[Ip-health] CATO study of compulsory licensing & innovation

[Peter Maybarduk]

http://www.cato.org/publications/research-briefs-economic-policy/does-compulsory-licensing-discourage-invention-evidence

Discusses pharmaceutical disputes in the introduction, then: 
 
"This paper exploits new individual-level data on German patents and a historical episode of compulsory licensing during World War I to examine the effects of compulsory licensing on inventors whose patents are licensed. As a source of quasi-experimental variation, it exploits the U.S. decision in 1918 to make all enemy-owned U.S. patents available for compulsory licensing. The United States authorities confiscated a total of 4,706 German-owned U.S. patents under the Trading with the Enemy Act of 1917 (TWEA); 1,246 of these patents were licensed to U.S. firms. Licenses were nonexclusive and issued "upon equal terms and a royalty basis, to any bona fide American individual or corporation." Although the exact timing of licensing is unknown, most licenses were issued between 1919 and 1922. Earlier work has shown that compulsory licensing under the TWEA helped trigger an increase in U.S. invention; in fields with licensing, U.S. patents by domestic inventors increased by an additional 20 percent after 1918. Previous work has, however, been unable to identify the effects on inventors whose patents were licensed, which is essential for understanding the welfare effects of this policy.

...

"Finally, inventor-level analyses of patenting suggest that firms whose patents had been licensed applied for an additional 0.42 patents per year after 1918 in fields with licensing compared with other German firms. Relative to an average of 0.46 patents per firm, field, and year until 1918, this implies a 91 percent increase. Inventor-level analyses also reveal a substantial differential increase in the number of active patentees in fields with licensing, which indicates an increase in entry. Consistent with theoretical predictions about the link between competition and innovation, we find that the observed increase in patenting was strongest for fields in which preexisting levels of competition were low. Taken together, these results suggest that compulsory licensing may be particularly effective in promoting invention by increasing the threat of competition in fields with low preexisting levels of competition."