The History and Economics of ISP Liability for Third Party Content

60 Pages Posted: 28 Dec 2003  

Matthew Schruers

Computer & Communications Industry Association


The question of whether Internet Service Providers ("ISPs") should be liable for providing access to information that proves injurious to others has received enough attention in the preexisting literature that the normative arguments for various possible liability regimes have been substantially addressed. Indeed, courts can hardly pronounce upon the matter one way or
another without being criticized as having taken yet another errant swing at Nietzsche's already severely abused nail. Revisiting these arguments is unlikely to provide new insights. Economic analysis, however, offers a unique perspective. Economic analysis has contributed to advances in several fields of legal thought, not the least of which is tort law. Nevertheless, the economic implications of ISP liability for third party content remain undeveloped despite being largely driven by tort considerations. This analysis will consider the economic implications of various liability regimes, and will conclude that relative to the available alternatives, the current regime, in which ISPs are almost completely immune from suit, is the most efficient. Therefore, the ultimate question is not whether an alternative regime would be more efficient, but how modifications to the present regime could maximize its efficiency. Part I of the discussion will present a survey of federal, state, and international case law on ISP liability for third party content, excluding cases addressing vicarious or contributory liability for third party infringement of intellectual property rights.6 This survey will explore how over the past decade, the U.S. standard for ISP liability began as a negligence rule and flirted briefly with a strict liability rule before Congress granted ISPs near-immunity in the Communications Decency Act. Later cases reinforced the noliability rule by expanding the scope of the Act. In contrast, European courts that initially employed a strict liability rule for ISP liability ultimately converged on a negligence rule, giving European ISPs little chance to receive the deference accorded their American counterparts. Part II will approach the issue from a law and economics perspective and consider the economics of various liability regimes, referring to the cases in Part I for illustrative purposes. These regimes are considered in the order in which they appeared in U.S. jurisprudence: negligence, strict liability, and no liability, or conditional immunity. The negligence rule first adopted in the United States and presently employed by European courts holds ISPs liable when they fail to exercise due care in the monitoring of third party content. The strict liability rule, adopted briefly in the United States and for some time in Continental courts, holds ISPs liable for all injuries resulting from third party content. The no liability, or conditional immunity, rule presently employed in the United States holds ISPs almost completely immune from liability for third party content, conditioned only on the minimal responsibilities implicit in Section 230 of the Communications Decency Act. Part II will conclude that as a result of the unique nature of the ISPs' costs in monitoring content and the externalities involved, the present conditional immunity regime is the most efficient of the three. Part III will then consider the present regime on the assumption that, as some have argued, it produces suboptimal levels of monitoring. On this assumption, Part III will analyze how subsidies could remedy the problem of shirking of monitoring duties, concluding that subsidization would be less costly than returning to a liability regime.

Suggested Citation

Schruers, Matthew, The History and Economics of ISP Liability for Third Party Content. Virginia Law Review, Volume 88, No. 1, pp 205-64, March 2002. Available at SSRN:

Matthew Schruers

Computer & Communications Industry Association ( email )

900 17th Street NW
11th Floor
Washington, DC, DC 20006
United States


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