Allocating Patent Litigation Risk Across the Supply Chain

36 Pages Posted: 1 Mar 2018 Last revised: 14 Mar 2018

Date Written: January 8, 2018


The paradigmatic defendant in a patent lawsuit is a vertically integrated manufacturer. But much economic activity is conducted collaboratively by a supply chain of vertically disintegrated firms, and sometimes multiple firms are implicated in infringing activities, by making, selling, or using patented technology, or by contributing to or inducing another firm’s infringement. Often patent owners have the option of suing some or all of the members of a supply chain who contribute to the design, creation and marketing of a new technology.

Businesses increasingly contemplate the risk of patent infringement when they negotiate contractual relations to form a supply chain. Upstream and downstream firms recognize they may be jointly liable for patent infringement because of their relationship to each other and their connection to the new product. An interesting and difficult question is: how should they manage infringement risk to maximize their joint profit? Which firm should control litigation? Or should they plan for joint control? Should they share responsibility for damages and litigation expenses? If yes, what determines each party’s share. This Article provides guidance regarding the choice of efficient terms in indemnification agreements that respond to two objectives: efficient risk management and effective bargaining against a patent-plaintiff.

Keywords: patent, litigation, value chain, insurance, indemnification

JEL Classification: O31, O34, K41, L24

Suggested Citation

Meurer, Michael J., Allocating Patent Litigation Risk Across the Supply Chain (January 8, 2018). Texas Intellectual Property Law Journal, Forthcoming, Boston Univ. School of Law, Law and Economics Research Paper No. 18-02, Available at SSRN:

Michael J. Meurer (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-6292 (Phone)
617-353-3077 (Fax)

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