Todays IBD. MPEG LA...................
Can Patent Pool Promote Use Of Video Standard?
Date: 7/24/97
Author: Reinhardt Krause
Pay up. So says a group of companies claiming to hold key video compression patents.
They've created Denver-based MPEG Licensing Administrator LLC. It plans to collect royalties from makers of set-top TV boxes, digital video disc players, camcorders and high-definition TV gear.
The patents involve a video standard created by the Motion Picture Experts Group, or MPEG. Called MPEG-2, the standard sets video picture quality and determines how to transmit compressed video. For example, a set-top box using MPEG-2 chips would be assessed a $4 fee, the group says.
Who's in this elite group? Fujitsu Ltd. , General Instrument Corp., Lucent Technologies Inc., Matsushita Electric Industrial Co. , Mitsubishi Electric Corp. , Philips Electronics N.V., Scientific-Atlanta Inc., Sony Corp. and Columbia University.
Baryn Futa, MPEG Licensing Adminstrator's CEO, recently discussed the licensing with IBD.
IBD:
What precedent is there in the high-tech industry for this kind of patent pooling?
Futa:
I don't think there is one. I'm not aware of another entity that takes a cutting-edge standard like MPEG and organizes access to the intellectual property.
IBD:
MPEG Licensing Administrator's patent portfolio doesn't contain all the patents needed to comply with the MPEG-2 standard. Why should anyone go to you?
Futa:
If you're a manufacturer using MPEG-2 technology in the current marketplace, how do you start, where do you go? You could do a massive multimillion-dollar patent search and identify all the possible U.S. patents. Then you could pursue all those companies. We offer a list of patents that are all essential to MPEG-2. It quantifies your risk of exposure to a very reasonable number.
It's important to know that in our program the licensers are licensees. No one has enough coverage, enough patents, to not need this license.
IBD:
Why are you asking for royalties from the makers of end-products instead of chipmakers?
Futa:
The philosophy was to assess the royalty at the highest level of integration. That's where records are well-kept and where industries are accustomed to having licensing fees assessed.
IBD:
Is MPEG Licensing Administrator going to sue companies that don't get a license?
Futa:
Patent enforcement is a matter for the individual patent holders. The intention is not for us to be the MPEG police. The intent was to create one-stop shopping for a patent portfolio. If someone signs with us and breaches the contract, then we would enforce that.
IBD:
Would these royalties apply to products already sold?
Futa:
Yes. It goes (back) to June 1 of '94.
IBD:
How many licensees do you think MPEG Licensing Administrator will have a year or two from now?
Futa:
I expect hundreds of licensees, because of the nature of our program. It's the same licensing deal for everybody. There's no volume differentiation, and there's no up-front payment required.
IBD:
Are any companies with important MPEG patents not part of your licensing group?
Futa:
Thomson Consumer Electronics (a unit of Thomson-CSF of France) has told us that due to prior commitments it will be licensing its MPEG-2 patents through its GE/RCA licensing entity. Toshiba Corp. and Samsung Group have asked to join.
IBD:
How are you splitting the royalties among the group?
Futa:
Companies that wanted to work toward this goal submitted patents to us. We determined (how essential each) patent is to the MPEG-2 standard. The royalties are distributed . . . based on the number of essential patents (each member owns) and the country the patents are in. Sony has the most essential patents in the portfolio.
IBD:
What kind of royalty stream do you expect?
Futa:
It really depends on the marketplace development. From a financial point of view, the success of MPEG Licensing Administrator very much rides on the penetration curve of MPEG-2 products like DVDs and set-top boxes.
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