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Patent pool pricing doubts delayed HD video tech rollout says general counsel

A senior in-house lawyer from a global media company on how a lack of pricing transparency from HEVC compression tech licensing platforms stalled the launch of 4k-enabled discs and streaming in the video content industry

The lack of pricing transparency among patent pools delayed the launch of ultra high-definition 4k discs and streaming from major players in the video content industry, including Netflix and Google, according to the general counsel at a global media company.

Essential patents for high-efficiency video coding (HEVC) compression technology, which is used in products that encode and decode large video files for internet, mobile and television transmission, had been largely penned up in three licensing platforms.; HEVC Advance, MPEGL A and Velos media.

According to the general counsel, getting the essential patent holders to agree on royalty terms for use  proved complicated, and few companies, including his, were willing to tie themselves to a  particular pool and standard until they had more certainty around cost. 

“For a while there were no other pools but people had other patents out there,” he says. “Then you had these three pools and still some people on the side.

“At some level, that situation created hesitations for content providers and some hardware providers to implement 4K tech from not knowing what rates were going to be charged or what the pools were going to do.”

He adds that his company delayed putting out its media content and movies in the 4k space until it knew if it would get charged and what that rate would be. Most of the major studios and other companies that were implementing 4k movies onto discs for consumers followed suit.

Part of the reason this reluctance occurred, he says, was that the profit margins for each subscriber or user are quite thin for direct-to-consumer streaming businesses and bluray disc creators.

He points out that in a scenario where a standard essential patent holder wanted five cents per user when you thought they would only want one cent could destroy the entire business model.

“People wanted certainty, and if they had had it, they could have planned for a particular price in their business models. The uncertainty of having no pools in the beginning and then three pools going in different directions of how they would price HEVC tech created confusion and wait-and-see attitudes.”

“The delay was largely a matter of money. It was a little bit about the competing formats adopted by each patent pool, admittedly, but they both still use underlying compression technology in the same way.”

The interesting thing about these pools now, he adds, is that they publish their rates, which have been set the same for everyone. It is possible to download their rate sheets so users can debate whether the prices are fair and reasonable.

“They have tried to set a fair rate across the board, which is not a surprise because you do not have to negotiate with each of them,” he says.

Most of the major HEVC players were represented by one of these three patent pools. MPEG LA licensed patents from Apple, Canon, JVC Kenwood Corp and Samsung; HEVC Advance from Dolby Labs, Mitsubishi, Samsung and Warner Bros Entertainment; and Velos Media from Ericsson, Panasonic, Qualcomm, Sharp and Sony.

MPEG LA announced its HEVC licensing terms in September 2014, which covered the essential patents from 23 companies at the time. The first 100,000 devices were royalty free, including software implementations, and after that the fee was set at $0.20 per device up to an annual cap of $25 million.

Dolby Labs, GE, Mitsubishi Electric, MediaTek and Philips set up HEVC Advance in March 2015. Unlike the MPEG LA terms, the pool reintroduced license fees on content encoded with HEVC through a revenue sharing fee. Its initial maximum royalty rate was $2.60 per device for region-one countries and a content royalty rate was set at 0.5% of the revenue generated from HEVC video services.

The pool changed its royalty rates in late 2015 after complaints from end users of excessive fees. The maximum royalty rate for region-one countries was reduced to $2.03 per device, the creation of annual royalty caps, and a waiving of royalties on content that is free to end users.

As of May 2018, Velos Media had not publicly published in terms.

Compression dynamics

The media company general counsel says that the uncertainty around pricing between HEVC tech patent pools and consequent 4k delay was exacerbated by these market dynamics.

“HEVC Advance changed its mind and decided not to charge pure content providers or content alone using 4k. MPEG LA then said it was also not going to charge providers.

“There were people on either side of these debates, but it ultimately delayed the implementation of 4k as people sat back waiting to see how it would shake out.”

He says that the mess became so bad that a group of tech companies, including Google, Netflix, Amazon and Apple, bonded to create a compression format that was designed around the patent-pooled HEVC patents and published it for free.

The development of AV1 royalty-free codec was heralded by some industry players as a victory for the industry because it pressured HEVC Advance to cut its fees.

“It was an interesting twist,” says the general counsel. “You do not often see that where people invest to create a platform that is outside the pools in theory. And they've done this purely because of the pool challenges.”

The HEV compression debacle is now largely over and consumers enjoy ultra high-definition video on almost every platform. The delays in the rollout, however, might serve as a lesson to other patent pools to introduce pricing certainty in the future.

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