Will America’s Startup Engine Stall Under a Biden Administration Proposal?

Investors often ask entrepreneurs on Shark Tank: Do you own any intellectual property? There’s a reason for that. In the world of innovation, the idea behind a product–known as intellectual property (IP)–is just as important as the product itself.

According to Chris Israel, Executive Director of the Alliance of U.S. Startups & Investors for Jobs, IP is the “only thing that startups can count on to give them a fighting chance to recoup their investments and earn a return.”

New Proposal Undermines Vital Collaborations

Just as entrepreneurs work with the Sharks on the show to commercialize their IP, since the 1980s, federal law has facilitated public-private partnerships between the federal government, research institutions and the private sector, leading to new ideas and discoveries to the marketplace. Unfortunately, a new Biden administration proposal will undermine these critical partnerships and damage the innovation engine and technological progress Americans are counting on.

How America’s Startups Got Supercharged

Startups are responsible for many of the genuinely cutting-edge inventions we’ve seen in the last few decades, as well as most of the net job growth and economic development in the U.S. Of course, such success didn’t happen by accident; it happened by design, much of it the direct result of the Bayh-Dole Act, passed in 1980, Congress transformed a broken innovation ecosystem creating an engine of growth for American consumers and workers.

The Bayh-Dole Boom

Before 1980, any IP discovered with the aid of federal funds was retained by the federal government and rarely shared with partners. Every day, more federally supported discoveries were made at research institutions nationwide, but none were being turned into real-world solutions or brought to market.

In fact, before the Bayh-Dole Act, only five percent of federally funded patents were turned into accessible products.

So, legislators reformed the system to allow recipients of federal funding to keep ownership over their IP and license it themselves. As a result, from 1996 through 2020, more than 17,000 startups in various fields have formed around federally funded IP, supporting more than 6.5 million jobs. In 2022 alone, $91.8 billion in federal research funding drove the creation of 998 new startups and 850 new products.

A Retreat for American Innovation

Rather than sustain and strengthen this growth, the Biden administration has chosen to squash it by proposing to use Bayh-Dole's "march in" provision. This provision was designed to allow the government to relicense a patent derived from federal funding in the rare event that the patent owner fails to commercialize it for consumers in a reasonable time frame. 

More specifically, President Biden has decided to trigger relicensing should federal officials determine that a product's price is "unreasonable." Such a move ignores the "march in" provision's intent and has several very serious consequences.

In the law's 44-year history, the "march in" provision has never been used at all because bi-partisan leaders have understood the dangers of doing so, including:

• When IP ownership is uncertain, innovation and growth suffers: President Biden's proposal to increase the risk of commercializing innovation could have a chilling effect, causing private innovators to abandon federally funded patents and threatening the survival of startups, like the pre-Bayh-Dole era.
• Investors will refrain from pursuing federally supported projects, and researchers entering business based on their federally funded IP will likely face reluctance or outright refusal from other companies and venture capitalists.
• Destabilizing the innovation ecosystem: More government regulation and potential seizure of private property are daunting prospects for businesses, threatening their viability and autonomy by granting unprecedented power to unelected bureaucrats.
• Jeopardizing innovation at America's expense: Initially, the government claimed its actions were directed at pharmaceuticals, but their proposal threatens all IP-intensive industries like biotech, aerospace, energy, and technology, risking American competitiveness and innovation centers, to our economy's detriment and the benefit of our economic rivals. 

Bottom Line

The public-private partnership enabled by Bayh-Dole has long been the key to American innovation and competitiveness. President Biden’s proposal to use the law’s “march-in” provision will reverse the progress we’ve made and cause startups to pack up, with their ideas for a brighter future in tow.

About the authors

Tom Quaadman

Tom Quaadman develops and executes strategic policies to implement a global corporate financial reporting system, address ongoing attempts of minority shareholder abuse of the proxy system, communicate the benefits of efficient American capital markets, and promote an innovation economy and the long-term interests of all investors.

Read more