Patent protection in developing countries and global welfare: WTO obligations versus flexibilities

Eric Bond and Kamal Saggi ()

Journal of International Economics, 2020, vol. 122, issue C

Abstract: This paper develops a North-South model to evaluate the South's incentive for patent protection when a Northern firm's investment in quality-enhancing research and development (R&D) is affected by its patent policy. The model is used to (a) evaluate the impact of requiring the South to fulfill its key WTO obligation of instituting patent protection and (b) to address the role of two major flexibilities that WTO members enjoy with respect to their patent policies: the freedom to implement exhaustion policies of their choosing and the right to use compulsory licensing (CL) subject to certain stipulations. Two forces drive the model: how much the firm invests in R&D and whether or not selling in the South maximizes its global profit. CL improves consumer access in the South and can even raise innovation and global welfare. Provided the South implements patent protection, innovation and welfare are higher if the North follows national as opposed to international exhaustion. However, the South's incentive for patent protection is not necessarily stronger under national exhaustion. Not only is CL more likely to be used under international exhaustion, the welfare gain resulting from its application is also higher relative to that under national exhaustion.

Keywords: Patent protection; Compulsory licensing; Exhaustion policies; Imitation; TRIPS; Quality; Welfare; WTO (search for similar items in EconPapers)
JEL-codes: F12 F13 F23 O34 O38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:122:y:2020:i:c:s0022199619301011

DOI: 10.1016/j.jinteco.2019.103281

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