Commerce Secretary Howard Lutnick recently suggested that Washington should take half of the patent royalties universities receive when they license discoveries funded by federal research grants — regardless of how small the grants. It is yet another of the Trump administration’s counterproductive economic policies that’s creating both confusion and concern.
Lutnick is pitching the 50 percent patent royalty tax as a way to protect taxpayers. But how would it protect taxpayers when the tax revenue would likely be minimal and the economic damage huge? And if the federal revenues fall short of estimates — as almost always happens, especially when taxes discourage innovation — there will be a push to increase the royalty tax even higher.
Without even getting into that, Lutnick’s proposal would undercut one of the most successful innovation policies in U.S. history. Lutnick is right that, under the bipartisan Bayh-Dole Act of 1980, the government foregoes any ownership stake in the patents stemming from federally funded research. Since 1980, licensing royalties are generally shared between the individual researchers and the universities that employ them. But the bulk of those royalties are plowed back into labs, scholarships and further research, ensuring that the money continues to advance science and innovation.
Does that mean taxpayers receive no benefit from the tens of billions of dollars in annual research grants? Just the opposite. By giving universities the ability and financial incentive to license their research discoveries to the private sector, the Bayh-Dole Act has spawned thousands of startups, created millions of jobs, and produced technological breakthroughs that have saved and improved countless lives.
Lutnick’s proposal to upend that system would not benefit taxpayers as he hopes. It would instead take us back to the system that existed before the act, when taxpayers’ research dollars were wasted and discoveries made in university labs were seldom turned into lifesaving, economy-growing products.
Prior to the Bayh-Dole Act, the federal government retained ownership of the patents on lab discoveries made with taxpayer funding. But government bureaucrats did a lousy job of licensing those patents to private companies that could perform further research and turn them into real products.
According to a 1998 report from the Government Accountability Office, “fewer than 5 percent of the 28,000 patents being held by federal agencies” in 1980 “had been licensed, compared with 25 percent to 30 percent of the small number of federal patents for which the government had allowed companies to retain title to the invention.” That’s because the government has no knowledge of or expertise in developing, manufacturing and marketing new, innovative products.
The universities that originated those discoveries, meanwhile, had no say in licensing decisions and no financial incentive to find private-sector partners who could turn new ideas or products into consumer options.
Sens. Birch Bayh (D-Ind.) and Bob Dole (R-Kan.) led a bipartisan reform to let universities own and license those patents. That simple change to universities’ incentive structure unleashed decades of economic growth.
From 1996 to 2020, universities’ efforts to license out their patents to private companies — and those companies’ subsequent research and development efforts to turn those patents into tangible products — has sparked the creation of more than 19,000 startups, contributed an estimated $1.9 trillion to U.S. gross industrial output, and supported 6.5 million jobs.
Those companies and workers then generate billions in tax revenue every year. And the fruits of this system are everywhere, from Google’s search algorithm and nicotine patches to high-definition TVs and firefighting drones. All exist because of the Bayh-Dole Act.
In other words, taxpayers already reap an enormous return from their research investments in the form of tax revenues from profitable firms and high-earning workers, in economic growth from new industries and technologies, and in lives saved through medical breakthroughs.
Taxing universities’ licensing revenues and thus decreasing their incentive to find private sector partners to further develop researchers’ initial discoveries would threaten this entire system.
The U.S. is by far the most innovative country in the world. As one European business school explains, “Without a doubt, the United States remains the global leader in startup creation. In 2024, it’s estimated that over 80,000 new companies were registered,consolidating its position as the most dynamic ecosystem for entrepreneurs worldwide.” Bayh-Dole plays an important role in that success.
The Bayh-Dole Act has already delivered exactly what Lutnick says he wants — a system where taxpayers benefit when government-funded science succeeds. Those benefits come not from Washington’s profit-taking, but from enabling universities and the private sector to collaborate and create jobs, generate tax revenue, and deliver inventions to the public.
Merrill Matthews is a co-author of “On the Edge: America Faces the Entitlements Cliff.”
