The Impact of TRIPS and Compulsory Licensing on Developing Country Markets

By Eric Bond (Vanderbilt University) and Kamal Saggi (Vanderbilt University)

The Trade-Related Intellectual Property Rights (TRIPS) agreement of the World Trade Organization (WTO) requires that all WTO members provide a minimum level of patent protection for all types of intellectual property. This requirement has created a problem for developing countries in obtaining access to patented pharmaceuticals, because pharmaceutical companies are reluctant to sell drugs in middle and lower income countries due to the potential negative impact on prices in high income markets. The spillovers can result from the use of reference pricing in high income markets, whereby a high income country government uses an average of prices in other countries to determine the price that a patent holder can charge in its market.  Spillovers can also arise from illegal arbitrage trade.[1]

As a result of these potential spillovers, newly patented drugs may be unavailable or introduced with substantial delays in middle and low income markets.[2] TRIPS does, however, provide countries with the option of issuing a compulsory license (CL) if the market has not been served in a reasonable period of time. A country issuing a CL is required to provide adequate compensation to the patent holder. There have been a number of examples of the use of CLs to obtain access to patented pharmaceuticals by middle and low income countries since the advent of TRIPS, including drugs to treat AIDS, heart disease, and cancer.[3]

How does the requirement of patent protection under TRIPS, combined with the option of issuing a CL if the market isn’t served, affect the welfare of developing countries and patent holders? In a recent article, we address this question using a game-theoretic model to consider a patent holder’s decision of whether it should incur the fixed cost of entering a developing country market.[4] We show how the answer to this question depends on the imitative ability of the developing country to produce copies of the patented product and the level of fixed costs of entry relative to the profits from the market.

Prior to TRIPS, a developing country could obtain copies of patented products from imitators if it did not provide patent protection.  For countries where the cost of entry for the patent holder was high relative to the profits from entry, typically countries with relatively small markets, the patent holders would only enter if patent protection was provided. The country would then have to choose between providing patent protection and obtaining a high cost, high quality product, or not providing patent protection and obtaining a low quality and low cost imitation. The high entry cost countries would only provide patent protection if the quality of imitators was sufficiently low.

In contrast, for countries where the fixed costs were low relative to the profits from entry, the patent holder might still be willing to enter without patent protection if the quality of the imitators was not too high. These countries obtained a double benefit by not providing patent protection: the patented product was obtained at a low price and the copies were also available for those unwilling to pay the price for patented goods.

The absence of patent protection prior to TRIPS made CLs an unnecessary instrument for developing countries, because imitators could produce patented foreign products without requiring a license.  In fact, we show that the option of using a CL could actually make all parties worse off by reducing the incentive of developing countries to offer patent protection. The insight is that developing countries are better off under imitation relative to a CL and therefore have an incentive to preempt the possibility of the patent-holder resorting to a CL by not recognizing the patent. After all, the issuance of a CL is premised on the legal recognition of the underlying patent.

The TRIPS requirement that developing countries provide patent protection made developing countries worse off and patent-holders better off, because it raised prices of patented products by preventing imitators from providing competition for patent holders. The extent to which the option of a CL mitigates the loss to the developing countries from TRIPS depends on the country’s characteristics. For countries with markets sufficiently profitable that the patent-holder would have entered without a patent, TRIPS primarily benefitted patent-holders by eliminating competition from imitators. For countries that would have had to rely on imitators to provide the product prior to TRIPS, TRIPS provides access to the product through a CL. However, the delay required before a CL can be issued means that the country will not obtain access to a copy of the patented product as quickly as it would pre-TRIPS.

Finally, the fact that the patent holder obtains a royalty payment under the CL means that it might prefer a CL to entry if the return from entry is sufficiently low. Thus, the option of a CL could actually cause countries that provided patent protection pre-TRIPS to experience delay in obtaining access to the patented product under TRIPS. It should be noted that since developing countries do not take into account the profits of patent holders in making their decision whether to provide patent protection, the level of protection was below the socially optimal level pre-TRIPS.

We also consider the case in which the government of the developing country negotiates a price ceiling for which the patented product is to be sold in its market. The effect of the CL in this case depends on the relative bargaining power of the two parties during negotiations over the price ceiling. If the patent-holder has all of the bargaining power, then the government is able to use the threat of a CL to lower the price of the patented product. If the country has all of the bargaining power, the royalty payment required by TRIPS benefits the patent-holder by providing a minimum level of compensation that it must receive for entering the market. Thus, the ability to issue a CL primarily benefits the party whose bargaining position during price negotiations is relatively weaker.


Beall, R. and R. Kuhn, (2012); “Trends in Compulsory Licensing of Pharmaceuticals since the Doha Declaration: A Database Analysis.PLos Medicine 9(1): 1-9.

Bond, E. W., and K. Saggi, (2018); “Compulsory Licensing and Patent Protection: A North-South Perspective.Economic Journal 128 (May): 1157-79.

Cockburn, I.M., Lanjouw, J.O., and M. Schankerman, (2016). “Patents and the Global Diffusion of New Drugs.American Economic Review 106(1): 136-164.

Danzon, P., Y. R. Wang, and L. Wang, (2005); “The Impact of Price Regulation on the Launch Delay of New Drugs,” Journal of Health Economics 14: 269-92.

Goldberg, P. K., (2010); “Intellectual Property Rights Protection in Developing Countries: The Case of Pharmaceuticals.Journal of the European Economic Association 8: 326-53.


[1] See Golderg (2010).

[2] See Danzon, Wang, and Wang (2005), and Cockburn, Lanjouw, and Schankerman (2016).

[3] See Beall, R. and Kuhn, R. (2012).

[4] See Bond and Saggi (2018).


Welcome New Members March 2019

We would like to welcome the following new member to the InsTED Network

Prof Julian Jamison (University of Exeter Business School)  His research focuses on the interaction between individual preferences, decisions, and well-being on the one hand, and institutional policies on the other.  Much of it has been carried out in more than a dozen countries, especially sub-Saharan Africa.

Prof John Whalley (University of Western Ontario). His research interests lie in the areas of general equilibrium, international trade, public finance, taxes, China and the Asian economies, and environmental economics with a focus on climate change.

ETSG2019 Bern: September 12-14

The twenty-first ETSG Conference will be hosted by the University of Bern, World Trade Institute in Bern (Switzerland) on 12-14 September 2019.

The deadline to submit an abstract for possible presentation is FRIDAY MAY 3, 2019. Please visit the conference webpage ( for more details and submit your abstract on-line at

Grant-Funded Researcher in International Trade Policy

(Level A) $86,587 – $92,796 per annum plus an employer contribution of 9.5% will apply.

Fixed Term contract for 12 months available immediately.

We are seeking to appoint a postdoctoral Researcher in international trade policy to conduct applied and policy research and teaching.

The Institute for International Trade (IIT) is a leading institution with a global focus and a reputation for providing academically rigorous and practical trade training, policy advice and technical assistance relating to international trade policy and practice. We bring together leading academics, experienced trade practitioners and negotiators to address key challenges faced by businesses and governments seeking to expand trade and investment opportunities globally.

Applicants should have demonstrated understanding of regional and global developments in trade and investments, with particular reference to a combination of the Indo-Pacific region, Australia, and the World Trade Organization (WTO), as well as the underlying economic drivers of trade integration. You must have the enthusiasm and drive to conduct high quality research and the ability to work independently with minimal supervision and co-operatively across multiple projects. In addition, you should have excellent communication skills (academic writing in particular), and will be required to supervise and mentor junior researchers.

To be successful you will need:

  • A PhD (or evidence of submission of PhD thesis for examination) in international trade, economics, development studies with trade specialization, international political economy, or a closely related field;
  • Demonstrated research output (publications, conference papers, reports or technical contributions) on current international trade policy issues, providing evidence of research and writing ability;
  • Experience developing and conducting qualitative and quantitative research and analysing related data; summarising and preparing technical reports and academic journal articles;
  • Ability to work both individually and collaboratively with senior staff to write grant proposals, generate external funding to support the Institute’s research program and develop strong national as well as international collaborations.
  • Ability to occasionally contribute to teaching into the Institute’s Masters of International Trade and Development programme.

Enjoy an outstanding career environment

The University of Adelaide is a uniquely rewarding workplace. The size, breadth and quality of our education and research programs – including significant industry, government and community collaborations – offers you vase scope and opportunity for a long, fulfilling career.

It also enables us to attract high-calibre people in all facets of our operations, ensuring you will be surrounded by talented colleagues, many world-leading. And our work’s cutting-edge nature – not just in your own area, but across virtually the full spectrum of human endeavour – provides a constant source of inspiration.

Our core values are honesty, respect, fairness, discovery and excellence. And our culture is one that welcomes all and embraces diversity. We are firm believers that our people are our most valuable asset, so we work to grow and diversify the skills of our staff.

In addition, we offer a wide range of attractive staff benefits. These include: salary packaging; flexible work arrangements; high-quality professional development programs and activities; and an on-campus health clinic, gym and other fitness facilities.

Learn more at: 

Your faculty’s broader role

The Faculty of the Professions delivers excellence in teaching, learning and research driven by real-world, commercial needs in the areas of: law; business; economics and international trade; commercialisation and innovation; architecture, planning and landscape architecture; and global food and resources. It offers a wide range of undergraduate and postgraduate degrees, and has strong connections with business and industry, including internationally.

Learn more at: 

If you want to change tomorrow, act today

Click the link to the online application form below and address and upload your responses to all selection criteria. Application close 11.55pm, 12 April 2019.

For further information

For a confidential discussion regarding this position; contact:
Lisa Hunt
Business Manager
Ph    : +61 8 8313 6944

Call for Papers — Agricultural trade

IATRC and the European Commission in Seville, Spain are co-organizing a Summer Symposium June 23-25, 2019 on : “Trading for good – Agricultural trade in the context of climate change adaptation and mitigation: synergies, obstacles and possible solutions”.

The conference will be held at the Hotel Melia Sevilla. The meeting registration fee will be $375.  Details on symposium registration and hotel reservations are forthcoming.

Send your (2-pages) proposals to the co-chairs (Fabio Santeramo, Dragan Miljkovic, Emanuele Ferrari) via e-mail (), by March 30th, 2019. For more info, please read the Call for Paper Proposals.

Open Research Area (ORA) for the Social Sciences: Pre-Announcement of the Sixth Joint Call

The partners for the Open Research Area (ORA) are pleased to announce their sixth joint call for proposals due to open Spring 2019. This notice is being issued now to allow interested researchers to begin discussions with potential research partners in advance of the formal call for proposals.

Scope of the Call:

Four funding organisations will participate in the sixth ORA call. Three European funding organisations will participate: Agence nationale de la recherche (ANR), France; Deutsche Forschungsgemeinschaft (DFG), Germany; and Economic and Social Research Council (ESRC), United Kingdom. In addition, we are excited to announce that the Social Sciences and Humanities Research Council of Canada (SSHRC) will also be joining this round.

The Netherlands Organisation for Scientific Research (NWO, Netherlands) will not be participating in this sixth ORA Call.

The Japan Society for the Promotion of Science (JSPS, the core national funding organisation) will again collaborate with ORA as an associate partner. Applicants to the ORA call may seek partnerships with Japanese researchers. JSPS will open a specific call for Japanese researchers.

Proposals will be accepted for research projects in any area of the social sciences. In this round, proposals are required to involve researchers from any combination of three or more participating countries. The proposed research should be integrated across the participating countries, and expected to make an original and significant contribution to scientific knowledge.

Application process:

Proposals for this call will be submitted through the ESRC’s Joint Electronic Submissions system (Je-S). Detailed guidance about how to apply will be provided with the publication of the call for proposals documents.

The upcoming call will follow a two-stage procedure consisting of an outline proposal and a full proposal. Applicants who are successful at outline will automatically progress to full stage. Unlike the previous round, applicants will be invited to submit outline and full proposals at the same time, rather than waiting for the results of the outline stage.

We intend to announce the full call for proposals in April 2019 on the websites of the participating funding organisations. The closing date for proposals is expected to be the end of July 2019. The full call specification and associated documentation, including commissioning timetable, will be provided when the call is officially launched. We will not be able to provide additional information about the full call in advance of its publication.

For this sixth ORA call, the ESRC will be the coordinating agency.

Further information

For more generic information, and to be alerted when the call is announced, please contact:

For further information about NWO:

Further details on the previous ORA round can be found on the DFG website:

If you have any further questions, please contact:

Canada, SSHRC:

  • Paula Popovici,
    phone +1 613 992-0498,

France, ANR:

  • Lionel Obadia,
    phone +33 1 78 09 80 80,

Germany, DFG:

  • Christiane Joerk,
    phone +49 228 885-2451,
  • Sigrid Claßen,
    phone +49 228 885-2209,

United Kingdom, ESRC:

  • Marzena Bien,
    phone +44 1793 413 150,


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UKRI GCRF Collective Programme: Multi-hazards & Systemic Risks – Announcement of Opportunity

Closing date for outline bid proposals: 16:00 BST on 15 May 2019

Closing date for invited full bid: early September 2019

NERC, on behalf of UK Research & Innovation (UKRI), invite outline bid proposals for international, interdisciplinary, collaborative research projects under the UKRI Global Challenges Research Fund (GCRF) Multi-hazards & Systemic Risks research call. This call forms part of the UKRI GCRF Collective Programme.

GCRF is a £1·5 billion funding stream to support research which addresses problems faced by developing countries. GCRF forms part of the UK’s Official Development Assistance (ODA) commitment, and funding under this call will be awarded in a manner consistent with ODA guidelines– external link.

Low and middle income countries are especially vulnerable to multiple and cascading hazards, and associated systemic risk where cumulative costs may be thousands of deaths each year, extensive disruption and high economic losses. The aim of this programme is to provide a better understanding of the drivers of multi-hazard events, and how the impacts of these events cascade through socio-economic systems and to use this knowledge to determine which interventions and policies are effective at mitigating the risks, particularly for vulnerable groups. The focus is on multiple natural hazards and the interrelated environmental, social, economic, cultural and health risks, and effects that can be triggered by these events, or can amplify or compound their impacts.

This call will aim to support a small number of large, international collaborative research projects with a value of up to £3·5 million (cost to UKRI); UK institutions are eligible for 80% full economic cost and overseas organisations are eligible for 100% direct project costs. It is anticipated that two projects will be funded and that projects will start in April 2020 and have a maximum duration of three years.

All projects are required to have a principal investigator based in a UK research organisation eligible for UKRI funding. Projects with co-investigators and researchers based in low and middle income countries are strongly encouraged, but will receive funding via a UK research organisation.

The submission of an outline bid proposal is a requirement of the call, and only those successful at the outline bid stage will be invited to submit a full proposal.

A live online webinar will be held in early April for potential applicants to learn about the call details and have the opportunity to pose questions to the UKRI staff who are leading the call. The webinar will be held twice to allow for potential applicants in different international time zones to dial-in, the dates / times are as follows:

  • webinar 1 – 09:00-11:00 BST/GMT+1 on 5 April 2019
  • webinar 2 – 14:00-16:00 BST/GMT+1 on 8 April 2019.

The webinars will begin with a presentation, followed by a question and answers session. If you are interested in attending one of the webinars please hold the preferred time slot. Details about how to register / dial-in will be provided on 1 April 2019.

UKRI is also holding regional GCRF engagement events– external link across the UK in early 2019 as a way for potential applicants to engage further with calls launched under the Collective Programme, and with GCRF in general.

The Economic & Social Research Council (ESRC) is administering another resilience-themed UKRI GCRF Collective Programme call for research and innovation projects entitled ‘Equitable resilience: ensuring resilience enhances the Sustainable Development Goals– external link‘. The multidisciplinary call is being administered on behalf of UKRI, with projects expected to start in November 2019.

How to apply

Further information on the Multi-hazards & Systemic Risks call and how to submit an application can be found in the Announcement of Opportunity document below.

Announcement of Opportunity (PDF, 176KB)

Outline bid proposals must be submitted via the UK Research Councils’ Joint Electronic Submission (Je-S) system before 16:00 BST on 15 May 2019.


Sarah Blackburn
01793 411921

If you experience difficulties using Je-S or have questions regarding its use, please contact the Je-S helpdesk:

01793 444164