Compulsory Licensing - Did Licensing during WWI Discourage German Invention?
University of Tuebingen
Stanford University - Department of Economics
Stanford University - Department of Economics; National Bureau of Economic Research (NBER)
August 6, 2014
Basic models of intellectual property rights predict that weakening patent rights will discourage innovation. Models of competition and innovation, however, indicate that increasing competition can encourage innovation, and policies, such as compulsory licensing, which weaken patent rights, increase competition by allowing a new set of firms to produce a patented technology. This paper exploits an exogenous episode of compulsory licensing under the 1918 US Trading-with-the-Enemy Act (TWEA) to examine whether such policies encourage innovation. We collect firm-level data set on nearly 80,000 German patents to examine changes in invention after the United States made German-owned patents subject to compulsory licensing in 1918. Baseline estimates indicate a 38 percent increase in patenting in response to compulsory licensing. Patent renewal data, as a measure for patent quality, suggest that only a small share of this increase was due to lower quality, strategic patents. Intent-to-treat regressions, which use German-owned US patents to measure exposure to licensing, imply a 30 percent increase. Firm-level data reveal a differential increase in entry into fields with research fields with licensing. Firms whose patents were licensed applied for more patents in these fields after 1918. These results are consistent with the prediction that weakening patent rights to improve competition can encourage innovation.
Number of Pages in PDF File: 55
Keywords: Patents, intellectual property, competition, innovation, compulsory licensing
JEL Classification: O3, O34, O38, N44, N42, K21working papers series
Date posted: March 30, 2014 ; Last revised: August 8, 2014
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