AN ECONOMIC-ANALYSIS OF UNILATERAL REFUSALS TO LICENSE INTELLECTUAL PROPERTY

The intellectual property laws in the United States provide the owners of intellectual property with discretion to license the right to use that property or to make or sell products that embody the intellectual property, However, the antitrust laws constrain the use of property, including intellectual property, by a firm with market power and may p lace limitations on the licensing of intellectual property, This paper focuses on one aspect of antitrust law, the so-called ''essential fac ilities doctrine,'' which may impose a duty upon firms controlling an ''essential facility'' to make that facility available to their rivals , In the intellectual property context, an obligation to make property available is equivalent to a requirement for compulsory licensing. Co mpulsory licensing may embrace the requirement that the owner of softw are permit access to the underlying code so that others can develop co mpatible application programs, Compulsory licensing may undermine ince ntives for research and development by reducing the value of an innova tion to the inventor. This paper shows that compulsory licensing also may reduce economic efficiency in the short run by facilitating the en try of inefficient producers and by promoting licensing arrangements t hat result in higher prices.