ON2’S MPEG-4 POSITION PAPER

 

 

 

Background

 

In 1997, the Department of Justice approved[1] a proposal by a group of nine companies and one university[2] to create a one-stop-shop clearinghouse through the pooling of patents owned by this group. These patents were needed by entities looking to manufacture electronic equipment that stores or transmits compressed video data.  This video compression technology is known as MPEG-2 and the jointly owned licensing agent for the MPEG-2 patent holders is named MPEG LA.

 

Operating under the auspices of the MPEG-2 Approval, since 1997 MPEG-2 has obtained at least a 95% market share in the digital television video compression market.  Fast forward to 2002, and a new group of companies (consisting of many of the MPEG-2 patent holders as well as some new patent holders) is attempting to pool patents for a new video compression technology called MPEG-4.[3] This group of companies is using the same licensing agent (MPEG LA) as the MPEG-2 group.  MPEG-4 is aiming to be the international standard for interactive video compression in three fields:  digital television, interactive graphics applications, and interactive multimedia, i.e. the World Wide Web.

 

For MPEG-4 to become such a standard, MPEG LA will need approval by the Department of Justice of its new patent pool.  There are two critical questions: (1) Does the 1997 MPEG-2 patent pool approval currently apply to the new MPEG-4 patent pool? and (2) Should the 1997 MPEG-2 Approval cover the MPEG-4 Patent Pool?

 

1.  Does the 1997 MPEG-2 Approval Currently Apply to the MPEG-4 Patent Pool?

 

The simple answer is NO.  MPEG-2 and MPEG-4 are comprised of different patents and different owners for different technologies.

 

The MPEG-2 Approval explicitly limited its application to the MPEG-2 technology.    There is no evidence that the MPEG-4 patent holders have even applied to the Justice Department for approval of the MPEG-4 patent pool.  MPEG LA, however, is creating the impression it had such an approval - - it is offering licenses to its technology and has set fees associated with encoding, decoding and overall usage of MPEG-4 as though it has approval for the new patent pool.[4] MPEG LA’s recent public statements suggest a steamroller approach.  In commenting on recent questions as to the legality of the MPEG-4 patent pool, MPEG LA attorney Garrard Beeney stated: "I don’t anticipate any further communication from the Justice Department."[5]

 

2.  Should the 1997 MPEG-2 Approval Apply to the MPEG-4 Patent Pool?

 

The MPEG LA patent holders are using a Trojan Horse maneuver by trying to extend an approval of one patent pool (MPEG-2) to cover another pool of different patents (MPEG-4) held by a different group of patent holders for a related but very different technology for which no lawful patent pool should exist.

 

An underpinning of the MPEG-2 Approval was the importance and procompetitive benefits of establishing an international video compression standard.[6]  If there were a case to be made for standards, it might have been made in a market that is immature and needs accelerated growth – as could be argued was the case for MPEG-2 in 1997.  If end-users would suffer due to the lethargic pace of advancement without a standard, or because of the exorbitant cost created by the lack of a standard, a cartel might be justified, especially when hardware is the primary component.  However, this is not a fair assessment of the video compression field that MPEG-4 intends to monopolize. If anything is true, it is that the present video compression market sought to be exclusively run by MPEG-4 is an active robust market served by several competing companies (with more to come), offering technology that does all of the things that MPEG-4 claims to do.

 

A number of companies with their own patents in video compression and interactive technologies already operate in this market. These companies include Microsoft, Real Networks, On2 Technologies, Sorenson, and DIVX, and this is, by no means, an exhaustive list. Several of these companies make video compression tools that can be and are used in the three markets that MPEG-4 falsely claims requires a "standard". The RealPlayer is on 200 million personal computers and has been programmed to work on wireless devices, hardware chips, along with interactive graphics. It can be used in interactive television set-top boxes, and its player and decoder are available to the public for free. Microsoft Windows Media Player is on 160 million computers and Microsoft has already ported its technology to dozens of platforms that MPEG-4 claims require a "standard" to operate. Microsoft also gives away its player, decoder, encoder and server software. And in a somewhat ironic twist, some MPEG-4 technology is actually based on an early version of Apple Computer's QuickTime product called "Bento".  The current version of Apple’s QuickTime player and decoder are free as well.

 

In September 2001, On2 Technologies made a version of its compression technology, VP3, available to the open source community.  VP3 became the first true common format that is open, documented and free.  It can be altered by any user and adapted for any use, as long as the additions to the code base are published for the open source community. 

 

Many of these competing compression technologies currently communicate with each other and are seamless to the consumer.  In part, this is because these and future versions are software based and relatively easy to program for such compatibility.

 

These technologies and others represent a thriving global field of video compression technology that has been operating for at least five years. One of the reasons that this arena is so robust is the competition among the technology providers has led to rational pricing and rapid advancement of improved video compression techniques. The companies in this field are forced to innovate quickly and price fairly as a matter of normal competition and survival. There could hardly be a less likely candidate for a sector of the economy in need of "standards".

 

MPEG-4 would make the argument that if there were only one "standard" it would be easier for end-users. That is untrue.  In essence, they posit that if all computers, televisions, PDAs, cell phones, and other video-enabled devices had only one technology that the world would be easier to navigate for consumers. That is, however, akin to saying that the cellphone industry should have one standard for manufacturing hardware and software. This is clearly not the case in the cell phone industry, or most other industries, and the consumer is not only able to talk on a mobile phone, but the phone is less expensive and more technologically advanced due to the competition that has existed in the industry from its infancy.  Just as competitive technologies for cell phones exist now without any communication problems, the same applies to the software based video compression and interactive community.

 

            The argument for a government blessed technology standard could also try to be extended to digital rights management (“DRM”).   DRM is the technology that content providers use to protect their content from piracy.  Major studios are putting their content on the Internet through initiatives like MovieFly and Movies.com. These enterprises use DRM technology from Real and Microsoft. Already, there is an entire vigorous industry of private enterprise DRM providers for video content, which includes companies like Intertrust and SecureMedia, that is flourishing without a standard.  

 

Conclusion

 

            MPEG-4 is trying to monopolize the substantially software based interactive video compression industry, plain and simple. It is a move by a few very large companies to dominate a market and fix prices. Recent pricing policies by MPEG LA for MPEG-4 and the customer reaction to them are ample evidence of this.[7]

 

The changes in technology, the marketplace in general, and the composition of the patent pool since the MPEG-2 Approval are more than a sufficient basis for the Department of Justice to take a close look at MPEG-4.  The Department of Justice has established a set of administrative guidelines for examining, among other things, patent pooling by potential competitors.[8]  Section 2.4 of these guidelines states that: “The competitive effects of a relevant agreement may change over time, depending on changes in circumstances such as internal reorganization, adoption of new agreements as part of the collaboration, addition or departure of participants, new market conditions, or changes in market share.  The Agencies assess the competitive effects of a relevant agreement as of the time of possible harm to competition, whether at formation of the collaboration or at a later time, as appropriate.”  The appropriate time for such an assessment of MPEG LA is now.   

 

            No matter what else may be said, the Justice Department has not extended the patent pool for MPEG-2 to cover MPEG-4 and any representation by MPEG LA that says otherwise is false.

 

The individual MPEG-4 patent holders should maintain their own patents, license the technology that derives from these patents as individual companies, and compete in the market for interactive video compression just as the rest of the private enterprises in this field already do.  If their technology is better, it will be selected.  If not, it will fade away as the current vigorous video compression market continues to grow naturally in the capitalistic system without unwanted and unnecessary government assistance.