This paper looks at the actual and potential effects of compulsory licensing within a country’s intellectual proprty rights regime for agricultural research and development. Compulsory licensing currently plays a role in the patent systems and plant variety protection systems that are employed by a number of countries, and potentially, it could play an even greater role. All the same, the strategic incentives that arise under compulsory licensing have not been fully examined by economists or policy makers, and some commentators feel that the potential policy effects of compulsory licensing have not yet been realized. A confounding influence on those who are concerned about the infrequent use of the compulsory licensing provisions in some jurisdictions is that introduced incentive effects may be present and may be influencing firms’ strategic behavior, even where few applications for compulsory licences have been granted.
In this paper, the author looks at issues such as how to prescribe optimal levels of compensation between firms when one is seeking a compulsory licence to use the intellectual property of another, as in a cumulative or sequential research processes. An hypothesis previously developed in the economics literature is that compulsory licensing is capable of increasing the social welfare gains associated with research and development (R&D) activities in some cases. However, the effects of compulsory licensing on firms’ incentives to undertake such R&D will depend in specific ways on the level of licence fees which are prescribed and on the specific set of rights which are transferred. This leads to the author’s discussion of a number of alternative ways that compulsory licensing can be legally defined or implemented, highlighting specific areas for further economic research.
Historically, compulsory licensing provisions have been used more widely in Canada than in the United States, and they remain a valid part of international agreements on intellectual property rights protection, such as the TRIPS Agreement under GATT, and the 1991 UPOV Convention. The paper illustrates the provisions of Canada’s Plant Breeders’ Rights legislation as an example where compulsory licensing has been allowed but not actively used.