The Impact of Compulsory Licensing on Foreign Direct Investment: A Collective Bargaining Approach

Abstract

The innovation impact of intellectual property compulsory licenses - government-imposed access without the authorization of the property owner - has generated great interest in the academic literature. Moreover, recent measures by the governments of Thailand and Brazil have generated increased international awareness of the issue. Equally significant, but receiving less attention is the impact of compulsory licenses on flows of foreign direct investment (FDI) to the granting nation. It is quite likely that FDI mechanisms provide an important attenuating factor that influences a country's compulsory license strategy. This paper investigates the compulsory license-FDI relationship, using essential medicines as a context. It explores the potential for collective action and bargaining on the part of licensing nations to minimize FDI losses while preserving access. Middle-developed countries (MDC) such as Egypt and Brazil are highlighted to demonstrate the extent to which nations with differing abilities to resist political pressure can influence FDI losses. The paper concludes by demonstrating optimal negotiating strategies using a unique game theory framework that models real-world licensing decisions