Posted by & filed under Featured, OMS Video.

In a virtual rematch of 18 months ago, the HTML 5 community has again stalemated on how to include video capability.  On June 29, HTML 5 Editor Ian Hickson posted on the whatwg mailing list:

After an inordinate amount of discussions, both in public and privately, on the situation regarding codecs for <video> and <audio> in HTML5, I have reluctantly come to the conclusion that there is no suitable codec that all vendors are willing to implement and ship. I have therefore removed the two subsections in the HTML5 spec in which codecs would have been required, and have instead left the matter undefined …

An unresolveable squabble between professional boxing underdogs — unacceptably overpriced h.264 codec vs. Ogg/Theora, an open source derivative of On2′s VP3 (the predecessor to the VP6 codec in Flash)?

The Web and the world must demand a better answer.  The fundamental challenge of open video on the Web is political, not technical or legal.

Unfortunately, the industry is, politically speaking, running east looking for sunset.  Hickson has painted a grim picture of risky, slow-boat fragmentation:

Going forward, I see several (not mutually exclusive) possibilities, all of which will take several years:

1. Ogg Theora encoders continue to improve. Off-the-shelf hardware Ogg Theora decoder chips become available. Google ships support for the codec for long enough without getting sued that Apple’s concern regarding submarine patents is reduced. => Theora becomes the de facto codec for the Web.

2. The remaining H.264 baseline patents owned by companies who are not willing to license them royalty-free expire, leading to H.264 support being available without license fees. => H.264 becomes the de facto codec for the Web.

France and the color TV war

Years?  Try decades.  Lawsuits are still being filed about digital TV patents — over a specification adopted by the FCC in 1996, 13 years ago!

The world is still recovering from the patent-fueled cold-war, carve-the-world gambits of NTSC, PAL, and SECAM.  Though “[n]inety-five percent of the three systems is based on the original American patent rights”, the March 1965 France/Soviet Union accord that effectively blocked an ITU standard was hailed by the French minister of information as a “glorious day for the human race”.  Pass the freedom fries, please.

And don’t count on patent expiration — this empty hope hasn’t worked for over a century.  Like the head of telegraph monopoly Western Union argued in 1883 against government  takeover:

“Besides, the Government would labor under great embarrassments; for though the Morse patents have expired, all the best forms of telegraph instruments, batteries, and other appurtenances are protected by more recent patents, which the Government  has no more right, than any citizen or corporation, to use without the consent of the owners.” (emphasis added)

And this we’ll-just-keep-getting-new-patents gotcha was after the U.S. Supreme Court (in 1854) limited the Morse patent claims and the U.S. Congress (in 1866) granted right-of-ways on public land in exchange for regulatory control!

Indeed, patent pools never die, they just update their portfolios.

But there is a better answer than protracted proxy war of uncertain outcome.  Dust off the standards shoes and do a new royalty free standard right.

Several standards groups already have some, perhaps all, of the needed competencies — right IPR policy to support a royalty free profile or standard, technical chops, organizational charter, critical mass of industry and political support and credibility, access to sufficient resources, and willingness to go the distance.

One or more, or a joint team like the Joint Video Team formed in 2001 from ITU-T Study Group 16 (VCEG) and ISO/IEC JTC 1 SC 29 / WG 11 (MPEG) to develop h.264, could, and should, overcome shortcomings and hesitations and rise to the task.

Let’s consider some candidates:

World Wide Web Consortium.  Right IPR policy, at the epicenter of industry need, digital media experience, and thus perhaps the natural first choice of the HTML community.

At the recent Open Video Conference, representatives from Ogg, Dirac and OMS Video all publicly expressed their enthusiastic support to join and contribute to a full-fledged standardization of a royalty free codec under the umbrella of the W3C.  There might be some questions about whether Theora, or On2 themselves, would have the right to contribute from the VP3 technology based on the original limited open source license — but this is exactly the kind of issue a credible standards initiative would be able to look into and resolve.

MPEG.  There may be cracks in the death star to the royalty free community, MPEG, which undoubtedly has the technical chops but is historically perceived as reluctant to bite the well-funded hand of international patent interests.

MPEG convenor Leonardo Chiariglione, who perhaps more than anyone merits the “invented MPEG” mantle, expressed a fascinating change of heart last fall in contemplating a nomination for the “European Inventors of the Year Award”:

“I fear that the virtuous circle … whereby the reward from innovation is used to create more innovation may be coming to an end. I believe MPEG should enlarge its portfolio of standards by offering some that are expected to be royalty free and typically less performing and with less functionality next to those that are state of the art, more performing and with more functionality.” (emphasis added)

ITU. With over 140 years of history under its belt, the ITU predates the telephone itself.  And though the h.26 series seemed at one point to be overshadowed by the ISO MPEG committee, the JVT and  h.264 have put ITU back in the codec news, albeit with a more MPEG-oriented patent pool.

China AVS.  A relative newcomer, AVS may be the only operating codec developing standards group today with a proactive IPR process (if one considers SMPTE as more a ratifying organization of VC-1 and VC-2).

ATSC, DVB.  On paper the leading digital TV standards groups, wide membership bases, responsive to government policy directives, flexible IPR policy (ATSC is flexibly not an ANSI member, which opens its IPR policy options; DVB MOU is pool-friendly, but procedurally its IPR policy is not unworkable).

Khronos.  Strong IPR policy, already standardized codec primitives in the OpenMAX layer.

SMPTE.  Standardizing the production-oriented Dirac.

No doubt there may be others, or even an insurgent standards group forming in a garage as I write.

So how to proceed?

W3C seems a natural first choice.  After that, time to heal cold war scars and address root causes.  Perhaps a new partnership between ITU and W3C, reminiscent of the JVT,  but including interested global standardization participants willing to stick to a strict royalty-free policy for the activity.

References

Rhonda J. Crane, The Politics of International Standards: France and the Color TV War 18, 72-73 (Ablex Publishing Corporation, Norwood NJ, 1979)

Dr. Norvin Green, The Government and the Telegraph, The North American Review 422, 428 (1883)

Daniel J. Boorstin, The Americans:  The Democratic Experience 57 (1973) (“There was hardly a major invention in the century after the Civil War which did not become a legal battlefield.”)

After an inordinate amount of discussions, both in public and privately,on the situation regarding codecs for <video> and <audio> in HTML5, I havereluctantly come to the conclusion that there is no suitable codec thatall vendors are willing to implement and ship.

Posted by & filed under Broadband Policy.

It is very exciting to see the “Open Video” movement taking off and finding voice with the upcoming Open Video Conference.

This well-earned “open breakthrough” has been a long time coming.  After all, open standards, and particularly royalty-free standards, are the very foundation of the Open Internet as we know it, and Internet leaders are vocal that open and royalty free standards are essential to its future.

But where are the open standards for open video?  Why don’t we already have them?

Hint:  business guru W. Edwards Deming once said: “If you control an industry’s standards, you control that industry lock, stock, and ledger”.

This bitter pill of insight points to the first thing you should know about open video and open standards:

1) Open Video is Collateral Damage
of the Digital TV Standards Wars

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It’s not hard to figure out that if you could quietly bake your patents into a standard and then name your price after the standard becomes widely deployed, you could make a lot of money and wield a lot of control.

Great work if you can get it, and that’s pretty much the story of a set of international video and digital TV standards that got going in the 1990s, with MPEG the poster child of modern patent-pooled standards.

Of course this is a tale of big bucks.  Think $26 to $40 per TV, billions of dollars in royalties on billions of devices, vendor shoot-outs, litigation, dueling industry groups, back-room deals, claims of abuse, and consumer groups pushing for public disclosure of confidential patent licensing practices hidden behind claims they are “reasonable and nondiscriminatory”  — “RAND” in standards-speak.

So it is hardly surprising that RAND licensing practices and such developed through the DTV experience have done little to nothing to contribute royalty-free video technologies or standards now needed for broadband deployments, which today are essentially captured by proprietary solutions.

2) Standards Aren’t Just a “Techy Topic”
– They’re a Policy Problem

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In fact, scratch almost any network policy issue and you’re likely to find a standards issue lurking inside.  Indeed, America’s broadband plan needs a standards policy.

Turns out country after country has a national “standards strategy”.

UK, France, Germany, Canada, and Korea to name a few.  Some closely tie international standards advantage to IPR & patents, as in Japan (“Intellectual Property Strategy Headquarters decided the International Standardization Comprehensive Strategy, with the aim of enhancing the international competitiveness of Japanese industries and contributing to setting global rules”) and China (“[the] Trade Barrier Treaty [TBT] can be used under the mask of standardization, patents and intellectual-property rights to obtain most world trade advantages.”).

And those that don’t, like Taiwan, have vendors crying foul.

Even in the U.S., a prescient 1992 Congressional report warned:

“The United States has been fortunate to have a pluralistic, industry-led standards setting process that has served us well in the past. Whether it will continue to do so in the future in the face of bruising international economic competition is uncertain.”

So if you think standards are for geeks and not wonks, think again.  As a Toyo University professor recently put the blunt zen to it:

“Standardization activities are political negotiations and not a forum for assessing which technologies excel over others.”

3) Open Source Doesn’t Solve
the Open Standards Problem

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I don’t actually know anyone who is really confused or bent out shape about the difference between “open source” and “open standard” or believes that one is a good substitute for the other.  They are of course different things (one’s a license, one’s a specification, and so on).

But if you are inclined to dig in to this, check here or search the Web for “open source v. open standards’ and you’ll find numerous nice explanations.

4) Don’t Confuse Patent Reform with
Patent Licensing (They’re Different)

-
Another potential source of confusion is the distinction between patent reform — various proposals to make it more difficult to get a patent, to assure that patents are of appropriate quality, to tighten definitions of obviousness and so forth — and patent licensing — the rules and practices of patent pool licensing, disclosure, and IPR (Intellectual Property Rights) policies of standards groups.

Patents have been around for centuries, and so have patent pools, but the regulatory and policy linkages between the two are less than it might seem.  In fact, for a long time patent pools were rare and highly frowned upon by regulators (they weren’t even mentioned in the 1992 Congressional report on standards).  Then in the late 1990s many would trace the beginning of  the “modern” patent pool era to the U.S. Department of Justice’s authorization of the MPEG patent pool.

Pools and patents serve very different policy needs, raise different policy concerns, and by and large are even regulated by different entities.

So unless you are counting on a major scaling back of the patent system that somehow just makes patent issues go away (and few people are), it makes more sense to find a way, as many have, to achieve business model results.

5) “RAND” Isn’t

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So what does the term “reasonable and nondiscriminatory” actually mean?

In theory it’s the commitment to fair licensing required of patent holders in standards groups that — unlike the W3C which defines HTML — are open to patents.

But in reality, since price isn’t set until after the standard comes out (sometimes years later), RAND ends up meaning whatever the patent holders want it to mean.

Studies of RAND licensing typically conclude:

“few SSOs [standard-setting organizations] define the term ‘reasonable and nondiscriminatory’ or have mechanisms to resolve disputes about its interpretation”

So Richard Stallman said it well:

“half of “RAND” is deceptive and the other half is prejudiced”

Still, sincere efforts have been made to give the term “reasonable and nondiscriminatory” a meaning  in standards IPR policies. For example the American Bar Association’s Standards Development Patent Policy Manual is a good source.  But good luck if you hope to wade through lawyerly weighing of “multiple factors” to get any particular practice declared unreasonable or discriminatory.

6) Don’t Fall For FUD — There Is a Solution

-
Finally, it seems there is a never-ending version of Fear, Uncertainty and Doubt that goes something like “you can never really be sure that someone might have a patent so there is no way to ever be sure a standard is truly royalty free”.

To be blunt — this is nonsense, and don’t believe it.  Not only are there thousands of royalty-free standards in the world, and although the number of patent disclosures started to accelerate in the 1990s, the vast majority of standards have no particular IPR or patent issues to speak of.

And even in areas of particular patent thickets and patent controversies, standards organizations with a determined and specific royalty-free policy and process (Khronos and Web3D are a couple of examples) have successfully established their royalty-free credentials.  Sure it takes diligence, a “Freedom-to-Operate” analytical approach, proactive patent reading, time and determination.  Dirac is already making good progress down this path.

So get going Open Video-ers — let’s get some truly open, truly royalty-free standards initiatives going!


References

“The Internet is fundamentally based on the existence of open, non-proprietary standards” Vint Cerf, “the father of the Internet” cited in The Importance of Open Standards in Interoperability, OFE Onepage Brief No.1 (31.10.08.) Available at http://www.openforumeurope.org/library/onepage-briefs/ofe-open-standards-onepage-2008.pdf.

“It was the standardisation around HTML that allowed the web to take off. It was not only the fact that it is standard but the fact that it is open and royalty-free. If HTML had not been free, if it had been proprietary technology, then there would have been the business of actually selling HTML and the competing JTML, LTML, MTML products.”

Tim Berners-Lee, quoted in Standards and the Future of the Internet, Declaration 25th February 2008, at http://www.openforumeurope.org/press-room/press-releases/standards-and-the-future-of-the-internet/

Posted by & filed under Broadband Policy.

I have filed comments (available here) to the National Broadband Policy Notice of Information (09-51).  Excerpt from the executive summary:

Open standards, and particularly royalty-free standards, are the very foundation of the Open Internet as we know it, and Internet leaders are vocal that open and royalty free standards are essential to its future.

So broadband, and the Open Internet on which broadband is based, is not just about technical and business innovation, it is also about standards innovation.

But the term “royalty-free” is found nowhere in the 59-page Broadband Notice of Information, and “[e]quipment and protocol standards” merits only a single sentence buried in “Other Mechanisms” after “tower siting, pole attachments, backhaul costs, cable franchising and rights of way issues.”  Standards need a bigger voice in America’s broadband dialog.

Broadband means new services, not just faster speeds for existing services.  A prime example is video, a critical element of broadband deployments worldwide, be it in the form of IPTV, “over-the-top” video, online video, or video incorporated into new services like telemedicine and health care records.

It is both ironic and telling that “reasonable and necessary” (“RAND”) licensing practices that have developed through the US DTV experience have done little to nothing to contribute royalty-free video technologies or standards now needed for broadband deployments, which today are essentially captured by proprietary solutions. Convergence means worlds and business models collide, but is this really an acceptable, necessary, or desireable outcome, or foundation for future innovation?

Standards strategy has been integral to broadband policies around the world, and needs to be integral to America’s broadband policy. Standards can be America’s broadband advantage.

CONTENTS

EXECUTIVE SUMMARY
BACKGROUND
DISCUSSION
I.   THE NOTICE OVERLOOKS ROLE OF ROYALTY FREE STANDARDS4
A.   “Royalty Free” is Not Mentioned Once in 59-Page Notice
B.   Royalty Free Standards Are a Defining Characteristic of the Open Internet
C.   New Video And Other Broadband Services Need Royalty Free Standards
II.  CURRENT “RAND” POLICY PREFERENCES ARE NOT WORKING
A.   DTV Licensing Practices Exemplify Standards Issues in Broadband Policy
B.   Current “RAND” Practices Should Not Carry Forward as Broadband Policy
III. NEEDED:  POLICY PREFERENCE FOR ROYALTY FREE STANDARDS
A.   Our Network Age Needs Greater Policy Engagement in Standards
B.   Royalty Free Standards Enable Open Industry Structure
C.   Broadband Policy Should Promote Transparency, A Level Global Playing Field,
Open Value Chains, Ex Ante Disclosure, Proactive IP Analysis and a
Preference for Royalty-Free
CONCLUSION

Posted by & filed under Digital TV.

Filings last week in the CUT FATT proceeding at the US FCC on patent overcharging in the US digital TV transition claim that royalty demands for US ATSC-standard television receivers range from $24.10 to $40.10, depending on the size of the TV receiver.

dtv royalties The numbers in the table to the right appeared in the Reply Comments of the Coalition to Terminate Financial Abuses of the Television Transition dated May 27, 2009 in a declaration by Douglas Woo, president of Westinghouse Digital Electronics, one of the two members, along with Vizio, of the CUT FATT coalition.

Interestingly, Woo, a Harvard law graduate, was a partner at Pillsbury, Madison & Sutro focusing on intellectual property matters, before joining Westinghouse.

The table mentions a license fee to Thomson, it might be speculated though it is not directly indicated in the filings that this is Thomson’s “NAFTA Digital Television” patent license that Thomson mentioned in its own filings in the CUT FATT proceedings as containing essential ATSC patents.  Thomson is a member of the MPEG-2 patent pool required in the ATSC standard, but is not a member of the ATSC patent pool.

The filings have brought claims of on-the-edge patent licensing strategies like “multi-dipping” (participating in multiple methods to gain licensing revenue or advantage on the same standards group) and “accretive disaggregation” (increasing the cost of a patent portfolio by selling some patents to other entities).

Consumer groups and others have requested the FCC look further into US DTV licensing practices.  More background on the CUT FATT proceeding is available here.

REFERENCES

“Thomson licenses its entire patent portfolio on a product-type basis, including its “NAFTA Digital Television” patent license for the sale of DTVs in North America. This license includes, among many others, patents that are essential to practice the ATSC terrestrial broadcast standards. Virtually all leading brand manufacturers, and the majority of the rest of the DTV industry (including VIZIO), are licensed under this program. By offering very reasonable royalty terms, Thomson has achieved this success in its DTV licensing program without filing a single enforcement action in the courts or the International Trade Commission (“ITC”).

Thomson Comments Petition for Rulemaking and Request for Declaratory Ruling Filed By the Coalition United To Terminate Financial Abuses of the Television Transition, LLC, MB Docket No. 09-23, dated April 27, 2009.

“[A]ccretive disaggregation”— increasing the cost of a patent portfolio by selling some patents to other entities — is plainly inconsistent with RAND pricing.”

CUT FATT Coalition filing at 12-13, May 27, 2009.

Posted by & filed under Digital TV.

A group of public interest and consumer groups — Public Knowledge, Consumers Union, Free Press, Media Access Project, and New America Foundation — have filed reply comments in the CUT FATT proceeding on digital TV licensing practices at the US Federal Communications Commission, asserting that the Commission should:

  • “investigate allegations that existing licenses for patents essential to the DTV standard are unreasonable or discriminatory”, and
  • “require disclosure of essential patents, the grounds by which the patents are essential, and the terms under which they are licensed.”

The groups argue that such disclosure of licensing terms is within the Commission’s jurisdiction and in the public interest:

“The public interest requires that the scope and cost of any mandatory standards be clear to those who would adhere to them.  When patent royalties can be openly investigated and compared against known benchmarks, manufacturers and consumers can be assured that licenses, and the costs that go with them, are reasonable and nondiscriminatory.  Not only does disclosure prevent cost-raising abuses, but ensuring that essential patents are known and disclosed will prevent users of the DTV standard from being drawn into disputes over patent scope and validity.  The time, uncertainty, and cost involved in navigating unanticipated patent disputes would also be minimized by further transparency and disclosure.” (emphasis added)

Reply comments here also make the case that “It is Unreasonable and Potentially Discriminatory to Shield DTV Licensing Terms Behind Claims of Private Business Confidentiality”.

Patent holders are resisting public disclosure of patent licensing terms, arguing for example:

“The FCC also cannot order the public disclosure of confidential commercial business agreements, as the Petition requests….Private licensing agreements, especially the financial terms of such agreements, are confidential and proprietary information.”

The CUT FATT coalition itself has claimed in its most recent filing that “patent holders are demanding more than $24 per set – although confidentiality requirements prevent manufacturers from disclosing each demand” and similarly argues that

“confidentiality is inconsistent with a regime requiring nondiscrimination. Indeed, simply banning confidentiality requirements is likely to curtail some of the most egregious demands.”

For more information and advocacy on the CUT FATT proceeding, see here.

Posted by & filed under Digital TV.

I have filed reply comments in the CUT FATT proceeding (09-23).  Excerpt from the executive summary:

“The Commission’s request for comments has brought mostly highly critical opposing comments from patent holders, and mostly mild or ambivalent comments from standards groups and other interested parties. Only one commenter, Harris Corporation, themselves an acknowledged recipient of the sort of licensing practices for which the CUT FATT petition seeks redress, takes a direct stance in favor of the spirit of the petition. Perhaps more comments will surface.

There is more to this topic, however, and a different perspective ought to be aired and considered. Public standards require public accountability. America pays more for less in DTV standards. Current DTV licensing practices are not working. The FCC should engage more, not less, in standards.

These reply comments, generally supportive of the CUT FATT petition but in some ways encouraging of an even broader consideration, endeavor to provide information and reasoning that highlight concerns raised by the CUT FATT petition and request that the Commission look more, and more deeply, into these matters. Perhaps one beneficial outcome of the CUT FATT petition, beyond worthy immediate redress, might be to reawaken competitive juices and inspire a needed serious look to the future of digital TV and broadband in the network age.”

Table of contents is below, the full filing is available here, all filed comments are available at the FCC site here (enter 09-23 as the proceeding).


EXECUTIVE SUMMARY
BACKGROUND

A. DTV Licensing Practices Have Undermined American Competitiveness
B. Petition Proposals are Modest; Commission Should Consider Doing More
C. Commission Should Become More, Not Less, Engaged in Standards
DISCUSSION
I. PUBLIC STANDARDS REQUIRE PUBLIC ACCOUNTABILITY

A. Guidelines and Antitrust Waivers Developed for Private, Voluntary Activities Are Not Sufficient to Protect Public Standards
B. Petition Proposals are Modest Compared to Global Best Practices
C. It is Unreasonable and Potentially Discriminatory to Shield DTV Licensing Terms Behind Claims of Private Business Confidentiality
II. AMERICA PAYS MORE FOR LESS IN DTV STANDARDS
A. Patent Overcharging Has Made US DTV Globally Uncompetitive
B. DTV Licensing Practices Have Put America in “Perpetual Catch-up”
C. Commission Should Look Beyond Suspect Appeals to American Pride to a Level Global Playing Field
III. CURRENT DTV LICENSING PRACTICES ARE NOT WORKING
A. Eleven Years is an Unreasonable Amount of Time to Establish the ATSC Patent Pool, and the Surrounding Circumstances Raise Concern
B. DTV Licensing Practices Have Caused Policy Concern Around the World, and Governments Have Stepped In
C. “Multi-Dipping” and Other DTV Licensing Gambits are Unreasonable and Discriminatory
D. DTV Licensing Practices Have Stifled Access to Public Domain and Free Technology
E. DTV Licensing Practices Are Unnecessarily Prolonging Pool Lifespans Through Questionable Tactics
IV. FCC SHOULD ENGAGE MORE, NOT LESS, IN STANDARDS
A. Commenters Propose No Specific Innovation Or Other Compelling Need To Justify Continuing Current DTV Licensing Practices
B. DTV Licensing Practices Threaten to Undermine Broadband Policy
C. Our Network Age Needs Greater Policy Engagement in Standards
D. Commission Has, and Should Improve, Standards Competency
E. Commission Should Consider Going Beyond Petition Proposals
F. Commission Should Promote Transparency, A Level Global Playing Field, Open Value Chains, Ex Ante Disclosure, Proactive IP Analysis and a Preference for Royalty-Free
CONCLUSION

Posted by & filed under Digital TV, Headline.

“RAND” — Reasonable and Non-Discriminatory — is a term often used in standards contexts to describe or set expectations of fairness in patent licensing related to standards.

But what does the term “RAND” really mean?  As one well-known commentary on standard-setting, patents, and hold-up states:  “few SSOs [standard-setting organizations] define the term ‘reasonable and nondiscriminatory’ or have mechanisms to resolve disputes about its interpretation”.

The American Bar Association, Section of Science & Technology Law, has filed a comment to the US FCC about the CUT FATT petition on patent overreaching in the US DTV system, acknowledging that:

“international royalty rates for comparable patents and standards may be a useful factor to consider in determining whether U.S. royalty rates are RAND.”

As excerpted below, the Section makes this comment with appropriate qualifications and call to recognition of the complexities of the issues (“there are many other important factors”), and acknowledges that typical RAND analysis is directed at voluntary standards rather than standards mandated by a regulatory authority.

But the Section comments go on to opine that:

“With respect to the particular factor proposed by CUT FATT (i.e.. patent pools for DVB-T and ISDB), we believe that any consideration of “comparables” should be limited to licenses of comparable patents, both in scope and quantity, for implementation of the same standard (i.e., the ATSC DTV standard, in this case).”

The comments further assume that “[c]omparable patents are likely limited to foreign counterparts of the US patents in question.”

Surely, the Section is not suggesting that the only relevant factor to consider should be limited to whether the ATSC standard adopted in the US is offered at a discount in international markets, perhaps to meet price competition from other standards like DVB-T, ISDB, or others, and then only to a comparison of the “US” ATSC royalty price to the “international” ATSC royalty price?  All things being equal, would that be “reasonable”, or just “discriminatory”?

References

Selected excerpts from filing by American Bar Association (“ABA”), Section of Science & Technology Law in CUT FATT proceeding (emphasis added):

“These views are being presented on behalf of the Section only and have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and should not be construed as representing the position of the Association.

Section takes no position on whether or not the Commission should assume any role as requested by the Petition or modify any policies regarding DTV patent licensing but rather comments here on the complex and factual considerations that would be implicated by CUT FATT’s request that the  Commission.

One of the issues before the Commission – RAND royalties in the context of a standard mandated by a regulatory authority — has not been widely discussed or analyzed in the literature, which has traditionally focused the RAND analysis on voluntary standards. While the ABA Manual “is not directed to standards whose policies are prescribed by governments …the information may be useful in assessing the terms associated with such activities.”

Depending on the circumstances, international royalty rates for comparable patents [7] and standards may be a useful factor to consider in determining whether U.S. royalty rates are RAND. We respectfully submit that there are many other important factors that the Commission should consider in connection with its review of the Petition.

Specifically, CUT FATT suggests that “international comparable” royalty rates should be treated as “benchmarks” [8] when  assessing the reasonableness of a RAND licensing commitment.  With respect to the particular factor proposed by CUT FATT (i.e.. patent pools for DVB-T and ISDB), we believe that any consideration of “comparables” should be limited to licenses of comparable patents, both in scope and quantity, for implementation of the same standard (i.e., the ATSC DTV standard, in this case). To the extent that such comparables exist, we believe they should be one of many factors considered in evaluating the reasonableness of a particular royalty rate.

[7] Comparable patents are likely limited to foreign counterparts of the US patents in question.

[8] We do not believe that a “benchmark” is appropriate in this context, as it may imply that undue weight be given to royalties established earlier in time.”

Posted by & filed under Digital TV.

There is much contention in the CUT FATT filings as to how much royalties are claimed on the US and other DTV systems, and what significance the differences may have in the framework of “RAND” (Reasonable and Nondiscriminatory) standards policies and government oversight.

The debated amount for royalties on the US DTV system is $23 dollars, with some debated lower amount for other systemsISDB Set Top Box Price (actually, many components are available royalty-free, see here, for example about how Japan courted Brazil to the ISDB system:  “A memorandum on the digital standard signed earlier this year between the Brazil and Japan called for Japanese firms to train local staff and allow Brazilian companies to use the technology without paying royalties”).

So hold this thought:  $23 dollars as the contented royalties per set top for the US DTV system versus a Japanese government official’s assertion last month that ISDB set tops would be available for $30 in the Philippines.

Some context. The advent of modern patent pools after a century of policy skepticism is often traced to the 1997 US Department of Justice business review letter that indicated the DOJ would not prosecute on Antitrust grounds a pool license for the MPEG-2 video codec and associated transport stream.

In subsequent years, selective readings of terms of that 1997 letter have become common sport in patent pooling circles.  Can a contractor paid to determine essentiality of a patent really be independent from their employer?  No increase of royalties by more than 25%, “most-favored-nation” clause for licensees?  Does making the list of patents available require posting the list to a web site?  What about the potential for hold-up after a standard becomes popular?

Now a particularly interesting assertion is made in the filing by Mitsubishi Electric (emphasis added):

“patent policies cannot become retroactively anticompetitive because of changes in market conditions, such as the prices charged by comparable technology standards.”

Department of Justice takes the position that the patent policies of a standards development organization (“SDO”) are to be analyzed ex ante for potential anticompetitive effects.

In other words, the DOJ’s antitrust analysis focuses on the state of the world when the SDO’s patent policies are established.

To paraphrase, it appears that Mitsubishi Electric reasons something like that patent pools can charge whatever they think is fair, because there is no objective way to determine what is unfair.  What an interesting interpretation of the policy underpinnings of the Department of Justice authorization of ex ante procedures in standards organizations, and one that RAND-based organizations will want to take a note of.

What a far distance this is from the original DOJ business review letter authorizing the MPEG patent pool in 1997 on specific, narrow terms, which contemplated that because royalty rates would be “a tiny fraction” of product prices, collusion or downstream price coordination was highly unlikely:

“Further, since the contemplated royalty rates are likely to constitute a tiny fraction of MPEG-2 products’ prices, at least in the near term, it appears highly unlikely that the royalty rate could be used during that period as a device to coordinate the prices of downstream products. “

http://www.usdoj.gov/atr/public/busreview/215742.htm

So there you have it:  in just 12 years from a proscriptive assumption of royalties being a “tiny fraction” to assure no downstream collusion to a claim of “cannot become retroactively anticompetitive” even if royalties are over fifty percent of total product price.  Attorneys for Moore’s law should take note.

References

“Even if one were to assume the accuracy of this unsubstantiated report and the unstated methodology underlying it….[t]his falls far short of showing a systemic breakdown in licensing essential DTV patents…there are legitimate reasons for differences in royalty rates between U.S. and foreign pools” (Philips / Qualcomm)

“For purposes of these Comments, it can be assumed that the royalty rates alleged in the petition are accurate. However, it is noted that the petition errantly describes the royalty for ISDB as 100 yen per unit, even though the actual royalty for ISDB is 200 yen per unit. See <http://www.uldage.com/en/indexe.html>. ” (Mitsubishi Electric)

“misleading at best … categorically false … not credible …differences in the patent acquisition and enforcement systems around the world and the fact that the ATSC standard is different from those used for DTV elsewhere in the world … “NAFTA Digital Television” patent license … very reasonable royalty terms”  (Thomson)

Posted by & filed under Digital TV.

Mitsubishi Electric, a patent holder in the ATSC patent pool, in commenting in the CUT FATT DTV patent consideration, makes the statement (emphasis added):

Neither Congress nor a U.S. government agency has ever compelled patent holders to form a licensing pool defined by government-mandated royalties.  In essence, this would be a grant of a compulsory license for what the licensee wants to pay. Such ex post regulation of prices runs contrary to the patent system’s goal of encouraging innovation and, quite frankly, to the American free market system. … Since World War I, we are unaware of any situation where the government has either regulated royalty rates or compelled pooling.”

Consider, however, the case of RCA, originally structured in 1921 as the patent pool for radio patents.  After government proceedings in 1924 (FTC  and “packaged licensing”) and 1930 (Department of Justice consent decree separating RCA from its owners), RCA entered into a consent decree in 1958 concerning color TV patents (for which RCA was then the key owner), described in Time magazine:

“In a sweeping civil consent decree in one of the biggest Eisenhower Administration Sherman Act suits to date, RCA agreed to 1) put some 100 color TV patents into a royalty-free pool, 2) make available to all comers on a royalty-free basis at least 12,000 other existing radio-TV patents, 3) license all new patents during ‘the next ten years at a “reasonable” royalty rate.”

Some interesting commentary on the context and consequences are described in “Inventing the Electronic Century: The Epic Story of the Consumer Electronics and Computer Industries”, a 2001 tome by Alfred D. Chandler Jr, often cited as the “dean of American business historians”:

“The 1958 consent decree [with RCA] was part of a drive by the Justice Department’s Antitrust division to open the new electronics-based industries to competition by making the patents of IBM, AT&T, and RCA available to all… [The consent decree] made licenses available to domestic companies without charge… Foreign buyers would continue to pay full freight. … RCA Labs, in order to maintain licensing income after the consent decree, began to concentrate on licensing to Europe’s Philips and Japan’s leading consumer electronics makers.”

References

“Republican Attorney General William Rogers’ decision to go after RCA with a criminal indictment was undoubtedly encouraged by RCA’s $10 million out-of-court settlement with Zenith, when it got a look at the facts Zenith had collected to support its charges of monopoly.”

“RCA Under Fire”, Time Magazine, March 3, 1958, http://www.time.com/time/magazine/article/0,9171,893902,00.html

“In March 1921, Westinghouse and AT&T joined GE to use GE’s newly formed Radio Corporation of America as a patent pool.  One of RCA’s initial purposes was to hold and allocate radio-related patents”  Chandler, p.15

“Owen Young [GE's general counsel and vice president] believed that the growing number of legal battles over patents could only slow the continuing development of radio technologies.  His solution was for RCA, which already held GE’s patents and those of the navy, to obtain those of GE’s competititors in exchange for obtaining shares of stock in RCA and having representatives on its board.” Chandler, p. 16

Posted by & filed under Digital TV.

FCC Docket 09-23, Petition For Rulemaking And Request For Declaratory Ruling Filed By The Coalition United To Terminate Financial Abuses Of The Television Transition, has drawn filings from Mitsubishi, Valley View, Philips/LG Electronics, Funai, Thomson, ATSC, Harris, Zenith, MPEG LA, Philips/Qualcomm, and Retire Safe.

A starting point in reviewing this material is the joint filing by Philips Electronics North America Corporation and LG Electronics USA, Inc., which makes five arguments, excerpted below (emphasis added).

1) “Vibrant market” for DTV receiver models

“The success of Vizio and Westinghouse Digital Electronics strongly indicates that royalty costs are not preventing the production and sale of inexpensive DTV sets…. [They] have been quite successful in offering DTV receivers priced among the lowest in the industry despite the fact that neither holds a single patent essential to practicing the DTV ATSC standard.”

2: “[P]rivate pools and privately negotiated licensing agreements are working well”

“[P]rivately-administered DTV patent pools, including the MPEG LA MPEG-2 and ATSC portfolios, offer patent licenses to hundreds of essential DTV patents on reasonable and nondiscriminatory terms. These pools provide timely and cost-effective access to scores of manufacturers that have delivered millions of affordable DTV sets to U.S. consumers. The Petition provides no real evidence to the contrary.”

3: FCC has “limited experience and expertise in the intricacies of patent law and the determination of patent royalty rates”

“[C]omplex and closely intertwined issues of patent validity, claim construction and the setting of reasonable patent royalty rates require careful deliberation for just a single patent”

4: “[C]onsistency in decisions involving patent law”

“[T]he federal courts and other federal expert agencies, such as the International Trade Commission and the United States Patent and Trademark Office, understand fully the complexities of the patent laws. In order to ensure consistency in decisions involving patent law, the federal courts and these other agencies – not the FCC – should address the concerns raised by the Petitioner.”

5: “[D]iscourage continued development of DTV technology”

“Commission action to lower patent royalties associated with DTV technology would have long-term detrimental effects because it would discourage continued development of DTV technology.  Petitioner’s proposals thus would be harmful to U.S. consumers because they would chill the innovation that engendered American consumers’ embrace of the new digital broadcast technology” technology over the past decade.