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Dozen claim MS codec patents

Number likely to rise

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The MPEG LA has had 12 separate companies claiming that they have essential patents in the pool it is developing for the licensing of Microsoft’s video codec, dubbed VC 1 under the SMPTE standard (Society of Motion Picture and Television Engineers).

The fact that 12 separate companies, possibly more, will decide the fate of the technology has implications for if and how much Microsoft must charge for the codec.

Larry Horn, spokesman for the MPEG LA said to Faultline: “When MPEG 2 was created we only had 8 companies in the pool for essential patents, now we have 24. Some companies hadn’t been issued with their patents at the time, some sat on the side lines perhaps thinking they would handle licensing themselves, but usually we end up with more companies providing the technology, rather than less.” So, the 12 that are claiming essential patents for VC 1 is likely to rise, not go down.

The MPEG LA cannot discuss the individual companies involved until they have reached agreement on royalty terms for the collective license to operate under, but we can probably make some educated guesses, and we have assumed that there is some overlap between the ideas behind a codec like VC 1 and behind the other standard codecs put together by the MPEG standards organization

If that is so then operations such as the industrial offshoot of Columbia University, France Télécom, Fujitsu, Matsushita, Philips, Robert Bosch, Samsung, Sharp, Sony, Toshiba, and Victor Company of Japan, which all have patents in both of these prior MPEG video codecs, might well appear on the list, which makes 11 plus, of course, Microsoft. But that’s only guesswork.

What is interesting is that whatever the terms of the license, if Microsoft takes such a license for its use of VC1 in Windows Media 9 and 10, it too will have to pay royalties, even if it gets some back in return. “In a way the VC 9 codec that Microsoft uses will just be a particular implementation of the VC 1 standard. Other companies will be able to license the technology and make their own versions,” pointed out Horn.

The license never instructs companies on how they must build their product, only on what technologies they may use and how interfaces must perform.

Lion's share

But Horn also explained that the group, once they have all agreed that their intellectual property is vital to the standard, will need to negotiate to see who gets the lion’s share of the royalty stream, and set rules for licensing.

The MPEG LA only takes non-exclusive licenses, and each of the patent holders are free to license each other under different terms, but each transaction must then be carried out separately. But Microsoft cannot put the genie back in the bottle.

Now these 11 can see that their intellectual property is being used, they can charge for it.

So if Microsoft wants to continue to give away its codec within WM10, it may find itself having to pay for each copy it distributes. The only way around this is either to set an upper limit on the license, as was done in MPEG 4 Level 10 AVC (H.264) or not take a license to the technology through MPEG LA, and negotiate each one separately.

Since Microsoft has never acknowledged any other technology suppliers in its literature on VC 9, it is unlikely that it is currently paying royalties on its current distribution. But it will need to. MPEG 2 for instance has a flat rate royalty of $2.50 on each copy, while MPEG 4/H.264 is free up to 100,000 units, then costs 20 cents per unit, falling to 10 cents a unit, capped at $3.5m per year, rising with inflation.

An MPEG 2 style license would not suit Microsoft, while an MPEG 4/H.264 license would be of minimal cost.

But that doesn’t mean that the other 11 companies will feel obliged to give Microsoft what it wants, and they are sure to be bristling at the thought that their Intellectual Property has been “given away” by Microsoft for years now without them realizing it.

Once the royalty terms are set, revenue is allocated 50 per cent where a unit is made and 50 per cent where a unit is sold, against the patents that each patent holder has in each territory. If other patent holders join the pool later, MPEG LA leaves the license at the same level and just shares the payments over greater number of licensees.

So not only could Microsoft find itself with only a small part of the license fees, but this could be further diluted if other companies join the patent pool later.

Last week MPEG LA announced its licensing for the patents included in the digital rights management pool for the Open Mobile Alliance’s DRM 1.0 standard. While Horn said he thought that Faultline’s suggestion that some operators had expected it to be royalty free, was not one he had heard, he did confirm that a few voices had been raised suggesting that it was an expensive set of royalties.

Faultline calculated that the royalty for OMA’s DRM would eventually amount to $1bn, which was certainly unanticipated by mobile operators.

“But then again,” Horn concluded, “we always hear that our licenses are expensive, so we’re used to that.”

Copyright © 2004, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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