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Contributory Infringement Rule and Patents

  • Langinier, Corinne
  • Marcoul, Philippe

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. In the e-commerce world, this rule takes on an important dimension because of the network structure of the Internet. We investigate how the contributory infringement rule affects the creation of a network of members (membership program) and whether this rule is harmful to consumers and firms. We find that the enforcement of the contributory infringement rule does not induce more trials in equilibrium. However, because of the threat of trial, it decreases the network size, and then reduces the social welfare. Surprisingly we find that if the compensation paid by the indirect infringers is high, the contributory infringement rule does not benefit the patentholder and does not give enough R&D incentives ex ante. It is even possible to find a direct compensation for the patentholder that is socially preferable (as it increases the network size).

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p5538-2005-04-11.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12268.

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Date of creation: 10 Apr 2005
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Publication status: Published in Journal of Economic Behavior and Organization, May 2009, vol. 70 no. 1-2, pp. 296-310
Handle: RePEc:isu:genres:12268
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Carl Shapiro, 2003. "Antitrust Limits to Patent Settlements," Law and Economics 0303004, EconWPA.
  2. James Bessen & Robert M. Hunt, 2004. "An empirical look at software patents," Working Papers 03-17, Federal Reserve Bank of Philadelphia.
  3. William Landes & Douglas Lichtman, 2003. "Indirect Liability for Copyright Infringement: Napster and Beyond," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 113-124, Spring.
  4. Cremer, Jacques & Hariton, Cyril, 1999. "The Pricing of Critical Applications in the Internet," Journal of the Japanese and International Economies, Elsevier, vol. 13(4), pages 281-310, December.
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  6. Crémer, Jacques & Rey, Patrick & Tirole, Jean, 1999. "Connectivity in the Commercial Internet," IDEI Working Papers 87, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000.
  7. Mackie-Mason, J.K. & Varian, H.R., 1994. "Economic FACs about the Internet," Papers 94-05, Michigan - Center for Research on Economic & Social Theory.
  8. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
  9. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Economic Theories of Settlement Bargaining," Vanderbilt University Department of Economics Working Papers 0508, Vanderbilt University Department of Economics.
  10. Cremer, Jacques, 2000. "Network externalities and universal service obligation in the internet," European Economic Review, Elsevier, vol. 44(4-6), pages 1021-1031, May.
  11. Louis Kaplow & Steven Shavell, 1993. "Accuracy in the Assessment of Damages," NBER Working Papers 4287, National Bureau of Economic Research, Inc.
  12. Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, vol. 95(5), pages 1700-1711, December.
  13. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 163-183.
  14. Schankerman, Mark & Scotchmer, Suzanne, 2001. "Damages and Injunctions in Protecting Intellectual Property," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 199-220, Spring.
  15. Crampes, Claude & Langinier, Corinne, 2002. "Litigation and Settlement in Patent Infringement Cases," Staff General Research Papers 5231, Iowa State University, Department of Economics.
  16. James Boyd & Daniel E. Ingberman, 2003. "Fly by Night or Face the Music? Premature Dissolution and the Desirability of Extended Liability," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 189-232.
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