ROYALTY SHARING AND TECHNOLOGY LICENSING IN UNIVERSITIES Saul Lach The Hebrew University and NBER Mark Schankerman London School of Economics and CEPR Abstract Using data for 102 U.S. universities, we show that royalty-sharing arrangements (cash flow rights) vary substantially across universities and that they are largely unrelated to most observed university characteristics including faculty size, quality, research funding, technol- ogy mix of the faculty, and size of the technology licensing office. However, higher inventors’ royalty shares are associated with higher licensing income at the university, controlling for other factors. The results suggest that monetary incentives from inventions have real effects in the university sector. (JEL: O31, O34, L3, L01) 1. Introduction By the end of the 1990s, universities accounted for about 50% of all basic research in the United States (National Science Board 2000). This academic research has had real effects on the economy by increasing the productivity of private sector R&D and the growth in total factor productivity (Jaffe 1989; Adams 1990; Henderson, Jaffe, and Trajtenberg 1998). These benefits work through direct knowledge spillovers and the licensing of university-owned inventions to private firms. Technology licensing activity has grown dramati- cally in the past two decades. 1 Over the period 1982–2000, the number of U.S. patent grants to university inventors rose from 500 to almost 3,800. The number Acknowledgments: We are grateful to Don Siegel for generous help with the AUTM data and other issues throughout the project, and to Alejandro Goren, Haim Mizrahi, and Anna Yosifun for research assistance. We also thank the Samuel Neaman Institute for Advanced Studies in Science and Technology Policy at the Technion (Israel) for encouragement and financial support in this research project. E-mail addresses: Lach: Saul.Lach@huji.ac.il; Schankerman: M.Schankerman@lse.ac.uk 1. Part of this rapid growth in university innovation and licensing activity is due to the passage of the Bayh-Dole Act of 1980 (Patent and Trademarks Amendments Act, PL 965-17), which gave universities the right to patent and a mandate to license discoveries made with federally sponsored research to the private sector. By the year 2000, nearly all American research universities had established, or expanded, technology licensing offices and introduced explicit intellectual property policies and royalty-sharing arrangements for academic scientists. Empirical studies of technology transfer include Jensen and Thursby (2001), Thursby, Jensen, and Thursby (2001), Thursby and Kemp (2002), and Siegel, Waldman, and Link (2003). Journal of the European Economic Association April–May 2004 2(2–3):252–264 © 2004 by the European Economic Association