Innovation landscapes: The effect of public science on corporate R&D

Federally funded basic research conducted at American universities grew steadily from about $10 billion in 1991 to just under $50 billion in 2020 (in constant 2022 dollars). And since the passage of the Bayh-Dole Act in 1980, universities have played an increasing role in the patenting and commercialization of their discoveries. Patents to US universities increased from 440 in 1981 to 8706 in 2020. U.S. universities licensed or optioned more than 10,000 patented inventions to the private sector in 2020. How does this large taxpayer investment in public science and the inventions that result from it affect corporate research and development?

A recent research summary from the National Bureau of Economic Research, “The Effect of Public Science on Corporate R&D,” examines the relationships between corporate R&D and three components of public science: knowledge, human capital, and invention. The authors’ perspective is that in addition to producing scientific knowledge, universities also produce trained researchers and inventions that can be used by startups or licensed to established firms. New knowledge generated from university research may lessen the need for corporate research, lowering the cost of internal inventions. An increased human capital supply may also lower the cost of internal research. And the availability of such public inventions as patented or licensed university technologies may reduce a corporation’s innovation cost.

Using publications, PhD dissertations, and patents as inputs, the authors create a framework to measure the effects of these three components on all publicly traded U.S.-based companies with at least one year of R&D expenditures between 1980 and 2015. They find that while public knowledge alone has a negligible effect on corporate research, public invention does reduce the cost of corporate R&D. And an increase in new PhDs in research areas directly relevant to the company increases the firm's patents and publications. They also find that the closer a firm is to the technology frontier, such as those working in artificial intelligence and quantum computing, the more likely it is to continue investing in internal research even when there is large public investment.

Given that basic research is, by definition, intended to generate greater knowledge without specific applications towards processes or products in mind, it is unsurprising that such federal investment in university research most benefits firms in emerging fields. At the same time, the authors note that these findings may point to an important implication for R&D in incumbent firms: an increase in applied research by universities funded by federal programs such as the CHIPS and Science Act may spur additional competition from startups and corresponding changes in corporate R&D.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.