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The GSM Association tried a dangerous game of bluff this week in an attempt to gain concessions from the licensing authority that claims to hold the essential patents for the Digital Rights Management system favored by mobile operators everywhere.

Put simply, the GSMA, which says it speaks for 1.3 billion mobile customers, through 660 mobile operators, has called for alternative proposals for DRM on mobiles, and says it has uncovered 14 separate proposals. It says that the current proposals from MPEG LA, even the revised proposals, are not only expensive but too complicated to work and adds that it is frustrated by the lack of transparency surrounding the details and structure of intellectual property that MPEG LA considers ‘essential’ and even wonders if the patents are valid.

It will find many companies, among them potentially Microsoft, RealNetworks, Macrovision and even Apple itself, that have some key intellectual property in digital rights management, but that’s a far cry from finding a company that offers a system that does not infringe on any of the MPEG LA patent holders, namely Philips, Sony, Matsushita, Intertrust and ContentGuard.

Asking for $1 per handset, a price which it has subsequently offered to slash by 35 per cent, seems innocuous enough compared to the $600 or so that the GSMA member operators pay for a top end handset. The licensing group also cut back the one per cent of transaction fees down to a maximum of 25 cents per customer per annum.

But given the scale of the cellular industry, and its aim of wringing huge profits out of content and its desire to put this digital rights management system on just about every phone sold during the next three or four years, that will still make mobile DRM a $1bn a year industry virtually overnight.

The original MPEG standard, used by the TV industry and licensed through the same process, charges a flat $2.50 for each copy of MPEG2. However after mobile phone companies refused to use the MPEG4/H.264 standard, its fee was revised and is now 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.

Even a system of licensing similar to H.264 might mean that every one of the 660 operators might have to pay something close to that $3.5m each year, making it even more expensive that our last estimate of eventually reaching $1bn each year. If the GSMA begins to adopt any other technology across its members, the MPEG LA group will undoubtedly go to war with that faction over patents.

Some of those listed have already forced Microsoft to settle a three-year-old dispute over DRM patents by licensing the trust chain patents of Sony and Philips owned, Intertrust technology for a payment of $440m. It is unlikely that the terms of that settlement will allow Microsoft to use that license to supply cellular operators.

And anyway, with Microsoft as a one third holder of ContentGuard, which undoubtedly holds the key patents for rights expression languages, it is set to win out if the MPEG LA license is agreed on.

The one potential fly in the ointment is Macrovision, which has been trying to get Intertrust’s patents revoked through an interference suit, which in the US just failed. It still believes that it has the rights to license its intellectual property outside of the US, but if it successfully offered them to mobile operators, it could not license the technology within the US, and it would still rely on the Rights Expression technologies of ContentGuard, and the whole game is back in a stand-off.

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