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INTERVIEW: Tony Piotrowski of MPEG LA

Tony Piotrowski, general counsel for MPEG LA, explains how modern patent pools work, how patent pools help set FRAND rates and what cities need to do to become IP hubs

Tony Piotrowski of MPEG LA

Piotrowski (right) will be speaking on a panel on bringing inventions to a global market along with fellow panellists Chua Kee Lock of Vertex Venture Holdings, Ben Wang of Unilever, Kenneth K Cho of Kim & Chang, and moderator Philip Lim of Exploit Technologies. The panel is part of IP Week@SG hosted by the IP Office of Singapore, taking place August 25 - 27.

What does MPEG LA do?

MPEG LA is the world leader in patent pool licences for standard essential patents. As a convenience to users of the technology, the licensing model pioneered by MPEG LA enables users to acquire essential patent rights for their technology choices from multiple patent holders on the same terms in a single transaction as an alternative to negotiating individual licences. MPEG LA’s first licensing programme helped produce the most widely used standard in consumer electronics history generating an estimated $4 trillion in product sales (in addition to services and content) and has become the template for addressing standard essential patent thickets.

[Editor’s note: MPEG LA's first patent pool was for the MPEG-2 standard for encoding and decoding video and used in devices such as DVD players, Blu-ray Disc players and digital televisions.]

MPEG LA offers other licences where access to many patents, clarity and convenience afford licensees more certainty in their business models. Today MPEG LA manages licensing programmes consisting of more than 9,000 patents in 74 countries with 162 licensors and some 5,800 licensees.

What are your responsibilities at MPEG LA?

I am responsible for legal issues related to the management and licensing of the patent pool programmes, management of litigation and general corporate legal matters of the company, such as human resources and tax.

How do you pick the patents in your pools?

MPEG LA’s pools are each separately organised according to the following MPEG LA general template:

First, MPEG LA typically announces a call for essential patents for a specific standardised technology, which the company believes would benefit from pool formation because of thicket issues, to determine whether all or certain patent owners would agree to terms necessary to formation of a patent pool.

Next, an independent patent expert reviews patents submitted by owners or otherwise reviews identified patents to determine whether a particular person or company owns at least one patent that is essential (ie, all elements of one or more claims can be found in the standard document). Those identified as owning essential patents are invited to meetings facilitated by MPEG LA to determine if such patent owners can agree on standard terms to license their essential patents (as an alternative to bilateral licenses which always remain a market alternative). And then, some or all of those patent holders agreeing to standard terms then authorise MPEG LA to offer their essential patents under the agreed upon terms of a standard patent portfolio licence.

Once the patent pool is organised, additional essential patents may be added if confirmed by the independent patent expert or experts.

Does MPEG LA hold and license its patents worldwide?

MPEG LA has worldwide sublicensing rights from the essential patent owners but MPEG LA does not own the essential patents in the various patent pool programmes. In the patent pool programmes, MPEG LA only offers a standard licence to all the essential patents in the patent pool. The standard licence covers all products that require a licence under the essential patents in any country of manufacture and/or sale. For example, the MPEG-2 patent pool programme grew from eight to 27 patent holders with more than 1,000 patents in 57 countries. There are over 1,900 worldwide licensees accounting for most MPEG-2 products made or sold in the world.

There has been a lot of talk about the importance of IP as monetisable assets. What are some of the biggest changes that you have seen in the market?

In many countries, especially the USA, patents and the patent systems are being heavily scrutinised and in some ways attacked. This is making it harder and more costly for SMEs to monetise and enforce their patents. Even standards-essential patents are being challenged as having less value and/or unenforceable.

Several cities in Asia such as Singapore and Hong Kong have talked about their goal to become IP monetisation hubs. What should these cities do to improve their positioning as centres for IP monetisation?

Several areas that may help position Singapore as a centre for IP monetisation include (1) favourable IP withhold tax treaties, (2) IP licensing training/expertise and (3) good communication/interaction with key manufacturing/markets in Asia.

Withhold taxes are determined based upon the licensee’s and licensor’s country of origin so that favourable tax treaties between Singapore and other countries may make it more desirable from a licensing point of view.

Regarding items (2) and (3), licensing in some countries in Asia can be difficult, for example products made and sold in China. Successful licensing programmes in China require good communication and interaction with the potential licensees. This can be difficult to manage with licensing personnel in the US or Europe. A licensing hub in Singapore with well-trained IP personnel and good contacts with the surrounding countries can help improve an IP monetisation programme.

What are some of the most common misconceptions people have about MPEG LA?

Two of the most common misconceptions about MPEG LA are that we own the essential patents in our patent pool programmes and that we set the royalty rates. As noted above, the essential patents are owned by the licensors in our programmes and the royalty rates are set by the licensors.

Does MPEG LA deal with a lot of FRAND issues? What are your thoughts as to how FRAND obligations should be interpreted?

Yes, FRAND issues come up in our negotiations and litigations. Patent pools do not set a de facto FRAND royalty rate but may be a good FRAND indicator if comparable and appropriately adjusted. Factors to consider include the timing of patent pool formation, the number of pool participants (both licensors and licensees), number and/or quality of essential patents and non-royalty value to pool licensors. Pool royalty rates are also generally lower than two-party negotiated rates. Based upon these factors patent pool royalty rates may be adjusted up or down when considering an appropriate individual patent FRAND royalty rate.

How does a typical licensing negotiation play out with MPEG LA? Does MPEG LA offer standard rates to all interested licensees or do you offer different rates to different parties? If the rates are different for each licensee, what are the factors that go into the different rates?

A standard Patent Portfolio Licence (PPL) is offered to all potential licensees in MPEG LA’s licensing programmes. There are no negotiations on these terms. Licensees pay the same royalties to MPEG LA whether or not they are patent owners. Licensees, of course, have the right separately to negotiate a licence with any or all of the licensors under any and all of the patents under terms and conditions to be independently negotiated, but MPEG LA has nothing to do with such negotiations.

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