Proofs and Prototypes for Sale: The Licensing of University Inventions

Proponents of the Bayh-Dole Act argue that industrial use of federally-funded research would be reduced without university patent licensing. Our survey of U.S. universities supports this view, emphasizing the embryonic state of most technologies licensed and the need for inventor cooperation in commercialization. Thus, for most university inventions, there is a moral hazard problem with inventor e¤ort. For such inventions, development does not occur unless the inventor’s income is tied to the licensee’s output by payments such as royalties or equity. Sponsored research from the licensee cannot by itself solve this problem.(JEL O31, O34, O38) ¤Forthcoming in the American Economic Review. We gratefully acknowledge support from the Sloan Foundation and the National Bureau of Economic Research under the NBER Project on Industrial Technology and Productivity. Thursby thanks the Purdue Technology Transfer Initiative for support. Particular thanks go to Jerry Thursby who participated in the survey and provided advice throughout, Teri Willey, and Mark Olson for advice on survey design. We thank Roko Aliprantis, Doug Curry, Neil Gandal, Adam Ja¤e, Josh Lerner, Richard Nelson, Robert Plante, Scott Shane, Steve Slutsky, Gordon Wright, three referees, and seminar participants at the 25th Annual E.A.R.I.E. Conference, Hamburg Institute for Economic Research, IAW at the University of Hamburg, Mannheim Center for Economic Research, 50th Midwest Economic Theory Conference, NBER Summer Institute, Penn State and Purdue Universities, 10th Southeastern Economic Theory Conference, and Universities of Florida and Lancaster for useful comments, and Priyo Chatterjee, Barbara Newman, and Weian Zhu for research assistance.