Tuesday, June 01, 2010

MPEG LA rattles sabers at WebM, but are they empty threats?

CNET News is reporting that MPEG LA continues to suggest that it holds (or will hold) patents that WebM users will have to license. It's the "will hold" part of that sentence that's most interesting. In mid-May, Nero AG, the German publisher of digital media software, filed a antitrust lawsuit against MPEG LA in U.S. Federal court in Los Angeles. I won't go into all of Nero's claims (you can download the entire complaint as a PDF file here), but there are a few claims in the complaint that, if substantiated by the courts, could drive a stake through MPEG LA's entire strategy.

According to Nero's complaint, the U.S. Department of Justice agreed not to take antitrust action against MPEG LA, so long as that organization have an independent expert review its patents and cull out any that are non-essential, and that it license patents on a fair, reasonable and nondiscriminatory basis. However, Nero points out that the "independent expert" assigned by MPEG LA to review and cull its patents was once listed as MPEG LA's general counsel, has been intimately involved with the organization's activities, and may have a financial interest in the business.

Part of Nero's evidence is that in 1997, MPEG LA told the U.S Justice Department that the 27 patents that it held at that time on the 1993 MPEG-2 represented "most" of the essential patents, which meant that there were at most 53 essential patents. However, it subsequently added some 800 newer patents to MPEG-2 over the life of its license, all of which it claimed were essential, in order to extend the life of the MPEG-2 license. Now, if there were only at most 53 relevant patents in 1997, how could there possibly be more than 800 relevant patents today? Nero claims that this "everything is relevant" philosophy infected MPEG LA's MPEG-4 Visual patent pool, with more than 1,000 patents, and its AVC pool, with more than 1,300 patents.

Nero's argument is that many, if not most, of these patents are not essential, but were added to the pool only to extend the amount of time for which MPEG LA could extract license payments. It would be like a pharmaceutical company acquiring completely unrelated patents and then claiming that those patents were essential to a drug that's about to lose patent protection, thus maintaining patent protection for the drug until all the unrelated patents expire.

Keep in mind that these are arguments, not the findings of a court, but they raise the question of how many of the MPEG-4 and AVC patents are actually essential. Five percent? Ten percent? Specifically which ones are essential? MPEG LA's "independent" expert has apparently been anything but independent or impartial.

This may be the enormous chink in MPEG LA's armor. Most companies that license technology from MPEG LA don't have a strong reason to fight them, because they've included some of their patents in MPEG LA's pools and stand to profit from their activities. Google, on the other hand, doesn't appear to participate in MPEG LA and has no reason to protect the organization or look the other way. If MPEG LA files suit, Google is undoubtedly going to push the court to review every patent that MPEG LA claims as essential, and many of those patents may be invalidated or deemed non-essential, which will mean that the companies who own those patents will be extremely unhappy. Unhappy companies are unlikely to stay in MPEG LA, and it will no longer be able to represent itself as a "one-stop" licensing agency. Also, the U.S. Justice Department could get involved, either on an antitrust basis or on the basis of patent fraud.

So, MPEG LA may be in a much weaker position than it and Apple would have the general public believe. Google knows this. It'll be very interesting to see if MPEG LA ever moves from saber rattling to actually filing suit about WebM.
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