Patent Liability Rules as Search Rules

Abstract

Patent law’s infringement doctrines, commonly understood to be simply rules of liability, are in fact search rules as well. Patent liability rules determine not only who will be responsible for what conduct, but also when patent holders and potential infringers will benefit from locating (or remaining ignorant of) one another. They thus affect the conditions under which parties will have incentives to engage in search. The dynamics of patent search are actually quite complicated. Under normal circumstances, patent law’s liability rules generate approximately optimal investments in search as both patent holders and possible infringers have incentives to locate one another. But when a direct infringer is insolvent or unreachable, the fact that contributory infringers can be held liable only when they have knowledge of the patent shifts search responsibilities toward patent holders. Search incentives are also affected by patent law’s rules regarding past conduct and by the possibility of holdup problems based on alleged infringers’ product-specific investments. This Article demonstrates that patent law’s liability rules may be generating inefficient levels of search and corresponding social welfare losses and proposes a simple doctrinal corrective.