Original URL: http://www.theregister.co.uk/2005/05/11/gsma_drm_challenge/

Mobile operators fight DRM corner

Challenge MPEG LA proposals

By Faultline

Posted in Mobile, 11th May 2005 12:42 GMT

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.

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

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