University licensing of patents for varietal innovations in agriculture

There has been a sharp increase in the number of patented agricultural varieties from public universities in the United States. We develop an experiment to examine the revenue stream to universities from licensing plant-based innovations. In the experiment we asked subjects to bid for access for a patented input that would be used to produce a differentiated product; treatments were employed to solicit bids that were financed by fees, royalties, and a combination of the two mechanisms under exclusive and nonexclusive contracts. The literature studying the economics of downstream duopoly competition in quantity suggests that revenues for the innovator would be greatest under a nonexclusive contract that uses fees and royalties. In our experiment we allow more than two firms to obtain access to the patent in the nonexclusive treatments, and our empirical results suggest that innovator revenues are greatest when royalties are used alone in a nonexclusive contract.