Contributory Infringement Rule and Patents
37 Pages Posted: 8 May 2007
Date Written: January 2007
The contributory infringement rule assesses liability to a third party that contributes to the infringement of a patent. Not only are firms that directly infringe liable, those who indirectly contribute are also liable. We investigate how this rule affects the creation of a network of members (e.g., an e-commerce network). We find that the enforcement of indirect liability does not induce more trials in equilibrium. Firms settle out-of-court but, because of the threat of trial, the network size decreases and the social welfare is reduced. Surprisingly, we find that if the compensation paid by the indirect infringers is high, the rule does not benefit the patentholder and may not even give enough R&D incentives ex ante. It is possible to find a direct compensation for the patentholder that is socially preferable.
Keywords: Patents, Network, Infringement
JEL Classification: K11, K41, O34, D62
Suggested Citation: Suggested Citation