Essentiality Checks for Standard Essential Patents

There is widespread concern about the lack of transparency regarding standard essential patents (SEPs). This paper examines the proposal to introduce essentiality checks, a certification scheme for declared 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 litigation 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.