Two senators from opposite ends of the political spectrum—Birch Bayh and Bob Dole—did not agree on much, but they did agree that such foolishness simply had to end. Their breaking point was learning that potentially life-saving inventions discovered by universities and small companies under federal grants and contracts were routinely taken away by federal agencies. Non-exclusive licenses were then offered by the US government. There was no incentive for inventing organizations to remain engaged in subsequent development. Not surprisingly, this generated little interest from industry. In fact, the Senators learned that not a single drug had been commercialized under this policy.
Bayh-Dole ActEven in a contentious election year, conservatives and liberals alike recognized that such practices undermined American competitiveness, wasted precious public dollars, and most importantly, denied those suffering from the ravages of disease hope for alleviating that suffering. Congress overwhelmingly passed the Bayh–Dole Act in 1980.
The Bayh–Dole Act allows universities and small companies to own inventions made with federal support, provides incentives for licensing to small companies and those manufacturing in the US, rewards academic inventors, and allows the government to use technologies that it funds to meet mission needs. The law costs no additional dollars and creates no bureaucracy.
Two other events combined with the Bayh–Dole Act to revive American innovation just when critics were pronouncing that our time had passed. In 1980, the US Supreme Court held in Diamond v. Chakrabarty that "everything under the sun made by man" (including Dr. Chakrabarty's oil-eating bacterium) was eligible for patenting. Then in 1982, Congress created the Court of Appeals for the Federal Circuit to restore confidence in the US patent system.
An immediate result of these actions was the development of the US biotechnology industry, spawned from patented university research commercialized by small company entrepreneurs.
After much talk about the importance of technology transfer from academia to industry, the Biotechnology Industry Organization (BIO) commissioned a report to document its contribution to the US economy. The report examined university and nonprofit organization patent licensing between 1996 to 2010 and documented (1):
In fiscal year 2010 alone, academic research spun out 651 new companies, the vast majority of which were located in the institution's home state. Forming so many technology companies is a remarkable achievement, particularly in tough economic times. There are now more than 3600 such startups in operation across the US.
The ties between biotechnology and university research are critical. Most biotech companies license technologies from universities and many of the most prominent companies spun off campus. The continuation of this relationship—buttressed by a strong, dependable patent system—is essential to the biotech industry's success in an increasingly competitive world market.
However, the federal government's funding of basic research coupled with the incentives of the Bayh–Dole Act creates only the potential for success. This potential is actually realized when private sector entrepreneurs take embryonic ideas and then invest years of their lives and billions of dollars in risk capital to transform academic concepts into commercially available therapies. Even then, the odds of success are daunting.