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The big issue

The whole issue is not going to go away in the manner that the GSMA seems to imagine. It has threatened that there would be a fragmented approach to DRM if the MPEG LA refuses to listen, which we take to mean that its members would have to license local patents, that have yet to be challenged in their home country.

One of the key elements here is that patent rulings outside of the US mostly rely on when a patent application is filed for that territory, and not on when the technology was invented. So if Intertrust or ContentGuard didn’t file for a patent in somewhere like Australia, before a local supplier, then it may have trouble filing suit against that supplier, even if it invented the technology first.

But then phones that are enabled in this mishmash way won’t be enabled for export, and there would be no economies of scale for any of them and they would inevitably end up more expensive than this trivial amount of money.

In fact, it was the misguided representations of the Open Mobile Alliance, that used this fact about international patents to fool themselves into thinking that their clients would not have to pay very much at all for the technology behind DRM.

Faultline initially broke this story when talking to the CEO of ContentGuard back in January. ContentGuard CEO Mike Miron, told us: “The OMA didn’t choose to use our technology for implementing its Digital Rights Language for OMA 1.0, and instead chose to use a system developed by IPR systems in Australia. We told them that this wouldn’t mean that they could escape our patent portfolio and we’ve been telling them that all along.

“It shouldn’t be a surprise that suddenly the MPEG LA has issued a joint patent covering OMA DRM 1.0, but OMA has been strongly suggesting to its members that its standard would be royalty free.”

Miron added: “We’ve heard two opinions with some people welcoming it and others saying that the royalty is too high, but that’s just because they thought it was free, and any charge is too high once you think something is free.”

With that type of politics as background to this dispute, and with the OMA last week washing its hands of the deal and even hinting that it believes that the MPEG LA group may not control of all the valid patents, there is natural animosity on both sides. If the GSMA had gone to the MPEG Licensing Authority in the first place and it had collected together a group of essential patent holders, then the standard could have been established in a matter of weeks and a royalty could have been negotiated before the system was designed. As it is now the GSMA and the OMA have got the backs up of the companies that own the technology and there’s no reason why they should be feeling generous to a bunch of rich operators that have clearly tired to bypass their intellectual property.

This is especially true of phones that are already out in the field, with most mobile content systems launched during the past year relying on the OMA DRM. With these systems are already in operation there seems little incentive for the MPEG LA essential patent holders to fold under pressure from what is a essentially a bluff.

That’s not to say that the MPEG LA will let this thing spiral out of hand. It knows that in the end a willing and paying set of operators is what is required and it won’t be keen to see this escalate into a legal confrontation.

If it does turn into a legal battlefield, the first thing that the patent holders can do is apply to place restraining injunctions on handsets and prevent their circulation. If that ever happened, then the largely public operators would stop growing their Average Revenue Per User and the resultant crash on their share price would make $1bn of royalties appear like a drop in the ocean.

We would expect all of this to be resolved by the end of the Summer, probably quite quietly, with perhaps one more set of concessions by the MPEG LA, but nothing too substantial.

The MPEG LA also licenses patents for MPEG-2, Firewire, DVB-T, MPEG-4 and AVC/H.264 (also known as MPEG-4 Part 10) and is working on a similar patent pool for Microsoft’s VC9 video codec (also called SMPTE VC-1), the ATSC standard, and the DVB Handheld standard.

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.

Related stories

GSM Association rejects revised phone DRM rates
OMA washes its hands of MPEG LA licensing arrangements
Phone DRM: the most expensive royalty operation ever

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