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Microsoft mugged over VC-1 codec patent terms

Self-inflicted victory

The smart choice: opportunity from uncertainty

Comment We meet people on the various IPTV, mobile TV and web video circuits who always comment that VC-1, after a flying start, has fallen back and that pretty much these days the codec of choice is either VP6 from On2 Technologies for web video and H.264 for everything else, with no VC-1 in sight.

Just over three weeks ago the MPGE LA issued a final license for the Microsoft-inaugurated VC-1 codec, after forming a group to assess essential patents and to discuss terms for it, back in March 2004, the process taking precisely three years.

The license may in fact only be a license by which Microsoft can pay everyone else fees. There are no less than 16 separate companies that are deemed to have patents that are essential for VC-1 to work, the latest addition to the 15 company list that was first issued last August, being Korean number three handset maker, Pantech Curitel.

Between them they speak for 125 separate patents that are listed in the license, and a total of two of these are allocated to Microsoft. Every other supplier of essential technology including Daewoo, France Telecom, société anonyme (which presumably includes patents from close associates of France Telecom also) Fujitsu, Philips, LG, Matsushita, Mitsubishi, NTT Pantech Curitel, Samsung, Sharp, Sony, Telenor, Toshiba JVC, have more patents at stake that Microsoft (except for two of the above) and many of them have many more.

Effectively Microsoft has been mugged by the attempt to make its VC-1 technology a standard through the Society of Motion Picture and Television Engineers. In so doing it had to reveal how its codec technology worked, and offer a license, and in going to the respected MPEG LA as a patent pool agent, it exposed its technology to all the know how that went into licensing the MPEG 2 and MPEG 4 Level 10 AVC/H.264 codec that has stolen the market.

Usually all of the combatants (essential patent holders) will argue for some basis or other for splitting the royalty stream, and these rules are not public and they are not always the same. But as a general principle the more patents you hold, the bigger your slice of the patent pool pie. Now that’s not absolute, but it can be an indicator.

On that basis every company except Telenor and Sharp will end up getting more money when VC-1 is used, than Microsoft. Of course Microsoft can charge what it likes for any software implementation of its own, but since it has always chosen to “give away” its codec with its media player, this means that it has to cover any licensing bill for patents out of virtually zero direct revenue.

Microsoft's humbling over VC-1 shouldn't be under-estimated. When we last heard a Microsoft official speak about this back in 2004 they said that everyone should use VC-1 because it was charging less than MPEG4/H.264, but that was back when it thought that it owned all of the technology inside the codec.

It's no wonder that the use of VC-1 has fallen by the wayside. Why would Microsoft push it? The more successful it is in getting other people to use it, the more its rivals in the consumer electronics space get paid royalties.

When the patent pool was first put together and the negotiating began, both Sony and Philips were known to be considering taking legal action against Microsoft. They had already been successful in taking Microsoft to the patent courts in the US, over DRM, in support of their acquisition Intertrust, where they won a $440 million settlement. In a way that’s more of less what they’ve won here.

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