Academic patent licenses: Roadblocks or signposts for nonlicensee cumulative innovation?

•We empirically address the effects of exclusive licensing of university inventions on patented innovation by nonlicensees.•We study patents and their licensing at three National Research Laboratories and nine University of California campuses.•After exclusive licensing, forward citations by patents of private sector nonlicensees tend to increase.•Licenses appear to be signposts pointing to innovation pathways that nonlicensees follow with patented research.•Findings are robust to a series of alternative explanations.

Academic inventions are key drivers of technical progress in modern economies, and exclusive licensing has become the dominant means of transfer to the private sector. However, the strong licensee incentives generated by exclusive academic licensing are generally assumed to come at the expense of discouragement or diversion of research by nonlicensees. Using data from university campuses and national research laboratories we find that, after exclusive licensing, forward citations by private sector nonlicensees actually increase. An unanticipated exclusive license appears to be a signpost pointing to commercially relevant innovation pathways that nonlicensees follow with successful patented research. Tests using multiple pre-license information disclosures support this signaling hypothesis.