[A2k] Faultline analysis of patent disputes on VC-1 and H.264

[James Packard Love]

Interesting story about patents on internet audiovisual standards,
one of which is dealing with 125 separate patents, owned by lots of
different companies.  Jamie

Original URL: http://www.theregister.co.uk/2007/04/14/
microsoft_vc-1_codec_analysis/
Microsoft mugged over VC-1 codec patent terms
By Faultline
Published Saturday 14th April 2007 12:02 GMT

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, soci=E9t=E9 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=92s 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 =93give away=94 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=92s more of less what they=92ve won here.

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
=93back payments=94 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=92t too surprising since everyone we=92ve 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
T=E9l=E9com soci=E9t=E9 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=92s 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 =96 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=92re 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=92s 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 (http://www.rethinkresearch.biz/)

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 (http://
www.rethinkresearch.biz/subscribe.asp).
Related stories

First HD-DVD film appears on BitTorrent (18 January 2007)
http://www.theregister.co.uk/2007/01/18/hd-dvd_crack/
IPTV/VoD: Get up to speed (13 November 2006)
http://www.theregister.co.uk/2006/11/13/iptv_vod_briefing/
Of mass market telco TV (17 October 2005)
http://www.theregister.co.uk/2005/10/17/triple-play_for_uk_isps/

----------------------------------------------
James Packard Love
Knowledge Ecology International
http://www.keionline.org
james.love@keionline.org
Washington, DC +1.202.332.2670

"If everyone thinks the same: No one thinks." Bill Walton"