The Effect of Compulsory Licensing on Innovation in Pharmaceuticals: Evidence from the 2001 Doha Declaration

Abstract

How does compulsory licensing affect firms’ incentives to innovate in pharmaceutical markets? While compulsory licensing improves static efficiency by increasing public access to lifesaving drugs, critics argue it harms dynamic efficiency by discouraging firms from inventing new drugs. To answer this question, this paper studies the effect of compulsory licensing events that occurred following the Doha Declaration on the TRIPS Agreement and Public Health in 2001. I construct a unique dataset on pharmaceutical patents by identifying relevant patent-classification codes and deploying an automated patent landscaping model, and empirically estimate the relationship between compulsory licensing and patenting in pharmaceuticals. The results indicate that issuing of an additional compulsory license is associated with 5.10% decrease in innovation. Specifically, when the market share affected by compulsory licensing increases by 1%, patenting rates for the licensed disease decrease by 12.7% to 16.3%.