Compulsory Licensing: Evidence from the Trading with the Enemy Act

Compulsory licensing allows firms in developing countries to produce foreign-owned inventions without the consent of foreign patent owners. This paper uses an exogenous event of compulsory licensing after World War I under the Trading with the Enemy Act to examine the long run effects of compulsory licensing on domestic invention. Difference-in-differences analyses of nearly 200,000 chemical inventions suggest that compulsory licensing increased domestic invention by at least 20 percent.