This is an account of the 9, 10 June Licensing Information and Discussion meeting held at the Renaissance Hotel in Los Angeles, California, USA.

 

The summary below is a personal account by the chairman of what was discussed during the meeting. It was reviewed by participants for accuracy, and their feedback was accommodated. The process did not provide for approval of these notes.

 

These meeting notes are not intended to give a complete record of what was said. The introductions that presenters gave to their companies were largely left out. The summary tries to capture the statements directly relevant to licensing issues. Some background on the field of business is provided for context.

 

Meeting participants were told in advance that the meeting notes would be made available in an anonymous way. The goal was to allow people and companies to speak their mind freely. In spite of the option to remain anonymous, some presenters were prepared to share their presentation publicly. Those presentations are linked below, and the presenter is identified, because it also occurs in the presentation.

 

The organization of this meeting was in the hands of:

·        Dave Lindbergh -- Chairman, Requirements Working Group, IMTC / Polycom

·        Istvan Sebestyen -- President, IMTC / Siemens

·        Jan van der Meer -- Board of Directors, M4IF / Philips

·        Rob Koenen -- President, M4IF (Meeting Chairman)

·        Tim Schaaff -- Board of Directors, ISMA / Vice-President, M4IF / Apple Computer

·        Dave Singer – ISMA / M4IF / Apple Computer

Organizers welcomed 56 participants representing 45 companies and organizations from numerous industries worldwide, and thanked them for making often long trips for attending this meeting.

 

Goal of the meeting was explained as follows:

• An exchange of views to facilitate rapid and fit-for-the-market availability of H.264|AVC licenses
• In the form of positive, constructive dialog
• The goal is not:
• to negotiate, in any form
• to discuss any pricing issues
• to discuss the mechanics of establishing patent pool(s)
• But some discussion took place on how to speed up the process
• to discuss issues surrounding a Royalty-Free Baseline (RFB)
• But some presenters referenced the RFB (there was no real discussion on the issue)

 

Format was explained is as follows:

• Potential licensees make presentations
• Potential licensors, licensing agents and licensees listen
• All participants can engage in discussion
• As no consensus can and will be sought, repetition is not only inevitable but also desirable where different participants are of the same opinion.

 

Procedure was agreed as follows:

• No reports to be made public except for the anonymous one that the organization will prepare
• Participants may only report on their own positions expressed at the meeting, not on other party’s positions. A general account of what happened may be given.
• There were no intentions to publish the presentations. During the meeting, however, a wish was expressed to publish some presentations anyway. It was then decided that the 3 host organizations would publish those presentations on their websites together with an account of the meeting (this report)
• People present on behalf of their company (unless they state otherwise), but can speak their own minds in the discussions

 

Agenda was agreed as follows:

 

Monday

·        13:00 - Opening

o       Introduction, Goal of meeting, Agenda

o       Antitrust Instruction

o       Assigning presentations

·        Session 1 - Internet/Streaming

·        Session 2 - Mobile

·        Session 3 – Conferencing

·        Review of Day 1

·        18:00 - Meeting adjourned

·        Informal Cocktail Reception

 

Tuesday Morning

·        09:00 hours - Opening

o       Repeat goal of meeting,

o       antitrust instruction

o       changes to agenda if any

·        Session 4 – Broadcast & Packaged Media I

·        Session 5 – Broadcast & Packaged Media II

·        Session 6 – (Consumer Electronics) Devices

 

Tuesday Afternoon

·        Session 7 – Speeding up the process

·        Concluding

o       Review of results

o       Review of publication of results (how and where)

o       Review of next steps, if any

·        17:00 hours - meeting adjourned

 

On the organization of the meeting in sessions, the following was noted: The interests of (almost) all of the presenting companies go beyond a single ‘viewpoint’, but the presentations are still organized things in sessions according to ‘viewpoints’ to give some structure to the discussions. Participants were asked to address *all* the relevant areas for their company or organization company in their presentation, and to take part in all relevant discussions.

 

The moderator (Rob Koenen) explained he was present as President of the MPEG-4 Industry Forum and that his company (InterTrust Technologies) had no involvement in this meeting.

 

The President of IMTC (Istvàn Sebestyèn) explained his organization’s participation in organizing this meeting. IMTC promotes the use of interoperable standards for communication. IMTC is also defining requirements for standards; H.264/AVC was one of them. H.264|AVC is a standard that can enable many applications in this area. Licensing is an important factor in seeing the standard adopted. Download presentation

 

Goal of organization: using open standards to get interoperable media, using implementation agreements. Accelerate demand for streaming media

 

Organization has encouraged companies to get products and licensing departments to work together, to achieve reasonable resolution of licensing issues.

 

What is competition for H.264|AVC? Proprietary technologies. They now have a stronger position in market place. How do standardized solutions compete against other (subsidized) technologies?

 

Attraction of MPEG-4 is ubiquity. It is useful across nets and bitrates, across public and enterprise.

 

Current MPEG-4 Visual licensing terms were slow to be published and susceptible to inconsistent interpretations. Now clear who pays, and if consumer may pay multiple times.

 

There is a trend towards time-limited access to content. When compared to packaged media such as DVD (pay once, consume many times) you may need to pay multiple times for same content.

 

There is a trend towards freely downloadable software for baseline players with baseline functionality. In the current structure, only large players can afford to do this.

 

Recommendations for licensing:

• Simplify and reduce accounting and billing burden
• Make clear which single entity in the chain is responsible for fee
• Avoid time-based fees, but have low-cost yearly caps per entity
• Explore shifting license costs to encoder side
• Consider approach used for MPEG-4 AAC

 

Summary

• If H.264|AVC looks like MPEG-4 Visual, adoption will be inhibited.
• Terms of MPEG-4 Visual are inconsistent – need to clearer
• H.264|AVC licensing cost for streaming should not exceed that for disk
• License fees for SW decoders will only be marginally competitive

 

Organization has often discussed licensing, and received much feedback on licensing issues. To date, Forum has not discussed the structure of any H.264|AVC license, and the points below do not represent a Forum view but rather that of some of its officers.

 

The experience with MPEG-4 Visual can give valuable input. It is deployed in many CE devices, and quite a few Personal Computer players. MPEG-4 Visual is used for some ‘not-for-profit content’, but it’s very hard to find a commercial Internet service that uses MPEG-4 Visual and even some not-for-profits that wanted to use MPEG-4 don’t, because they need advertisement to recover their costs.

 

Feedback received by Organization:

People are very interested in using MPEG-4

• Visual License is good for devices
• License is complicated to understand & explain
• Almost always requires confirmation of understanding by, and often discussion with, licensors
• The license is limited to some well-known business models; not all of them are covered
• The use fee doesn’t work for notably Internet and Mobile applications
• Administrative burden is a part of that assessment
• For these reasons, people are choosing alternative, proprietary technologies

 

Cost of HW and cost of systems is diving dramatically, number of streams increasing dramatically. Internet not being a market aside the other ones – it’s going to connect the other markets.

 

As a patent holder, Company believes they will make more money through products

 

There are alternative solutions to MPEG-4 and H.264|AVC

 

Suggestions for the H.264|AVC License

• One-time fee for encoder or on server side
• Per unit fees work for HW not for Internet SW
• Earn from support and services
• Act carefully and quickly to make MPEG-4 ubiquitous – window of opportunity may close

 

Question: What was thinking behind MPEG-4 license?

Licensor: Even in MPEG-2 there was desire to use-based license. Not considered feasible back then. Want to have use-based remuneration where it makes sense. What is now on the table for MPEG-4 Visual is what licensors thought would be feasible. Thinking is still ongoing.

Company has diverse set of products for computers and CE, both consumer and professional.

 

IP is important fact in making product decisions

 

Company values its own IP, respects that of others.

 

I. Licensing in Internet age

• fundamental characteristics have changed
• There is a need to build lots of features into box
• It is hard to understand which ones are actually used
• IP licensing should reflect that complexity
• There is a constant upgrade cycle – per copy royalties are hard to administer
• Internet has created new opportunities
• Little cost in delivering products
• But customers place higher value on physical delivery than on bit delivery
• Perhaps license should reflect this?
• CE feels strong influence from Internet
• Threats, but also opportunities
• Failure to enable vibrant PC ecosystem will be disadvantageous for CE industry

 

II. Royalty Layering

• Technologies last as long as the content – many tens of years
• Over lifetime of products, many technologies need to be added
• Licenses do not anticipate this evolution
• It may eventually inhibit innovation, and favor commoditization
• However, innovation is lifeblood of industry

 

III Use fees

• Use fees can work if collection is transparent
• Can block markets where accounting mechanisms are absent
• Presenting company is at disadvantage in promoting their standards-based technology against proprietary technology-based competitors with any for-profit client enterprise. Huge obstacle.

 

IV What does this mean?

• MPEG-4 Visual patent license
• Is too complicated be effective, which is an inhibitor in itself
• Hardwires assumptions about specific market segments, too closely coupled to today’s situation
• Licensees do not want to negotiate with licensors every time they have new product idea

 

Question (further abbreviated as Q): How about RFB?

Answer (further indicated by arrow) à Company doesn’t have a position – sometimes company doesn’t do it, sometimes it does.

 

Q: layering of technologies – you can deal with that through transcoding stuff in some service?

à Even if you could, the issue still needs to be dealt with anyway

Company is large mobile operator. Not a potential licensee, but has a distinct interest, and a lot of experience in mobile multimedia. Not used its own IP offensively, but strategically.

 

We have seen an enormous growth of 3G recently. MMS growing, as are camera cell phones we need a codec that is easy to use and carries reasonable licensing burden

True convergence of Internet services is critical

 

Imperatives for market acceptance of services:

• We need a highly efficient codec
• Any burden on content providers will be inhibitor (such as use fees)
• License must be simple, feasible, reasonable

 

Remark (by other participant) Broadcast signal received by mobile terminal should not be categorized as mobile application!

 

Company operates phone service, has content portal. Deploys new handsets, new services, and new networks.

 

Company is keen on standards

• interoperability
• want to build the market

 

How does Company deal with licenses? IT becomes very complicated. All of these apply:

• handset can come with pre-installed SW
• manufacturer pays license
• Company provisions SW
• They pay license
• User-generated content, store content
• Premium Content
• Hosting with content provider
• Hosting with Company
• Encoding in network, encoding by service provider
• Content over Company-operated service
• MMS Content

 

Company cares about standards. Content providers don’t care about standards. Don’t understand the implications. Company will consider proprietary technology if market dictates it

 

Company needs the flexibility to make all these things happen, sensibly, don’t want to have to go back to licensing agent.

 

Company is mainly working on technology for conversational services, also caters to needs of broadcast and streaming industries

 

Company wants:

• free license for codec SW libraries
• Want no license required for freeware/shareware market (or perhaps free license)
• ideally, public statement from licensors indicating limitations under which it could be implemented for free
• alternative is very simple license which can be signed without incurring cost
• Company wants Royalty-Free Baseline

 

For higher profiles, company suggests:

• Affordable license
• Single fee for one device (regardless of encoder/decoder or SW upgrades)
• No usage fees
• No difference between consumer/professional devices/applications
• Reasonable upper and lower caps

Company is videoconferencing equipment manufacturer.

 

Conferencing industry is probably the first to deploy H.264

 

Company wants market to be able to grow across segments; wants to promote standards to make that happen.

For license, company wants simple terms, generally acceptable:

• minimize paperwork,
• make it easy to measure

 

RFB appears successful

• all holders of essential IP on the Baseline profile seem to have agreed, according to several careful analyses
• Want management of RFB administered by pool administrator
• Price should be truly free
• Cost to administrate should be minimal (e.g., no tracking)
• Subsidize cost from royalty-bearing profiles
• Having a written license is a good thing

 

Licensing principles

• No application-dependence or network-dependence in the terms
• Must be competitive with proprietary solutions - standard worth more (all things being equal), but must still compete (difference should be smaller than factor 2)
• No charge for small quantities – want to seed new markets, experiments, start‑ups
• SW is major issue. Principle: no revenue à no royalties. Don’t have solution … but need solution that works in the marketplace

 

Content/use fees

• in general more trouble than its worth
• may be fair, but too complex
• at best, limit to revenue bearing content
• which doesn’t include “ski conditions today”, free-to-air TV, kid’s birthday party
• if some bits cost more than others, then they are revenue-bearing
• Complexity will kill adoption

 

Proposal

• stable, general, simple
• stable prices as patents are added to a pool
• want voice for firms with pending patents
• Simple fixed fee per device
• All applications, all networks
• All Royalty-bearing profiles
• Annual cap or volume discount
• No charge for smaller users
• No content/use fees

 

Speeding the process

• Speed is very important
• Market need certainty to plan and deploy
• First agree on licensing terms. Propose:
• Good-faith based negotiations among claimed patent holders to determine the fee
• Choose administrator later
• Determine essential patent holders later

 

Q: “Good-faith basis among claimed patent holders” – is that possible?

àAntitrust attorney: complicated question. Requires much anti-trust scrutiny.

 

There are 2 factors that make it different from the usual process:

1. Not just granted but also pending patents (can use “applied-for” as criterion? It is possible to determine essentiality of applied-for patents if the owner is willing to submit them and on the condition that they do not get altered in prosecution)
2. Determination of essentiality is done or still pending

 

à There may be precedents for such a process.

 

Speed important

• Allowing broad market penetration

 

Principles:

• simple and easy-to-understand license
• fair, attractive, transparent
• Fair and attractive revenues for licensors
• Fair income for licensing agent

 

Want RFB + Royalty bearing profiles

• Gives low burden entry

 

Not all applications are equal for licensing point of view

• wireless
• conferencing, videophone
• Internet/Streaming
• Packaged media
• Broadcast
• CE devices
• Etc …

We need flexibility in licensing!

• There are many JPEG applications which were never envisaged; same will be the case for H.264|AVC
• Need to look at encoder and decoder

 

Wireless

• seeking market breakthrough
• cheap devices
• simple quality acceptable
• could be RFB application

 

Wireline conferencing

• Still seeking market breakthrough
• Terminals range from inexpensive to expensive
• Baseline may be sufficient

 

Streaming

• Still seeking market breakthrough
• Baseline may be sufficient

 

Broadcast

• H.264|AVC Main Profile will bring significant advantages
• RAND should be good
• Terminals are inexpensive to moderate

 

Packaged Media

• H.264|AVC Main Profile will bring advantages
• RAND licensing should be OK
• Volume-based licensing perhaps possible

 

CE devices

• well-established market, hard to say what will happen
• expect mixed licensing
• take into account competing licensing schemes!

 

Conclusions

• need both RF and RAND licensing, tailored to application
• Simple RF licensing, also to agent
• RAND licensing will probably need a pool
• RF and RAND can be done by same agent, not a must

 

Q: How do simplicity and flexibility relate?

à If you get a very general scheme, then you can cover a lot and maybe fine-tune a little.

 

Remark from major company in Streaming Media segment: Streaming will need to go beyond Baseline Profile; we definitely think it will require a higher profile

Standards give interoperability, but proprietary solutions can be cheap and fast

 

Low price of H.264|AVC license important

• To be competitive
• To discourage more proprietary solutions form being developed
• Current expectations of high pricing inhibit adoption of standard

 

Very early decision is important

• To allow manufacturers to make decisions in favor of standard

 

Simplicity is important

• model extends to new applications, without new negotiations

 

Pay once (ideally one lump-sum payment, per box if may also be acceptable), then be done with it.

Reference was given to presentation by Dave Lindberg on licensing model (Geneva Oct 2002): http://www.m4if.org/patents/LindberghAVC101402.zip

RFB concept supported

IP holders need compensation

Need fair and reasonable licensing

Market has evolved – there wasn’t competition in MPEG-2 days, there is serious competition now

Current MPEG-4 terms are not fair and reasonable

• Is charging for free products reasonable?
• Are service fees reasonable?
• Is the timing reasonable?

 

What we need are terms that:

• Are acceptable for market
• Are competitive with proprietary solutions
• Enable all business models
• Are easy to get a simple and administer
• Have timely availability

 

Broadcasters are looking for better compression. MPEG-4 Visual (part 2) doesn’t give the gains needed, but H.264|AVC is attractive.

Use fees are not compatible with free-to-air broadcast

• don’t want to assess cost a-posteriori
• cannot anticipate and finance unknown cost without taking financial risks

Differentiation based on receiver type as in the MPEG-4 Visual license cannot be applied.

• free-to-air TV is by definition freely accessible
•  

Example: Nokia has a mobile phone that receives radio. Similar innovations will occur with video. You cannot predict in advance what will happen with receiving terminals. The license fee for a broadcaster should not be dependent on such developments.

 

AVC|H.264 may be used in the following cases

• where there is no legacy
• for innovative services
• for delivery of non-broadcast media

 

H.264|AVC is demonstrated to be effective in professional tests.

 

DVB sent letter to MPEG LA expressing concerns over H.264|AVC licensing referring to MPEG-4 Visual as problematic.

 

What would be reasons for NOT using AVC|H.264?

• There are alternatives
• Technical advantages will not prevail over commercial disadvantages
• It would specifically not be used if:
• MPEG-4 Visual license model is used
• Use/content fees are employed
• There is equipment-based differentiation

 

Reference was made to a press release by the World Broadcasting Unions, which can be found here: http://www.dvb.org/index.php?id=10&nid=28

WBU recommends FRAND terms on equipment only.

 

MPEG-4 Visual license distinguishes between types of terminal (HW terminal)

Q: would differentiation by Profile rather than terminal type solve the problem?

à no, not really, it’s still different terminals that receive signal encoded in same Profile

 

Q Would distinction professional/consumer encoder be acceptable?

à Sure, that can be considered

 

Country uses is dual system, with public broadcaster and commercial broadcasters

 

Digital Terrestrial Broadcast system will launch 1 Dec 2003 in 3 major cities. Plans were to use MPEG-4 Visual for a low bitrate channel (and MPEG-2 for HDTV). Roll-out is currently frozen because of licensing terms.

 

MPEG-2 royalty is applied on equipment basis – and MPEG-2 is great success in the world.

 

Presenters insist on non-use based royalty

• hard to predict success of service
• hard to predict fees to pay

 

Presenter refer to WBU Press Release (see above)

• License cost is deterrent to use
• Distinctions on type of receiver hard to implement

 

Proposal

• don’t make MPEG-4 Visual mistakes
• Do MPEG-2 like licensing

 

Second part of presentation

• No licensing based on receiver type please
• Broadcast and Communication have different business models
• Broadcast and Packaged Media have different business models
• Royalty scheme should have broadcast category

 

Q You use only H.264|AVC for lower resolution. Are you going to go use H.264|AVC for HDTV as well?
à we decided to use MPEG-2. Don’t know about long-time outlook

 

Q Do you think that baseline will be enough for low bitrate channel?
à Low bitrate is 400 kbps, baseline will be applicable

 

Q You ask for separate Broadcast category. Would an acceptable generic license without special broadcast category also work for you?

à Yes, as long as we don’t have to deal with a license that is not suited for Broadcast.

Cable market is large

• Over 65 M subscribers; over

• 10 M cable modems

à Good market for new codec!

 

Cable infrastructure carries streamed, broadcast and stored content.

Services deployable though multiple distribution paths

• should allow for storing and streaming in addition to broadcast

 

Billing can be in very different ways

• subscription
• monthly, for basic cable, subscription VoD
• Transactional
• MoD/MPEG-2, VoD over DOCSIS
• Carriage of 3^rd party services

 

Industry is looking for better video codecs in some of the places. But needs to fit within existing infrastructure, e.g., it needs to be transportable over MPEG-2 TS.

Products will need to be able to handle both MPEG-2 and a new codec

 

Licensing can be an obstacle in the adoption of new coding technology

• It is a key factor in determination of which technology to adopt
• We can’t make a decision until terms are known
• Usage fees are deterrent
• Note that other options exist

 

Licensing requirements:

• Simple to understand
• Work across all distribution models
• Should not require creation of new reporting structures
• Must be predictable
• Avoid use based fees
• Must be competitive

 

Licensing in MPEG-4 much more complicated than in MPEG-2. We want H.264|AVC licensing to be more like MPEG-2 than MPEG-4 Visual.

 

Licensing should work across distribution models

• need not consider distribution path for the purpose of determining royalties
• services should not be artificially tied to distribution models because of licensing

 

New reporting structures:

• Are a burden
• notably for those companies between the small and the huge (paying yearly cap)
• It is hard to create reporting structures
• When more than one service provider use same device ... how to deal with that if you must pay per subscription?

 

Use fees might require DRM system … they are complex, burdensome, and not acceptable

 

Potential licensees are: manufacturer, service provider, video provider, replicator, transmitter … it can get very complicated if the model isn’t kept simple.

How to deal with royalty payments in the case of p2p, firmware downloads, transcoding, etc….

 

Some words about Royalty Caps

• provide some predictability for those with proven business models
• Enterprise caps depend on definition of enterprise
• Caps don’t always exist in MPEG-4 Visual

 

General Remarks

• use fees inhibit innovation
• they needlessly stresses untested business models
• licensees need predictability
• issues need to be resolved simply and quickly – there are alternatives

 

Recommendation

MPEG-2 like model is better and has proven its value. We prefer that.

 

 

 

There is real competition from proprietary alternatives. Determining a reasonable licensing scheme is extremely urgent. People are making choices every day, and they will not choose for H.264|AVC until they have confidence that licensing will be resolved.

 

License fees have got to make sense.

 

Don’t confuse risk and reward

• Simple licensing to enable complex market
• No per use fees
• MPEG-2 model can carry forward

 

Don’t confuse price with cost

• give-away products need not be license-free

 

In order to get H.264|AVC adopted, we need

• Aggressive interop testing
• Recognition of Competitive Position
• Revisit no collaboration / no consensus issue – we need to collaborate to the maximum extent possible under antitrust laws

 

Next steps

• Re-establish confidence
• do intense short term lobbying of licensors and their agents, and adopting standard bodies
• Seek positive Media Coverage

 

Conclusion

• Move from MPEG-2 to H.264|AVC is very different than from analog to MPEG-2
• Adoption by new operators is fragile – licensors need urgently to take away their disincentives
• NO DELAY!

 

Q: how about your statement that free distribution automatically should cost zero dollars?

à We said that free distribution does not necessarily need to imply a free license

 

Remark (from packaged media representative): MPEG-2 users have some concerns about the MPEG-2 license as well.

 

Company has many creation/distribution businesses

 

We all acknowledge legitimacy of patent royalties

There are choices. Royalties will be a significant element in making these choices

 

Structure is as important as amount. If structure and rates hinder development of business models, or if they insert patent holders as participants in our businesses, then we are not interested in using the technology. H.264|AVC will be about long transitions, due to large installed bases. Therefore, we look at total economics of everything that needs to be installed as a total; we look at total cost.

 

We will prefer to use technology where royalty structure reflects traditional models, and royalties aren’t based on usage. They should not be based on the value of what we create. We don’t want ongoing annuities. If ongoing fees unavoidable, then they should be flat fees, subject to caps.

 

Many business models have not yet been determined. If we perceive that patent royalty is going to be a limiting factor for developing potential future application, we are likely to select technology with greater flexibility. This cannot be overstated! Our business and success ride on innovation. Technologies need to provide the flexibility to innovate.

 

Finally, there is no desire to use a technology whose royalty structure would change dynamics of our business, certainly not if that structure would then set a precedent and proliferate throughout other technologies.

 

Reinforcing the message: We don’t want compression technology providers to be apart of our business.

 

Royalty structure needs to accommodate small as well as large companies. But looking at the issues from a large company point of view: we want a lot of predictability, and then use the technology unlimitedly.

 

We look at MPEG-4 as extension of MPEG-2 market.

We have to spend hours to explain MPEG-4 licensing in trainings. That is not good.

 

We think H.264|AVC may overtake MPEG-2 in due time. Many patent owners in MPEG-2 and MPEG-4 and H.264|AVC may have no interest in driving adoption, as it can cannibalize MPEG-2 revenue.

Note well that there are competitors with competitive licensing fees.

 

We need clear and reasonable fees

• appropriate encoder fees
• appropriate decoder fees

 

Usage fees are incongruous with users’ willingness to pay

We give support proposal (see last presentation) for combining MPEG-2 and H.264|AVC licensing

 

This is urgent!

• Every day that goes by reduces likelihood for MPEG-4 and H.264|H.264|AVC adoption
• People put off decisions and may decide on alternative technologies
• DVD forum is example

 

Remark: Tying MPEG-4 and MPEG-2 together, I understand that in set top boxes, maybe not in DVD players. We should be able to separate interlace and non-interlace, because DVD doesn’t use interlace. Don’t want to pay for the IP

 

Remark: the link with MPEG-2 only makes sense in certain application categories

 

Remark: large number of patents (new, upcoming) don’t apply to MPEG-2. Some of the companies may not have an interest in keeping the MPEG-2 dinosaur alive. This will make it difficult to come up with a combined license.

 

Remark:

• Agree with call to urgency.
• Bundling: Could be OK, but also need to look at the large category of applications that only use new standard. MPEG-2 royalties may be higher than what people are thinking of now. As long as the ‘new’ licensors would not be worse of by having the combination, this could work out OK.

 

Remark: Great concern about willingness of licensors to truly come together to create one license. There are mentions of camps (RFB vs. no-RFB, ‘Old’ vs. ‘New’). The MPEG-4 Visual license has taken a beating, but speaker would like to caution ‘new’ patent holders: all of the IP holders should come together.

 

Speaker presented results of opinion poll among these 18 companies.

• Markets represented:
• DTV/HDTV operating companies
• TV receivers
• DVD manufacturers
• Video conference equipment manufacturers
• Mobile industry
• Streaming industry
• What are opinions about RFB?
• 11: Unconditional RF otherwise not adopt it
• 6: RF within alliance OK (6) (the difference was not clear to speaker, editor)
• 1: Royalty –bearing acceptable
• Main
• 9: not adopt if fee
• 6: will follow global
• 3: need for differentiation among markets
• Extended
• Details missing
• If charge, then by content length?
• 14: no
• 4: yes
• 1: use fees can be acceptable if acceptable for market place
• Recommendation
• Potential market for H.264|AVC is larger than for MPEG-2
• RFB is foundation for success
• RAND is needed in multiple markets
• If conditions met, national workgroup will to promote H.264|AVC as standard for many applications in Country, including those mentioned above.

 

Official schedule to picking standard is Dec. 2003.

Widespread deployment planned by 2006, HDTV should be well in place by 2008

 

Q: Is the plan to look at more than one solution, or just H.264|AVC?

à Yes, certainly in lab, don’t know about field trials

 

Q: is there strong focus on scalable coding?

à That is surely part of the thinking. Reception on TVs and mobile devices anticipated.

Value of standard lies in ability to create and enlarge market for technology and content

Goal of licensing should be to enable that market, including the creation of incentives for users, as well as IP holders.

 

Market dynamics

• Consumers have come to expect that enhanced features come at a cost
• Expect content to be used across “my home” in multiple devices

 

Service provider expectations

• There is a large market for right combination of technology
• Amortization of investment depends on technology cost
• Need easy-to-understand non-restrictive licensing terms

 

Technology provider expectations

• ROI support future enhanced products
• Provider requests from enhancement based on consumer demand

 

Licensing implications

• License needs to enable competitive content and technology to be created
• Accounting must be done at gross usage levels, to ease administration
• Please assure economic usage in major areas
• Avoid pricing that makes certain scenarios uneconomical
• Licensing should support easy distribution of technology
• Such as preloaded client, self-installing clients

 

Observations

• Users have not favored use fees.
• Administration and audits are a part of that.
• Cost of entering and sustaining business is very important
• Thresholds and caps are important license elements

 

Company thinks that the JVT work is important and will work with everyone to help make that happen.

 

Q: can you comment on what would work?

à See slide. This standard can encompasses a huge amount of applications and services, potential deployment much larger that MPEG-2

 

 

Company is potential licensor, but also licensee, in many areas: receivers, Set Top Boxes, audio equipment, DVD players, mobile devices ... etc.

Speaker notes that presentation is from licensee perspective, but Licensor representative of company voiced his support.

 

Some issues

• there is competition; licensing has become major reason for choosing technology
• There is still much value in standard
• Terms need to be made available timely, and must be acceptable to market place.
• There is evolution towards more complex market place
• Previously separate application “spaces” are merging
• Licensing terms must be simple
• But this is easier said than done; the market is complex
• Approach could be to resolve simple cases first, take care of more complex cases later
• But the result of that approach is much uncertainty.
• There is real risk that licensees don’t understand the license anymore

 

Concrete Proposal for royalty structure

• This is simple and widely deployable
• There are two device fee options
• HW-based (MPEG-4 kind of approach)
• Single fee per device
• Can download new SW once paid
• Annual caps?
• SW-based
• Fee per player
• Paid by SW provider
• Annual cap reasonable

 

Thoughts

• There is an evolution towards decoder PLUS encoder in device (past was more decoder-only)
• There is little practical value in separate terms for encoder, decoder, or encoder + decoder
• Suggestion is single fee for all these combinations
• Suggestion is to distinguish two types of devices:
• Using AVC|H.264 +MPEG-2
• STB, DVD, PCs
• There is rapid penetration of DVD functionality in PCs
• AVC|H.264-only
• Mobile phones,
• Videophones
• Then do two licensing programs:
• H.264|AVC+MPEG-2 license
• One combined licensing fee
• Fee does not increase when adding H.264|AVC to MPEG-2
• Royalty distribution among licensors should be hidden to licensees
• H.264|AVC-only license
• Take MPEG-4 encoder + decoder as reference
• Need to be competitive with proprietary codecs
• Usage fees
• Controversial, but can be reasonable
• Impact on business model MUST be acceptable to market place
• MUST be practical to implement.

 

On use fees: distinguish “Free” from “user paid” content:

• “Free” content:
• free-to-air broadcast
• Free internet content
• P2P? (this provoked some discussion – one speaker remarked that license should not favor illegitimate distribution; second speaker remarked that P2P does not imply the content is free)
• User-paid content
• By subscription
• MPEG-4 Visual terms as a reference
• Per item: Per minute usage fee
• MPEG-4 Visual terms as reference

 

Why use fees?

• They can be a really fair licensing tool, simple to implement
• Can also be very unreasonable
• Handle with extreme care

 

 

Remarks: Idea to combine H.264|AVClicense with MPEG-2 license for equipment that already incorporates was received positively. Participants noted that it provides an answer to the royalty-stacking problem and that it acknowledges the fact that MPEG-2 will need to be supported for foreseeable future in many businesses.

 

Q: use fees are not competitive

à yes, need to be careful

 

Remark: Taxing legitimate business may favor the pirates

 

Remark: This moves the ball ahead, but still a rat hole. Moral argument: what right do patent holders have to inject themselves in the content revenue streams?

 

Remark: what is a subscriber? If I get a bundle of channels, e.g. as a cable subscriber, that might include HBO and others?

à Might be one subscription … The devil is in the details!

 

Remark: “subscriber” maybe very hard to define usefully. Complexity may discourage market.

 

Remark: Many subscriptions may be bundled on one delivery channel, but still reflect different provider-subscriber relations. Individual may be many subscriptions. Is royalty due for all of them?

 

Q: In which category does PC-based videophone belong? Could be bundled in the DVD license?

à Yes

 

Q: So do you leave the choice for the category to the manufacturer? Some PC’s may come with MPEG-2 and some don’t’

à Yes, note that MPEG-2 support on new PC’s is very high already

 

Remark: know that the DVD ROM itself may not come with an MPEG-2 license. Need to be careful of what you bundle with.

 

Moderator asks feedback from anyone in the audience on anything they may have heard.

 

Large chip manufacturer

Strongly supports what going on here, standards and their use. Competition mainly comes from proprietary formats.

We need to balance interests of two greatly divergent groups of people

• Those that invest in research. For some it is their mainstay. They need compensation
• Those that are consumers. They need to pay a reasonable price

How do you balance that gap? General philosophy that usage fees / royalties are counter to the use of standards. People don’t want to pay for standards. Standards are only used if cost negligible

 

Don’t compare SW licenses to patent licenses. There are 3 planes. (Patent, Technology, Product) Requirements are different for each.

We’ve heard a lot about the needs of licensees, but not from licensors

 

 

Licensor

Thanks to organizers, licensees. This is useful for us.

 

There has been a shift form HW to SW. License fee based on HW no longer stands up for SW. Proposal (explained above) has been put forward for discussion. We have to listen to the market. Use fees are not a religious thing. It was good hearing licensee view. We do value them, we do listen.

 

Q: Why should usage fees on a SW decoder be difficult to conceive of when you think usage fees on content are possible?

à We need to rethink the usage fees.

 

Remark (content provider): we need a model where royalty is in relation to provided value and not to our success.

à We acknowledge the comment

 

Q: do you and the other licensors share the same sense of urgency

à I can only speak for my company, but the answer is: absolutely.

 

 

Some observations by one of the participants

 

Failure of standards-based licensing?

• jury is out – but slow start
• if so – all are to blame (standards bodies, licensors, licensees)
• System is not working yet – proprietary solutions are winning out.

 

Standards are to blame:

• no mechanism for making cost/benefit analysis, at least not in MPEG

 

Licensors are to blame:

• created a complicated structure
• created layering, exhaustion (although maybe not in the legal sense)

 

Licensees are to blame:

• want things for free
• take path of least resistance, felling that exposure from use of proprietary technology is less
• have not complained loudly and early enough

 

Suggested changes – standards bodies

• WG chairs must take control
• Demand statements with commitment to terms rather than just “RAND”?
• Include only what is necessary for standard
• Apply cost/benefit analysis
• Remove what doesn’t have technical merit
• Consider economics of market place
• Look at W3C model (in principle royalty-free; exceptions possible)

 

Suggested changes – Licensors

• Simplify!
• Consider product lifecycle in cost of license
• Consider HW/SW distinction in cost of license
• Don’t re-license same patent over and over again
• License technology for field of use
• Age out over life cycle
• License delta between standards rather than same patent multiple times

 

Suggested changes - Licensees

• Don’t expect a free ride
• Work with licensors – don’t take easy way out
• Develop schemes which provide for mutually agreeable terms to the extent legally permissible

 

 

Remark: Note that licensees owe it to their company to seek the best solutions.

à Yes, agree – it is incumbent upon the licensors to make this acceptable for licensees

 

Remark: on proprietary vs. open standards: The issue with standard is that any party can try to get IP in standard. The process is difficult to control

 

Meeting agrees that discussion on how to deal with patents in standards setting is interesting and important for future standards, but we now need to get back to dealing with this standard, which is final.

 

Aim of discussion is to seek acceptable ways of getting people in the same room and agreeing on terms before all the steps have been taken that usually lead to a patent pool:

• How can licensors of not-yet-issued patent be included in process?
• Can discussions be started before full evaluation of essentiality is done?
• We understand the potential antitrust problem as follows: these discussions may involve people that may later turn out to not have had essential patents (e.g., essentiality evaluation was negative, patent application denied). This means that what will later turn out to have been “licensee-only”s were part of the process of setting the fees.
• Some attorneys think there are precedents, but they are not very clear about the applicability of such precedents. This path was not further discussed

 

To be pro-competitive, the following are important:

• essential patents, complementary only
• Independent process for essentiality determination
• Safeguards against downstream coordination
• License is non-exclusive, can negotiate outside the pool
• Ensuring licensees to know what is in and what is out.

 

This is acknowledged and this will be the case when the pool starts. The question at hand is now how the market can be given certainty and confidence at short notice, before this whole process comes to a conclusion.

 

Suggestion: Individual licensors can publish what they think are acceptable terms for their patents.

Building on this, they could publish what they would consider acceptable terms when licensing their terms as a part of a pool.

As an initial assessment, this was deemed acceptable from an antitrust perspective because it does not involve any agreements with other parties.

 

The question was raised whether there was a need for any follow-up, e.g. in facilitating talks between licensors. It was not considered desirable to now enter into an area where there are already multiple initiatives to establish a pool. It was noted that competition is a good thing, also in establishing license pool. It was also noted that the two initiatives that now exist to create a pool will need to come together. Two competing pools where each licenses all patents would be very good for the market; two pools that are mutually exclusive can potentially make adoption more difficult.

 

M4IF, ISMA and IMTC could give a venue for floating trial balloons. Licensors could ask individual licensees for feedback, and the consortia could facilitate such feedback coming from their members through their executive directors – anonymous if needed .It seemed that there were no antitrust issues with that.

 

Question from licensor: when do you (licensees) need an answer? à Q3, Q4 of this year and very early 2004.were mentioned by different technology and service providers.

 

Remark: There is a first licensor meeting in a few weeks.

 

Observations

• There is much interest in using AVC|H.264
• There are concerns over licensing
• speed of availability
• Suitability of Terms
• Many comparisons with MPEG-4 Visual are made

 

Recurring themes in recommendations

• “Please have a simple license”
• simple to understand, to account and collect, allowing innovations, works across applications and devices
• “Please price the license competitively”
• “Please not the use fees a-la MPEG-4 Visual”
• administrative burden mentioned often
• unpredictability of royalty is mentioned often
• “Please do it fast!”
• We need indication of license as soon as possible, if we are to commit to AVC|H.264 now.
• Otherwise, we are forced to consider (proprietary) alternatives

 

• Initiative now with Licensors
• IMTC, ISMA and M4IF take no specific further actions at this time
• But are ready may take new, similar initiatives in the future
• And are ready to assist wherever they can
• A press release will be issued to notify the industry that the meeting has taken place to help instilling confidence in the market

 

The chairman thanks all meeting attendees for their presence and participation

• (Potential) licensees for expressing your views in constructive ways
• Existing and potential licensors for engaging in discussions; for listening carefully
• Licensing agents for listening and clarifying
• All participants for making the trip

 

Applause.

 

 

 

Q         Question

à        Answer

 

3GPP   3^rd Generation Partnership Project

AVC    Advanced Video Coding

IMTC  International Multimedia Telecommunications Consortium

ISMA  Internet Streaming Media Alliance

M4IF   MPEG-4 Industry Forum

MMS   Multimedia Messaging (in 3GPP)

RF       Royalty-Free

RFB     Royalty Free Baseline