After talking about one scourge of the hacker community – software licensing – it is now time to say more about another scourge – patent licensing. Instead of discussing the merits or demerits of patent licensing forms, I would like to make some considerations on the entire workflow that underpins the creation of new communication forms.
Inventions start from, well, people – inventive people, I mean. Most Public Authorities understand that, today more than ever, inventions are key ingredients of the wealth of nations and try to play a role in the creation of environments that are conducive to inventions amd thei typically invest in education and dissemination of information. A good example is the mechanism, emulated by other countries and adapted to their culture, that the US government set up with the Bell Labs, where ATT had to divert a fixed proportion of its revenues to fund research. The effects of this policy were outstanding: besides creating what used to be the best telephone system in the world, an endless string of major inventions was created that benefited the well being and further development of the entire country and the world at large.
While in the past individuals usually created inventions, today it is more common that companies hire capable individuals and give them the task of improving or innovating communication forms. Companies tend to become closed ecosystems – not a good recipe to foster inventiveness – but this inward-looking tendency is compensated by the centrifugal action of professional and scientific societies which play the role of creating neutral environments where individuals can exchange opinions and experiences, possibly leading to new ideas or new inventions. In Europe this role of professional societies is somehow offset, or maybe compensated, by R&D projects funded by the European Commission. In these environments participants are freer to exchange ideas because those project are regulated by contracts with specific IPR clauses.
Good inventions have better be turned into patents. They are obviously the starting point for a company wishing to innovate its communication products or services. At this point the traditional behaviour of industries used to depart.
The traditional IT and CE approach was to leverage on these patents and make new proprietary products or services. This approach used to work well because new communication devices were largely “stand alone”: People could buy a Betamax recorder and have a large selection of movies in that format as much as users of VHS had a comparable range of titles to choose from. The problem only arose when a cassette with the daughter’s birthday recorded in Betamax was sent to auntie with a VHS recorder. After a more or less long period of time, with more or less hassle created to users, the eventual “industry standard” would be settled and, possibly, would get a formal standard “stamp” from ISO or, more usually, from IEC. The telecommunication and broadcasting industries went through incredible birth pains in their early years and this convinced government that the exploitation of inventions in these domains had to go through a formal standardisation process. For good measure, the specifications of the resulting service, technology included, was even converted into law.
In either case the SDO requested that the company holding patent rights would license the patents at RAND conditions. Everybody could then start manufacturing the new device or offering the new service and the rights holder or an agent would manage the licensing. If there were more than one company holding patent rights, usually one of the companies would act as licensing authority on behalf of the others.
This modus operandi no longer suits the industries concerned. Even if a company has some smart invention, it is now hard to convert it into a successful product because of the need to get the involvement of too many technologies from too many companies from too many industries, not to mention the fact that a proprietary device has still a hard time to get accepted, unless the company has a virtual monopoly in a particular field. A simple example – DVD – shows that this model is no longer sufficient. Philips and Sony had a technically very good solution but the other (Toshiba) camp had enrolled the support of a range of movie companies and they won the day. For a long time the same two camps fought for the next generation package media, each camp enrolling movie companies and movie companies switching side until the Blu-Ray standard emerged. This is one of the reasons behind the – now outmoded – trend to build huge conglomerates where most if not all the technology and content components required for launching new products or services were in house. It then follows as a corollary that these conglomerates tend to create walled gardens to keep users in.
The MPEG process provides a different approach to this problem. Again we start from companies investing in R&D and making inventions that are patented. In the technical area covered by MPEG, however, you typically need a large number of components to make complete solutions. Assembling these typically would require teaming up with other business players, because we are no longer in the simple “stand-alone solution” case. MPEG designs the pieces of communication systems – actually only the interfaces and the protocols that are required to achieve interoperability between subsystems – providing solutions that achieve a previously agreed goal. In addition MPEG performs some other “technology integration services” because its standards can be used in pieces but also as complete solutions, i.e. as the sum of their parts.
In other words MPEG offers a place where R&D results, even if they are still at an unrefined stage, i.e. not yet transformed into products, are fed to a standardisation process and can become, if they satisfy the fitness and technical excellence criteria as assessed by peer review and decided by consensus, part of the common technology portfolio needed to create new communication forms.
From what has been said before it should be clear that, far from stifling innovation, the MPEG standardisation process is the source of a virtuous circle where companies invest in innovation in the hope of a return both from the existence of new products and services shared with all other companies and industries, and from patent royalties. This works well in principle, but the practice may be different. An MPEG standard usually requires a considerable amount of IPR for its implementation. This is because, for whatever choice MPEG has to make, there are usually a number of solutions, some of which are likely to be affected by IPR. Getting agreement from all rights holders for reasonable licensing terms may not be easy.
In MPEG-2 times the North American CATV industry was kind enough to help kick start the creation of the MPEG-2 patent pool, but in the MPEG-4 Visual case there was no industry or trade association that would be available to play a similar role. Commending words must not be spared to those who engaged in the daunting task of working out licensing terms for a standard that could be used in such diverse cases as mobile and CE devices, for personal and streaming applications, in hardware and software-based solutions.
I happen to have some comments on the actual terms of the MPEG-4 Visual licensing scheme. For sure they do not have the right balance that some people think the MP3 license has. A superficial observation is that charging for both receivers and content makes two major players unhappy. Another is that there is a perception that the component of “licensing fees now and from anything” prevailed over the creation of a business out of which much bigger revenues for the licensors could have been obtained in a longer term.
To work fully, the MPEG model of standard development requires a body (in the case of MPEG-4, actually two more bodies, the industry forum and the licensing entity). The last body is the one attempting to create a single-stop shop for patent licensing according to well-identified licensing schemes.
Recursively, certain quarters have made calls to MPEG to adopt more “modern” patent policies and produce standards unencumbered by patent rights. MPEG should continue to be the place where users turn to in order to get new standards based on new excellent technologies targeting new requirements, but MPEG has the task to satisfy new needs of users demanding standards based on established technologies that are “good enough”. To respond to these needs it is necessary to design new MPEG standards that provide a performance in between “old” standards (like MPEG-1 and MPEG-2) whose patents are due to expire soon or have already expired and current, typically royalty bearing, new standards.