Patents, Competition, and Innovation – Evidence from Compulsory Licensing During WWI

This paper examines whether the US decision during World War I to violate enemy owned patents - through compulsory licensing - discouraged invention. Estimates from a new data set of German patents indicate a 28 percent increase in invention. Controls for patent quality suggest that only a small share of the increase was due to lower quality, strategic patents. Firm-level data suggest that compulsory licensing facilitated competitive entry into fields with licensing. Firms whose patents had been licensed began to patent more in research fields with licensing. The increase in patenting was strongest for fields with low levels of pre-existing competition.