Compulsory licensing has been advanced as a policy tool to deliver life-saving drugs to millions of patients in developing countries and in the United States. Under this policy, which is permissible under the Trade Related Intellectual Property Rights (TRIPS) agreement, governments grant domestic firms the right to produce inventions that are patented by foreign nationals, without the consent of patent owners. Compulsory licensing offers obvious short-term benefits as it grants quick access to medicines and other essential innovations. The policy?s long run effects, however, are unclear. On the one hand, compulsory licensing may reduce incentives to invest in R&D as it weakens the property rights of original inventors. On the other hand, compulsory licensing may promote invention as it enables a new set of firms to gain experience with production, which in turn creates opportunities for learning by doing and strengthens incentives to invest in scientific training and other skills that are necessary for invention.
This project uses an exogenous event of compulsory licensing after World War I to measure the long-run effects of compulsory licensing on domestic invention in the licensing country. Specifically, we compare changes in patents by domestic inventors across U.S. chemical inventions that were differentially affected by compulsory licensing under the Trading with the Enemy Act (TWEA) of World War I. Preliminary tests on a subset of chemical patents suggest that compulsory licensing has a large positive effect on domestic invention. Preliminary tests also suggest that the full effects of compulsory licensing set in only after about 10 years, even though some effects appear after about 5 years. Thus, due to their long-run nature, the full effects of compulsory licensing may be missed in analysis of contemporary data.
