Universities, Patents, and the Future of U.S. Competitiveness

Commentary by Shruti Sharma and Chris Borges

Published December 15, 2025

Universities are among the most powerful engines of U.S. innovation, transforming federal research investments into scientific discoveries that underpin economic growth, technological leadership, and national security. Current law, via the Bayh-Dole Act, allows universities to patent inventions and license them to private companies, with royalties shared between the university and the inventors. In this way, universities are incentivized to accelerate the commercialization of federally funded discoveries made in their labs, fostering innovative start-ups, stimulating regional economic growth and jobs, and creating new competitive products and services.

Yet this fundamental driver of U.S. innovation is increasingly under strain. Already, federal support for basic research is in a decades-long decline. Now, the Department of Commerce is reportedly exploring a "patent tax" and new profit-sharing mechanisms for federally funded university research-proposals that have the potential to harm the very system that translates government investments in scientific research into lasting economic growth and competitive advantage.

The United States profits substantially from the commercialization of university research in terms of enhancing economic growth and national security-and expanding these efforts is essential. The challenge ahead is to improve government-university partnerships by investing in university-based research and supporting pathways from lab to market, ensuring that today's research more efficiently becomes tomorrow's competitive edge.

Patents as Instruments of Commercialization

Patents serve as an enabling mechanism for innovation, providing investors with incentives to take on the costly and risky process of commercialization. By converting ideas into property that can be protected, patents moreover empower researchers and universities to safely share their discoveries with others to develop and commercialize them. This framework of property rights is what enables university discoveries to move from early-stage research into products and services that advance U.S. economic and security interests.

Indeed, discoveries made at universities are normally only the beginning of the lengthy and uncertain process of bringing a new idea to the market-a process that requires additional investment in research, development, and manufacturing. A powerful example is drug development: After researchers discover a promising new compound, it can still cost billions of dollars and take over a decade to develop a safe and effective product. And these years of investment do not guarantee success: Less than 14 percent of drugs pass clinical trials and are approved for use. Investors will not shoulder that level of risk without the opportunity to capture the substantial returns offered by patents if the product succeeds. University-owned patents create that opportunity, unlocking private sector capital that often dwarfs the original federal grants.

Why Bayh-Dole Matters

Incentives for universities to push new ideas from lab to market did not always exist, and, before the 1980s, federally funded university inventions rarely made it out of the laboratory. At the time, the government retained ownership of the intellectual property (IP) generated through federally funded university research and offered only nonexclusive licenses. That meant multiple firms could commercialize the same invention, so no single company had a reasonable expectation of recouping the costs of development. Without the prospect of exclusivity, investors could not justify the risk. In other terms, shared ownership removes the potential for any firm to gain a competitive advantage, eliminating the incentive to invest in turning discoveries into real-world innovations.

As a result, many university-created inventions sat on the shelf. As late as 1978, the federal government had licensed fewer than 5 percent of the 30,000 patents it owned. In the case of pharmaceuticals, firms were unwilling to invest in costly clinical testing without the security of exclusive rights. Innovations in agriculture faced similar barriers-U.S. Department of Agriculture's Agricultural Research Service patented promising crop- and pest-control technologies, but nonexclusive licensing arrangements meant many never attracted commercial partners.

Recognizing the imbalance of incentives, Congress responded with the bipartisan Bayh-Dole Act of 1980, sponsored by Senators Birch Bayh (D-IN) and Bob Dole (R-KS). The law allows universities, small businesses, and nonprofits to retain ownership of inventions stemming from federally funded research, provided they disclose these inventions and make reasonable efforts to bring them into practical use for the public good. The rationale was simple: market actors, not federal agencies, would-with the right incentives-bring discoveries to market.

The results were immediate and dramatic. Since 1980, U.S. universities have helped launch over 4,000 companies through licensing arrangements, also known as technology transfer. In 2002, The Economist called Bayh-Dole "possibly the most inspired piece of legislation to be enacted in America over the past half-century."

Public Funds, Private Incentives, Public Benefits

For more than half a century, the federal government has been the single largest source of support for university research in the United States. This role is not accidental-it reflects a deliberate policy choice dating back to the postwar era that saw scientific research as a public good and a foundation for national competitiveness. Federal investment provides a stable base that enables universities to pursue long-horizon, high-risk research that the private sector is unlikely to fund on its own. When coupled with mechanisms like the Bayh-Dole Act, these investments form the connective tissue between public science and private innovation, turning early-stage discoveries into industries that advance public health, economic growth, and national security.

Following this view, the federal government funds research to advance knowledge and long-term growth, not to act as a private investor. Taxpayers already see major returns from this strategy: a trillion added to GDP, millions of jobs, and more than 200 drugs and vaccines since 1980, along with advances in energy, cybersecurity, and defense. The Bayh-Dole Act made this possible by letting universities patent and license inventions, reinvest revenues, and partner with private firms willing to shoulder commercialization costs. This alignment of public research and private investment has turned early-stage discoveries into thousands of companies and products across medicine, agriculture, and advanced manufacturing. Over the last 40 years, these investments have transformed the U.S. competitive position in numerous industries.

A Tax on University Patents Would Disincentivize Innovation

Reducing or redirecting royalties away from universities, as suggested in recent proposals to tax university-owned patents, threatens to weaken this system.

• Firstly, these institutions would have fewer resources to sustain technology transfer offices (TTOs) and support spin-off companies. Most universities channel their share of licensing income directly into maintaining staff, supporting entrepreneurship programs, and funding more research. Taking this revenue away would undercut the institutional capacity that helps early-stage firms survive. Empirical research confirms that stronger TTO involvement lowers the bankruptcy risk of university spin-offs, underscoring that commercialization outcomes often depend on these resources.
• Second, companies are less likely to take on the enormous costs of bringing early-stage inventions to market if they face the prospects of diminished or uncertain returns. The evidence is overwhelming in showing that when the government holds patent rights over university inventions, very few of these patents are licensed and commercialized. The pre-Bayh Dole experience clearly demonstrates that if the economics of licensing are unattractive, companies will not invest, leaving promising discoveries on the shelf instead of in the marketplace.
• Third, the proposed measure to tax university patents would only lead to marginal gains. University patent licensing income totaled about $2.7 billion in 2024. A 50 percent split for government would total about $1.35 billion-a small amount compared to the massive economic output and the associated tax revenue that university research

The Importance of Scaled and Sustained Investment

Given the large positive role of university research and development (R&D) in supporting the U.S. innovation ecosystem and responding to the competitive challenge of China, the federal government should increase its investments in university research, not seek to disrupt it. Between 2011 and 2021, federal funding for university research as a share of GDP fell by 18 percent, dropping the United States to 27th out of 39 Organisation for Economic Co-operation and Development nations. Today, the United States invests just 0.2 percent of its GDP in university research, half the level of leaders like Germany and Switzerland.

While the United States unilaterally disarms its research advantage, China has a clearly articulated program of investment and training to push into the lead in key areas such as biomedicine, with potentially grave economic and strategic consequences, according to a recent congressional study chaired by Senator Todd Young (R-IN).

Current and proposed cuts to the National Institutes of Health and National Science Foundation, amounting to tens of billions of dollars, will only reduce the United States' capacity to conduct R&D and, crucially, to train the next generation of researchers. With fewer dollars flowing to university labs, the inevitable result will be fewer breakthroughs, inventions, new companies, and jobs. The proposed cuts would further disrupt ongoing research programs midstream, delaying or derailing projects that often require years of sustained efforts to reach maturity. Just as importantly, shrinking budgets reduce career opportunities for graduate students and postdoctoral researchers, weakening the pipeline of highly trained scientists and engineers who form the backbone of the United States' innovation system.

Significant cuts to university research weaken the foundation upon which future industries, technologies, and national capabilities are built. Reversing this decline will demand renewed federal investment, stable funding streams, and a reaffirmation of the public mission of research universities. These steps need to be paired with improvements in university administration, but sustaining the nation's innovation capacity requires long-term commitment, not short-term savings.

Conclusion

The strength of the United States' innovation system does not rest on government spending alone, but on the mutually supportive partnership between public investment, university research, and private enterprise. The U.S. patent framework, reinforced by landmark policies like the Bayh-Dole Act, is are proven mechanism for translating public research into products that provide a public benefit. Undermining that system risks dismantling the very architecture that made the United States the global leader in science and technology.

In short, rather than taxing innovation, policymakers should reinforce the institutions that sustain it: maintaining predictable and robust federal research funding, protecting reliable and enforceable IP rights, and strengthening the university technology transfer ecosystem that connects discovery to deployment. Sustaining U.S. competitiveness depends on protecting these partnerships and ensuring that the nation's unparalleled university research enterprise continues to serve as a cornerstone of the United States' strength and resilience.

Shruti Sharma is a research intern with Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Chris Borges is a senior program manager and associate fellow with the Economics Program and Scholl Chair in International Business at CSIS.

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