Compulsory licensing under the multilateral trading system

This chapter provides an overview of the economics of compulsory licensing of patents in an international setting. It draws upon formal economic analyses, current rules of the multilateral trading system, the actual experience of several countries, and the relevant empirical literature to address several key questions regarding compulsory licensing: What is the economic and social justification for compulsory licensing? When and why does compulsory licensing arise? How does it affect the patent-holder and the recipient country involved? Can the mere possibility of compulsory licensing alter the nature of price bargaining between patent-holders and governments? The formal literature on compulsory licensing has provided nuanced answers to these questions and uncovered several subtleties that underlie the economics of compulsory licensing. Furthermore, both analytical models as well as empirical evidence suggest that it ought to be eminently possible to strike a balance between improving consumer access to existing patented pharmaceuticals via compulsory licensing and preserving innovation incentives for the creation of new ones.