Queen Mary Journal of Intellectual Property

Ancillary patent markets and the firm*

Dan L Burk * and Brett H McDonnell *

Keywords: patents, intellectual property, contributory infringement, indirect infringement, theory of the firm, transaction cost analysis

Abstract

Intellectual property frequently carries with it exclusive rights not only over the primary subject matter of the rights granted, but also over ancillary subject matter that is not within the definition of the primary grant, as for example in the patent doctrine of contributory infringement. Previous scholars have explored the potential for intellectual property rights to affect the size and structure of firms by mitigating transaction costs both between firms and within firms. Here we extend that framework to consider the impact of ancillary rights, which we expect to have their own effects on a firm's ‘make or buy’ decision. Ancillary rights may place an intellectual property holder in a position to license production of complementary products or components to other firms. In some instances the absence of ancillary rights may prompt firms to vertically integrate, in order to bring such transactions in house. We anticipate that doctrines such as contributory infringement impact employee mobility out of firms holding patents. We also anticipate that contributory infringement rights will tend to lower overall transaction costs, although this may vary with the circumstances in a particular industry.

Author Notes

Copyright 2010–11. We are grateful to Stacey Dogan, Joe Liu, Kara Swanson, Mike Meurer, Jessica Silbey, and the participants in the Boston IP Colloquium; to Lydia Loren and participants in the 2012 Intellectual Property in the Trees Seminar; to Stefan Bechtold and participants in the Professorship in Intellectual Property workshop at ETH Zurich; to Alexander Peukert and participants in the graduate workshop on intellectual property at Goethe Universität, Frankfurt; as well as to Deitmar Harhoff and participants in the INNO-TEC graduate workshop at Ludwig Maximillians Universität, Munich, to participants at the 2013 University of Tilburg TILEC workshop on Innovation and the Patent System, as well as to an anonymous reviewer for their comments on previous versions of this work.

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