Patent Law

Did Bayh-Dole end Corporate R&D?

By Gary Odom and Jordan Kuhn

Thirty-years ago, many large corporations had entire in-house divisions devoted to R&D. Think of IBM's Watson and ARC Labs, AT&T Bell Labs, and Xerox PARC. Since that time, these R&D labs have greatly diminished in size or disappeared altogether. At the same time, the pace of innovation in the United States has not been slowed. Assuming that R&D is necessary for innovation, it's very important for us to ask what happened. Where did the R&D go? The Bayh-Dole Act is a prime suspect.

The fundamental economics of R&D changed overnight with its passage on December 12, 1980. Because of their academic role in teaching and publishing basic research, universities have a cost advantage to corporations in performing early-stage R&D. Think of the many federal grants that go to fund universities. Even without the grants, corporations can't offset the costs of R&D against undergraduate tuition dollars by requiring their researchers to stand in front of a classroom for a few hours per week. Once universities were permitted to take title to their R&D, many corporations gave up on building a top quality R&D division, and instead started sponsoring research at universities in exchange for patent rights. Hence the explosive growth in university technology transfer in parallel with the disappearance of many corporate R&D labs.

Check out the following graph, which is shown in this highly recommended article by a former Chief Economist to the European Patent Office:

The author asserts that funding of academic R&D is promoting later funding of private R&D, the idea being that funding of academic research generates ideas for a pipeline that eventually results in new products and services. Something like this is probably true in the U.S., although those in technology transfer at universities would caution that there exists a very real gap between early-stage R&D funding and venture capital financing. But it would be worth knowing if part of the "industry-financed R&D" isn't going to universities -- if even a part of it were, it could explain most of the correlation.

Overall, corporate R&D spending hasn't decreased since Bayh-Dole. What used to be spent on an in-house division is now spent on sponsorship of university research and the acquisition of intellectual property from smaller companies. The few exceptions to this rule (Google labs?) seem to be for companies that have trade secret protection as a viable alternative to patenting as a durable means for maintaining competitive advantage.

Full post as published by The Patent Prospector on March 11, 2008 (boomark / email).