Entrepreneurship and University Licensing

The Bayh-Dole Act of 1980, which permitted institutions receiving government research funds to patent their inventions, has prompted U.S. firms to rely increasingly on outside—and particularly university—invention.The purpose of this study is to examine the effects of various licensing modes for both in-firm and outside inventors and to propose two additional licensing modes by which an outside inventor can achieve full appropriation. The first mode involves licensing an incumbent at a fixed fee, which subsequently charges unit royalties to the other firms in the industry.The other mode involves granting an exclusive license to an entrant. Strategies for incumbent inventors are based on the assumption that incumbents prefer unit royalty licenses to fixed fee licenses.Because outside inventors always stand to gain from their inventions regardless of market and firm conditions, and because outside invention is more likely than inside invention to push incumbents to commercialize inventions, outside inventors have greater incentive to invent than do incumbents.Under-investment occurs only in the case of incumbent invention. (SAA)