21st Century Challenges in Intellectual Property and Knowledge Governance
Elgar Intellectual Property and Global Development series
Edited by Dana Beldiman
Chapter 3: Intellectual property in the Cathedral
What are the advantages of the compulsory license? The answer is relatively simple. It permits balancing of all interests involved. As far as the right holder is concerned, it retains the maximum exclusivity possible. Only a very limited number of competitors will enter the market. The compulsory license eliminates contractual freedom only with regard to the choice of the partner, but not with regard to negotiation of compensation. Even if the parties to a negotiation do not agree on compensation, a court deciding the case would have to take into consideration the concrete market conditions, as well as the principles of fairness and reasonableness. At the end of the day, this might result in conditions equal to the ones that would have been reached under a negotiated license agreement. In economic terms, the compulsory license alters the property rule to kind of a tailor-made liability rule. The compulsory license is, of course, also advantageous to the competitor. The competitor is enabled to use whatever it needs to use, same as under a negotiated license agreement. It is, of course, subject to certain requirements regarding grounds for grant of a compulsory license and to fair and reasonable terms of competition. The effect is then that a competitor who obtains a compulsory license may stimulate competition. This may be the case related to a certain product, which means that the product itself will not be developed further by the competitor, but that there is increased competition in the product market.
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