Contributory Infringement Rule and Patents

The contributory infringement rule assesses liability to a third party that contributes tothe infringement of a patent. Not only are firms that directly infringe liable, those whoindirectly contribute are also liable. We investigate how this rule affects the creation of anetwork of members (e.g., an e-commerce network). We find that the enforcement of indirectliability does not induce more trials in equilibrium. Firms settle out-of-court but, because ofthe 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 notbenefit the patentholder and may not even give enough R&D incentives ex ante. It is possibleto find a direct compensation for the patentholder that is socially preferable.[...]