The discovery dimension of higher education mostly involves basic research, but sometimes out of scientific inquiry comes valuable commercial applications. Once most research was conducted by lonely individual researchers with perhaps one or two assistants, but as scientific inquiry has become more complex, lots of expensive equipment are used by teams of scientists, often from multiple universities. Two senior researchers, one from the University of Wisconsin and the second from Washington University in St. Louis, had a breakthrough doing research conducted on kidney disease in the 1990s that resulted in the drug Zemplar. (Full disclosure: this author has lectured at both universities, and served as a visiting professor at Washington University in the mid-1990s).
Although apparently federal research money was involved, since the Bayh-Dole Act was enacted in 1980 it is possible for universities and their researchers to share in the fruits of patents. Our nations extraordinary inventiveness and innovation reflect a solid constitutional basis; Article I, section 8 gives Congress the power To... promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries... Throughout American history, tinkerers and scientists have been incentivized by their attainment of intellectual property rights, providing royalties from their discoveries.
But the process of obtaining and enforcing patent rights is complicated these days, particularly when multiple scientists and universities are involved. Washington University and Wisconsin agreed that a research foundation affiliated with Wisconsin would administer the patent and the funds derived from it. Over the years, the success of Zemplar has brought literally hundreds of millions of dollars to Abbott Laboratories and later its spinoff AbbVie. Under the provisions of Bayh-Dole, the two universities and their scientists were slated to share in the largess. I do not know the details of the dispute, but the federal judge overseeing it ruled that the Wisconsin Alumni Research Foundation had inappropriately siphoned a disproportionate part of the patent royalties to Wisconsin and that it owed Washington U. $31.6 million.
Scientific discovery is a bit like oil prospecting. There are a lot of dry holes, but the occasional home run discovery makes the quest for patents generally worthwhile financially. My university, Ohio University, is a mid-size research operation but generates far more royalty income from discoveries than its much larger neighbor, Ohio State, simply because of a very successful discovery of a human growth hormone drug. The University of Florida at last report had collected $281 million from the invention of Gatorade.
Even more important to most universities than royalty income, however, is the overhead money that they receive from federal research grants. I have earlier argued that this system is ripe for reform, but at present billions of dollars from research grants help fund the burgeoning bureaucracies endemic to major American universities and provide perks for key professors. Data on faculty salaries suggest those who are strong in making research contributions generally fare far better financially than those whose strength comes from dedication to teaching.
Is the current system optimal? There is some evidence the U.S. is losing its high technology lead to other nations, especially China, that are devoting increasing resources to improving the quality and quantity of scientific research. It can be argued that our nation is spending too much for current consumption and spending too little on improving our future standard of living through investment (machines, buildings, and research). This might be a case for greater funding of the National Institutes of Health, the National Science Foundation, etc. Countering this, however, diminishing returns apply to research like they do to most other things, so doubling the amount spent on funding research will not likely double real increases in new discoveries. Also, there appears to be a good deal of economic rent associated with research: payments to individuals resulting in little or no increase in outcomes.
One final thought. The winner in this latest research battle, Washington University in St. Louis, is distinctly not an athletic power, unlike the University of Wisconsin, a member of one of the greatest groupings of schools (the Big Ten) in American intercollegiate athletics. There are other paths to wealth and recognitionone can gain them in the laboratories and libraries as well as on the playing field.