Ancillary Patent Markets and the Firm

Abstract

Intellectual property frequently carries with it exclusive rights not only over the primary subject matter of the rights granted, but also over ancillary subject matter that is not within the definition of the primary grant, as for example in the patent doctrine of contributory infringement. Previous scholars have explored the potential for intellectual property rights to affect the size and structure of firms by mitigating transaction costs both between firms and within firms. Here we extend that framework to consider the impact of ancillary rights, which we expect to have their own effects on a firm’s “make or buy” decision. Ancillary rights may place an intellectual property holder in a position to license production of complementary products or components to other firms. In some instances the absence of ancillary rights may prompt firms to vertically integrate, in order to bring such transactions in house. We also anticipate that doctrines such as contributory infringement impact employee mobility out of firms holding patents. We anticipate that contributory infringement rights will tend to lower overall transaction costs, although this may vary with the circumstances in a particular industry.

Keywords: patent, intellectual property, contributory infringement, transaction cost analysis, theory of the firm, indirect infringement

JEL Classification: O31, O32, O33, O34, D21, D23, L22, L23, D21, D23, K20