By Chris Borges
The President’s Budget Request for fiscal year 2026 (FY 2026) includes steep cuts to federal research and development (R&D) funding—a troubling signal for U.S. innovation and economic security. While congressional committees may push back on the most severe reductions, the signs are clear: Federal R&D funding is likely to shrink over the coming years, especially in non-defense agencies.
This pivot raises a critical question: If we are entering an era where public R&D investment is no longer the anchor it once was, what policies will ensure the U.S. innovation ecosystem continues to thrive? Tax incentives are one important lever, but they are unlikely to be enough on their own.
One key part of the solution lies in strengthening intellectual property (IP) rights. In a future where the U.S. innovation ecosystem depends more heavily on private-sector investment across all stages of research, secure and predictable IP protections will be increasingly essential for sustaining long-term R&D investment—especially in early-stage science and emerging technologies.
Private R&D Is Rising, but Incentives Matter
The private sector already leads the United States in R&D spending, accounting for roughly 75 percent of total investment, up from near parity with public funding in the early 1980s. This investment primarily funds applied research and experimental development—later-stage research where outcomes are more immediate and commercially viable. Private firms invest far less in basic research, which is early-stage and therefore higher-risk, longer-term, and harder to monetize.
Less federal funding flowing to basic R&D represents a structural challenge for U.S. innovation. Many of the foundational technologies that support entire industries—machine learning algorithms, GPS, synthetic materials, and many more—originated in basic research funded by the federal government.
If public support for early-stage research declines, the private sector will need to fill at least part of the basic research gap for the U.S. innovation ecosystem to remain competitive. But for that to happen, the economics must work. Firms need confidence that if they invest in breakthrough discoveries, they’ll be able to generate returns. This is where IP rights come in—as a policy lever to promote private investment in long-term R&D.
How IP Rights Support Private Investment
Innovation is inherently risky, time-consuming, and capital-intensive. This is particularly true for critical and emerging technologies in sectors like biotechnology, artificial intelligence (AI), and advanced communications, where the costs of R&D are skyrocketing. Bringing a new drug to market can cost several billion dollars, while the cost of training a frontier AI model doubles every year. Yet success is far from guaranteed—more than 75 percent of startups fail, while less than 14 percent of drugs pass clinical trials and are approved for use.
Strong and secure IP rights enable the private sector to take on these massive and risky undertakings by providing clear ownership rights to their work. Absent such rights, it is less likely investors and firms would allocate large amounts of capital to fund early-stage projects with a high risk of failure, as success would inevitably be met with free riding by competitors. Why take the risks if someone else can simply steal your success? Instead, secure IP rights enable innovators to recoup their investments should they succeed and, ideally, fund further innovation.
This dynamic plays out across industries. In sectors like biopharmaceuticals, strong patent protections enable firms to secure funding years before their products reach market, allowing them to navigate the lengthy and risky innovation and clinical trials process. In advanced communications, secure IP rights empower companies to develop new technologies and incorporate them in vital technical standards (like 5G and 6G), with the assurance that they can earn revenue from their contributions. In the semiconductor industry, strong IP rights are essential for protecting chip designs, process innovations, and manufacturing techniques that take years and billions of dollars to develop. In each case, IP rights play a pivotal role not by guaranteeing success, but by rewarding success.
What the United States Can Do
If the United States is moving toward a more fully private-sector-led model of innovation, it needs a policy environment that supports it. Strengthening the U.S. IP system is an effective and immediate step the administration can take to promote private investment in R&D.
There are several pathways available for pursuing this objective. The administration and Congress can bolster the U.S. Patent and Trademark Office, appropriately resourcing the office to reduce the patent application backlog. They can reduce uncertainty in the IP system, such as by clarifying patent-eligibility guidelines, reinstating the historical presumption of injunctive relief, and ensuring AI-assisted inventions are patent-protected. And they can lead the international IP system and protect the rights of U.S. innovators abroad by remaining engaged in international IP bodies and pushing back on demands to erode IP rights.
Clear leadership and prioritization of IP rights by the United States would give innovators more confidence to invest in early-stage research in critical and emerging technologies, helping bridge the gap created by cuts to federal R&D funding.
Conclusion
The United States has long benefited from a strong federal research ecosystem. But as public investment shrinks and private firms take on more responsibility for R&D, particularly basic research, policymakers must confront that reality and ensure that the incentives for innovation remain strong.
That means treating IP policy not as a legal afterthought, but as a pillar of the national innovation strategy. Secure, stable, and predictable IP rights make high-risk, high-reward research financially viable. They ensure that ideas can become investments—and that investments can become breakthroughs. As the administration implements their vision for U.S. innovation policy, strong, secure, and predictable IP rights should be a part of that vision.
Data visualizations by Sabina Hung
Chris Borges is an associate fellow with the Economics Program and Scholl Chair in International Business at CSIS.
This piece was originally published on September 8th with the Renewing American Innovation Project at the Center for Strategic and International Studies in Washington, D.C.
