Essentiality Checks for Standard Essential Patents

There is widespread concern about the lack of transparency regard ing standard essential patents (SEPs). This paper examines the pro posal to introduce essentiality checks, a certification scheme for de clared SEPs. We develop a framework that allows us to evaluate how essentiality checks would impact licensing, litigation, and incentives to innovate. In our model, an upstream innovator invests in R&D and privately learns about the likely essentiality of its patents for a standard. The innovator then licenses the patents to a downstream implementer who can contest the essentiality of the patent in court. We identify a tradeoff whereby essentiality checks can reduce litiga tion but also provide excessive incentives for R&D investment. Their overall welfare effect depends on the level of the “fair, reasonable, and non-discriminatory” (FRAND) royalty rate.