second-comers can acquire rights equivalent to those of the first mover, they could undermine the first mover’s ability to recapture early (and often risky) investments. To deal with these problems, the United States doubled down. In 1980, it passed the Bayh-Dole Act, which gave universities (and certain other institutions) the authority to patent the fruits of federally supported research. The Act required the public to pay for inventions twice, first through the tax system and later via supracompetitive pricing. Arguably, however, the new regime also doubled the effectiveness of the Government’s investment. Universities could grant developers facing high downstream expenses exclusive rights, which would protect them from free-riders. Furthermore, by requiring universities, faculty, and industry to engage in licensing, the new system would expose academia to business problems, and industry to scientific research. Opportunity-recognition skills would improve for all concerned; upstream research would be better attuned to the market and industry would enjoy advanced information on scientific breakthroughs. But the Act also carried new risks. As Robert Merton has argued, the reward system in basic science is finely attuned to the demands of the research enterprise. Reputational rewards come from publishing early and sharing materials; the commitment to communitarianism ensures that good work is available to continually push the frontiers of knowledge forward. In contrast, concern for financial rewards promotes secrecy, data hoarding, and a focus on targeted projects; it can lead to conflict among faculty, students, and the administration. In fact, the Bayh-Dole approach could backfire. Upstream research could become more costly as research inputs became subject to patent claims. At the same time, downstream progress could falter as greater reliance on exclusive licensing eliminated the possibility for competitive development of fresh prospects. The Bayh-Dole Act has now been in force for 30 years; we are in yet another recession in which we are looking to technology for solutions. It is therefore fitting to ask how the wager made in 1980 has panned out: did the Bayh-Dole Act increase social welfare, as its supporters hoped, or did its emphasis on patenting poison the wellspring? This chapter begins with a short description of the Act. It next moves to consideration of the evidence. Finally, the chapter turns to the future. There is a strong element of path dependency at work in this arena. Reliance on Bayh-Dole within the research and academic communities make its repeal virtually unthinkable. However, the Act could be modified in light of experience. Furthermore, other countries might learn from the United States experience and enact technology transfer regimes that do better.

Source Publication

Business Innovation and the Law: Perspectives from Intellectual Property, Labour, Competition and Corporate Law

Source Editors/Authors

Marilyn Pittard, Ann L. Monotti, John Duns

Publication Date

2013

Double or Nothing: Technology Transfer under the Bayh-Dole Act

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