Intermediary Litigation as a Nonmarket Strategy

Abstract

Firms face a number of threats to their businesses from online communication practices. Simply put, most firms possess intangible assets, such as information goods and goodwill, whose value is vulnerable to harm associated with the transmission and publication of online content. Consequently, firms have sought to protect their assets from such harms, which I collectively refer to as information hazards, by suing Internet intermediaries. Internet intermediaries are online services that provide a means for information to transmitted between third parties. Making the argument that the difficulty of specifying and enforcing property rights for intangible assets leads to market failure, I draw on the logic of transaction cost economics to suggest that intermediary liability should be addressed as a the outcome of a choice amongst four modes of governance for nonmarket strategies to enforce property rights. I create a two stage framework in which firms first choose regulation or litigation as a governance mode ...