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Abstract
Enabled by the Bayh-Dole Act (1980), universities license access to innovations
protected by US patents. Despite the growing importance of license revenue to cash-
strapped land-grant universities that generate a large share of agricultural innovations,
there has been no formal attempt to determine an optimal pricing strategy for patent
licenses. We recognize that patents are options on the stream of future revenues, and
apply option-valuation techniques to determine optimal pricing strategies for university
technology o¢ cers. We
nd that path-dependency in license revenue streams creates
signi
cant di¤erences in the optimal pricing strategy relative to more standard risk-
neutral pricing models, but that path-dependent pricing more nearly approximates ob-
served patent prices. While non-path dependent prices yield conventional sensitivities
to volatility, mean-reversion and returns-growth, path-dependent prices show highly
non-linear comparative statics. These results are important both for patent licensees,
and for licensors seeking to maximize license revenue.