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Microsoft mugged over VC-1 codec patent terms

Self-inflicted victory

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Back in August when the draft license terms were issued, it was made clear that Microsoft was the only company that would have to pay “back payments” prior to 2006 (Microsoft has been bundling the same or similar technology in its PC operating systems for around 10 years).

The patent position for H.264 looks remarkable similar to VC-1, which isn’t too surprising since everyone we’ve spoken to says that the technologies are virtually identical anyway. Common patent holders for both the VC-1 patent pool and the H.264 pool include France Télécom société anonyme, Fujitsu, Philips, Matsushita, Mitsubishi, Samsung, Sharp, Sony, Toshiba, JVC and of course Microsoft.

Terms for building a device with the technology in splits into two formats, if it’s for a specific function in a CE device it costs nothing for the first 100,000 licenses; 20 cents each for up to 5 million licenses; 10 cents for all licenses above 5 million and there is a royalty cap of $5m a year. But if the royalty is for a PC operating system, which can of course be used for multiple applications, the cap is $8m.

If Microsoft is forced to pay back 10 years of back payment for royalties (as was suggested in the August 2006 draft license) then it would have an up front payment of something like $80m, divvied up between all 16 companies, and a continual $8m a year – for something that it was claiming it invented itself.

Content companies also pay license fees, and these also split into three, paid for title by title, where a customer pays for the service or product, and where customer either get encoded content for free, such as broadcast Television or as part of an overall subscription.

For this short videos under 12 minutes bear no royalty and thereafter pay the lower of 2% of the price paid for the video or $0.02 per title. This is for replicators of physical media, and service providers such as cable, satellite, video DSL, internet and mobile, for VOD, Pay per view and electronic downloads. This caps at $4.25 million a year until 2012, and rising after that.

Where remuneration is for other sources, such as advertising the licensee pays either a one-time payment of $2,500 per VC-1 encoder or an annual fee per of $2,500 per broadcast market where a market is at least 100,000 people or $5,000 per year per for a broadcast market up to 500,000 people and $10,000 a year for each broadcast market above 1,000,000 or more television households.

The two patents that were included for Microsoft as being essential for inclusion in the patent pool related to predictive image compression using a single variable length code for both the luminance and chrominance blocks and another for the efficient macroblock header coding.

Coincidentally we’re sure, a few days after the terms were finalized a number of US Broadcasters including NHK, TBS, NTV, TV Asahi, Fuji TV and TV all decided that they would adopt the H.264 encoding for their future programming.

This came after there were hiccups over the H.264 license which has also been in discussion for many months, and this was not thought to have related to the VC-1 patent pooling license finally being settled, although the terms of the license are virtually identical, based on a payment on a $2,500 one time fee for each encoder used.

So after all this time the two technologies, considered by many so similar as to be identical, now cost virtually the same to license as one another, much to the chagrin of Microsoft’s and contradicting its earlier statements. The intervening period of uncertainty has pretty much left VC-1 encoding only scarcely used, except a little on the web, with the exception of its use as an option in both High Definition DVD standards HD DVD and Blu-ray. But this only came about as a snub to the MPEG4/H.264 license, which at the time was thought to be too expensive.

Copyright © 2007, 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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