Essentiality Checks for Standard Essential Patents

43 Pages Posted: 9 Jan 2024

See all articles by Florian Schuett

Florian Schuett

KU Leuven - Department of Economics; Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Chayanin Wipusanawan

University of Passau

Date Written: December 20, 2023

Abstract

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.

Keywords: standardization, R&D, patents, licensing, litigation, price caps, certification

JEL Classification: D82, L15, L24, O31, O34

Suggested Citation

Schuett, Florian and Wipusanawan, Chayanin, Essentiality Checks for Standard Essential Patents (December 20, 2023). TILEC Discussion Paper No. 2023-21, Available at SSRN: https://ssrn.com/abstract=4688864 or http://dx.doi.org/10.2139/ssrn.4688864

Florian Schuett (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven
Belgium

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Chayanin Wipusanawan

University of Passau ( email )

Dr.-Hans-Kapfinger-Str. 16
Passau, 94032
Germany

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