Private Law Theory

ABSTRACT
Both patent and copyright law impose liability not only on direct infringers – those who actually make, sell, or use copies of the protected invention or work – but also on some third-parties that facilitate the direct infringement. Although such secondary liability has a long pedigree, it has remained undertheorized. The doctrine is often explained as a way to provide intellectual property (IP) owners with a remedy when pursuing direct infringers is not practically feasible, or as a way to catch and punish morally culpable bad actors beyond the set of direct infringers. Neither of these explanations provides much concrete guidance on how secondary liability doctrine should operate.

This Article provides a more detailed economic theory of secondary liability. Secondary liability is imposed on entities that can function as conduits through which IP owners can efficiently collect royalties from direct infringers, thereby reducing transaction costs compared to a regime where IP owners must chase direct infringers individually. The imposition of secondary liability to reduce transaction costs is, however, subject to an overriding limitation, which is that it must not cause collateral harm on non-infringing users and uses. Although these principles may seem simple, the conduit theory and its collateral harm limitation have surprisingly rich payoffs in providing a unifying framework to explain the doctrinal structure of secondary liability law, including the requirement of a unitary direct infringer, the statutory division between induced and contributory infringement, and the Supreme Court’s holding in Commil USA, LLC v Cisco Systems, Inc that incorrect beliefs in non-infringement negate intent but incorrect beliefs in invalidity do not.

Chiang, Tun-Jen, The Conduit Theory of Secondary Liability in Patent and Copyright Law, Nevada Law Journal, volume 23, issue 1, article 3 (2022).