Taxing University Royalties Would Deliver Few Benefits, but Great Harms

One attribute that distinguishes America’s innovation system from that of virtually any other nation is that the United States has transformed its universities into engines of innovation. From 1996 to 2020, academic technology transfer activities by U.S. universities have generated over 117,000 patents, 19,000 startups, and hundreds of innovative drugs. America’s leadership in global innovation is not a given, and it will be lost if policymakers do not remain committed to enacting public policies that keep America the world’s leading location to undertake the difficult, complex, risky, and expensive process of innovation. Unfortunately, a misguided proposal from Commerce Secretary Howard Lutnick to have the government claim half the patent earnings from university inventions derived in part from federal research and development (R&D) funding threatens to significantly undermine this system while delivering very little benefit to taxpayers.

The Bayh-Dole Act, passed by Congress on a bipartisan basis in 1980, undergirds America’s world-leading academic tech transfer system. The legislation gives universities rights to the intellectual property (IP) derived from federal R&D funding, which they can then license out—often in exchange for royalties should the IP lead to successfully commercialized products—to entrepreneurs, start-ups, or small companies. In fact, 73 percent of university licensing deals involve start-ups or small companies. On average, three new start-up companies and two new products are launched in the United States every day as a result of university inventions brought to market in part thanks to the Bayh-Dole Act. Beyond the aforementioned patents and startups, academic tech transfer activity since 1996 has bolstered U.S. gross domestic product (GDP) by up to $1 trillion, contributed to $1.9 trillion in gross U.S. industrial output, and supported 6.5 million jobs.

In the Axios interview where he proposed this, secretary Lutnick asserted that “the U.S. government is getting no return on the money it invests in federal research.” He stated, “The scientists get the patents, the universities get the patents, and the funder of $50 billion, the U.S. government, you know what we get? Zero.” Since when did the U.S. government become an interest group. What benefit does it get from funding roads? Or funding national parks?

Even worse, this assertion is simply incorrect.

The U.S. taxpayer—and government—benefits greatly from this R&D funding, first from the extensive innovations produced from the academic tech transfer process, which alone has produced hundreds of life-saving drugs and vaccines, including treatments for breast, ovarian, prostate, and skin cancer, not to mention other breakthroughs in everything from Honeycrisp apples and neoprene to cloud and quantum computing. Second, the government benefits from the taxes produced by the trillions in industrial output and millions of jobs created as a result of university tech transfer. Moreover, academic tech transfer has led to the flourishing of university research parks across the country. A study by the Association of University Research Parks (AURP), finds that those parks alone generated $33 billion in federal tax revenue last year.

In the Axios interview, Lutnick further contended that “the American taxpayer should be a partner in the upside” of federally funded university research (as already shown, they well are) and then went on to claim that [if half the university royalties were taken by the government] then “our social security system would be paid for, and America wouldn’t be a broke country.”

So it’s now time to point out just how lucrative these university IP royalties are: in 2023, American universities generated $3.6 billion in patent income. In 2024, that number fell by 23 percent, to about $2.7 billion. Taking half that (i.e., $1.35 billion) would barely get the United States through half of one day’s worth of Social Security expenditures (which averaged $4.11 billion in 2024). Moreover, the aforementioned $33 billion in tax revenues generated by university research parks already delivers over 20 times more in tax revenues than the government would get from claiming half of the annual university royalty revenues.

Secretary Lutnick appears to erroneously believe there’s an enormously lucrative pot of university licensing revenue out there, but that betrays a serious misunderstanding of just how difficult the process of commercializing new innovations is. For instance, a 2023 study by the Massachusetts Institute of Technology (MIT) found that out of 605 active royalty revenue generating licenses, only four licenses (0.66 percent) generated over $1 million in revenues.

So there’s very little for the government to gain here; yet the damage could be severe. As noted, successful commercialization of university IP is already fraught with difficulties and tenuous at best. If universities doubled their license fees to ‘get back to even,’ potential licensors would be less likely to take a university license. Suppose that universities didn’t raise their fees, but lost half the revenues they now get, then they would be less inclined to undertake licensing activity. Moreover, it would deprive universities of the licensing revenue that plays an important role in funding everything from wet labs for scientists to university incubators and accelerators that play critical roles in seeding the next generation of innovation.

It’s also worth noting that the originally proposed Bayh-Dole legislation included a partial royalty payback provision to the government, but when Birch Bayh and Bob Dole consulted with federal agencies about it, they were informed the expense and bureaucratic effort to administer such a payback program weren’t worth the meager revenues expected therefrom (and so the provision was dropped from the final legislation.) In other words, the juice wasn’t worth the squeeze in 1980; it’s certainly not now.

It should further be noted that America’s successful academic tech transfer system is complemented by the Small Business Innovation Research (SBIR) program, which sets aside 3 percent of extramural research funding (about $2.5 billion) from 11 federal agencies to support innovative small businesses. Called “America’s Seed Fund,” SBIR itself has generated 70,000 patents and 700 public companies. Unfortunately, not only did Congress fail to renew the SBIR program before it expired on September 30, 2025, with the current government shutdown, the program is in hiatus.

Innovative American universities represent a crown jewel in America’s innovation system; but that treasure cannot be taken for granted. The Trump administration should abandon proposals to tax university IP royalties, work with Congress to get the SBIR program reauthorized when the shutdown ends, reverse the extensive cuts it has proposed to federal science and R&D funding, and recommit to policies laser focused on maintaining America’s innovation edge.

That’s because America’s leadership in global innovation is not a given, and it will be lost if policymakers don’t remain committed to enacting public policies that keep America the world’s leading location to undertake the difficulty, complex, risky, and expensive process of innovation.