America’s Innovation Economy Runs on Small Business – Inside Sources

Small businesses are the engine of America’s economic and technological future, and the Trump administration knows it. Administration officials have repeatedly cited startup formation and entrepreneurship as key to addressing the nation’s most urgent policy challenges, from artificial intelligence advancement and scientific leadership to job creation and reindustrialization.

To aid startup growth, administration officials have worked to expand government-backed financing for small firms, attract more private capital to startups and help entrepreneurs commercialize emerging technologies and leverage domestic manufacturing. The Working Families Tax Cuts Act included numerous provisions — such as making permanent the 20% small business deduction and personal tax rates, and investment incentives to boost small business investment and innovation — that have strengthened the cash flow and competitiveness of small businesses.

Still, one of the most important ways to strengthen America’s startup ecosystem requires no new federal initiatives or additional funding at all. It simply requires policymakers to preserve a longstanding legal framework that has fueled American entrepreneurship for more than four decades.

Congress passed the bipartisan Bayh-Dole Act in 1980 to create a more effective pathway for federally funded research to become new technologies, products and businesses. At the time, the federal government held most patents on discoveries made with federal research dollars, roughly 28,000 in all. But it licensed fewer than 5% of them for commercialization, keeping tens of thousands of potentially valuable technologies and medicines from benefiting the public.

Bayh-Dole changed that by letting universities, nonprofit research institutions, small businesses and federal laboratories keep the patent rights to inventions they developed with federal support. That created incentives for universities to license those discoveries to small companies, which could then use the patents to attract capital and invest in further development.

Four and a half decades later, the Bayh-Dole framework remains indispensable to American small business growth.

New research shows that from 2021 through 2025, universities, hospitals and nonprofit research institutes averaged more than 19,000 income-generating licenses each year — approximately twice the annual average from the early 2000s. Roughly 70% of university licensing agreements are with startups and small companies.

In many cases, those licensing agreements give rise to entirely new companies. Since 2001, the Bayh-Dole system has helped launch more than 19,000 startups, including more than 5,400 in the South and Puerto Rico, over 4,900 in the West, over 4,800 in the Northeast and nearly 3,800 in the Midwest.

As these businesses grow, they hire workers, do business with other local companies and strengthen their regional economies. That produces compounding economic benefits. Since 1996, the Bayh-Dole system has contributed up to $1.7 trillion to U.S. gross domestic product and supported up to 7.6 million years’ worth of jobs for Americans.

And many of the inventions produced by this system have become integral to Americans’ daily lives. FluMist, smartphone cameras and cryptocurrency platform technology all trace back to federally supported research at universities and federal laboratories. So does the search algorithm developed by two Stanford graduate students that became the foundation for Google.

Unfortunately, in recent years, the Bayh-Dole system has faced growing uncertainty.

Some policymakers are debating changes that could reduce startups’ access to innovative, federally funded research. One proposed rule change would allow the government to cancel long-term research funding on a political whim. Meanwhile, one agency adopted guidelines that make industry licenses less secure by requiring ongoing product-access plans that can be used to revoke licenses even after products have been developed, which directly violates Bayh-Dole.

That uncertainty could have devastating consequences for startups and America’s innovation ecosystem. Startups often build their businesses around a single unproven invention, and they have fewer resources than larger companies to absorb the risks of developing a new product and bringing it to market.

If small companies cannot reliably protect their patent rights, it could become much harder for them to raise the investment needed to continue researching, testing and manufacturing new technologies.

Instead of altering the Bayh-Dole system, policymakers must preserve it. The data show that Bayh-Dole remains an important driver of American entrepreneurship, innovation and economic growth. Protecting this framework will help ensure that startups can continue turning federally supported discoveries into new companies, jobs and technologies that strengthen American competitiveness.

The technologies that will define America’s future may already be taking shape in university laboratories. Congress can help ensure these new technologies reach the public by protecting the framework that lets entrepreneurs and small businesses license inventions made with federal support, attract investment and bring them to market.