[M4IF Discuss] Royalties Center Stage Again: MPEG-LA Sets Tentative Rates For MPEG-4 In Tough Times

[Craig Birkmaier]

Royalties Center Stage Again: MPEG-LA Sets Tentative Rates For MPEG-4 
In Tough Times
Story Filed: Monday, March 18, 2024 6:35 PM EST
Mar 18, 2024 (DVD Report/PBI Media via COMTEX) -- MPEG-LA, the 
licensing pool for the 18 participants in the MPEG data compression 
technology, has announced its anticipated license fees for the 
forthcoming MPEG-4 format. MPEG-4 is aimed primarily at online and 
wireless multimedia applications; however, it will have interaction 
with recordable DVD formats as those increasingly become the resident 
formats for downloaded entertainment data. It also has applications 
for prerecorded replicated DVD discs.
Manufacturers of software programs that incorporate MPEG-4 would be 
required to pay 25 cents for each copy they sell, up to a cap of $1 
million per year. But most specific to the streaming world, MPEG-LA 
also has proposed a "use fee" of 2 cents an hour. DVD replicators can 
expect the same fee to be applied to each hour of prerecorded 
material put onto discs.
The new MPEG patent royalty rates come at an interesting juncture in 
the hot-button royalty imbroglio. Basic underlying patents held by 
Sony and Philips on the CD continue to expire, underscoring to patent 
holders the need to exploit patents as comprehensively as possible as 
media formats are threatened by both theft by piracy and by being 
bypassed by downloads, both legitimate and otherwise. At the same 
time, independent DVD replicators have become more vocal than ever 
about the burden royalties have become as margins on disc prices 
shrink, and about the ledger-book legerdemain they contend takes 
place with replication operations owned in part or in full by patent 
participants, in which the portion of royalties owed to plant owners 
are "washed" off the selling price.
Complaints from replication trade organizations such as Swiss-based 
iODRA, and increasingly from recordable media duplicators, over 30 of 
which have banded together under the Australian-based Independent 
Disc Duplicators Association (IDDA), have put opposing pressure on 
patent holders. Though the patent holders have publicly maintained 
that they will remain relentless in their pursuit to sign media 
manufacturers to binding royalty contracts, the organizations' 
tactics appear to be paying off.
Last year, MPEG-LA halved the 4-cent rate for its MPEG-2 format. More 
recently, both patent pool 6C and Philips Licensing Systems offered 
90-day windows on the equivalent of rate sales. 6C cut its rate by a 
third, from 7.5 cents per disc to 5 cents, for replicators who agreed 
to sign a royalty agreement. Philips offered similar terms on its 
patents. Masahisa Saito, manager, DVD licensing office, Matsushita 
Electric Corp. of Americas, said that the 5-cent royalty would remain 
in effect for the term of the license. Additionally, discs 
manufactured by signatories during all of 2001 would be licensed 
retroactively at 6 cents; discs manufactured prior to Dec. 31, 2000 
would be charged at the original 7.5-cent royalty rate. For 
manufacturers that do not sign a licensing agreement with 6C during 
the rate reduction period, the rate would remain at 7.5 cents per 
disc. However, Saito said that discs made after Jan. 1, 2002 would be 
charged at 6.5 cents per disc.
Compounding the issue, Matsushita Electric, one of the 6C members, 
filed lawsuits against both Cinram and Sonopress in January, alleging 
infringement of its five DVD patents. Subsequent to the announced 
rate cut offer, 6C announced that it had settled with Cinram, which 
signed a license in March. Sonopress has also reportedly settled 
along similar lines. However, Matsushita will continue to press 
forward with its lawsuits against both companies. Jim Reilly, 
spokesman for Matsushita subsidiary Panasonic, confirmed this but 
could not comment on why in light of the announced resolutions with 
each.
This makes for a muddled landscape onto which MPEG-LA will roll out 
the newest set of license terms for a major media compression format 
since the turn of the century. Larry Horn, vice president of 
licensing and business development for MPEG-LA, is aware that the 
ground is less than easy to read at the moment. Reflecting MPEG-LA's 
position as the first patent pool to agree to a rate reduction, Horn 
couched the organization's position as a business one, rather than 
adopting the principled, morality-tinged tone taken thus far by 
companies such as Philips, or the cut-and-dried view expressed by 
mainly Japanese patent participants, which see the royalties as 
simply a quid pro quo for risking capital on the R&D which developed 
the formats in the first place. As Horn put it, "At the end of the 
day, MPEG-LA is in the business of marketing a license. If this 
technology goes totally unused, the patent holders lose out. We have 
an incentive to get it right.
"We're not holding a referendum," he continued, "but we do realize 
that give and take is necessary in this matter." Horn stopped short 
of calling the new license terms preliminary, but did leave the door 
open to reaction, in part by stating that the terms are not expected 
to be finalized until late spring.
The first responses from companies with big stakes in online data 
movement -- the main thrust for MPEG-4 -- were not positive: Apple 
Computer made its feelings clear several weeks ago when the company 
announced it would delay the release of its newest version of its 
media player QuickTime, which uses MPEG-4 technology, to protest the 
royalty terms. And unlike in the arena of physical media, there are 
already several serious challengers to MPEG's compression hegemony 
for online applications, including Xiph's Tarkin video codec, and 
On2's VP series of codecs, all of which are open-sourced.
Thus, the roll-out of MPEG-4's licensing terms comes at a pivotal 
time. Pragmatism is vying with principle in the media marketplace. 
While he declined to address the case directly, Jeffrey Kessler, 
partner in the Manhattan offices of the firm of Weil, Gotshal & 
Manges and Matsushita's lead attorney in the Cinram/Sonopress suit, 
did acknowledge that Matsushita has in the past negotiated licenses 
with individual replicators, and suggested that the patent royalty 
rates have varied from case to case. "I can't comment on specific 
rates," he said. "But the royalty rate is presumably part of the 
overall negotiation process." It's likely that the entire patent 
royalty issue will be less cut and dried than it has been in the past.
DVD Report, Vol. 7, No. 6
By Dan Daley
Copyright 2002 PBI Media, LLC. All rights reserved.
Copyright © 2002, Phillips Publishing International, all rights reserved.