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 and they 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 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 may 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, at that time, 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 one’s daughter 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 suited the industries concerned. Even if a company had some smart invention, it was 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 had still a hard time to get accepted, unless the company had a virtual monopoly in a particular field. A simple example – DVD – shows that this model was 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 provided 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, a large number of components was needed to make complete solutions. Assembling these would typically require teaming up with other business players. MPEG designed the pieces of communication systems – actually only the interfaces and the protocols that are required to achieve interoperability between subsystems – providing solutions that achieved a previously agreed goal. In addition MPEG performed some other “technology integration services” because its standards could be used in pieces but also as complete solutions, i.e. as the sum of their parts.
In other words, MPEG offered a place where R&D results, even if they were still at an unrefined stage, i.e. not yet transformed into products, were fed to a standardisation process and could become, if they satisfied 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 was the source of a virtuous circle where companies invested 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 worked well in principle, but the practice could be different because MPEG standard usually required a considerable amount of IPR for its implementation. This is because, for whatever choice MPEG had to make, there were usually a number of solutions, some of which were likely to be affected by IPR. Often, getting agreement from all rights holders for reasonable licensing terms might 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 happened to have some comments on the 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 was 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 required a body (in the case of MPEG-4, actually two more bodies, the industry forum and the licensing entity). The last body was the one attempting to create a single-stop shop for patent licensing according to well-identified licensing schemes.