WWDC2003 Session 723

Transcript

Kind: captions
Language: en
good morning everyone I trust the mic
and other it goes good to be in san
francisco and i am very pleased to have
the opportunity to meet before you have
the worldwide developers conference it's
a great opportunity for us to explain
these licensing terms which have been
the subject of so much discussion in the
press and privately and so forth and
certainly interest runs no higher among
users of mpeg-4 technology than those of
you in this room and at this conference
because of apples certainly they're
great support through the quicktime
products and and obviously that's very
important to the start of this market
the other element that is important to
the start of the market is to clarify
licensing terms and i say that not only
for whatever needs to be done still now
but what needed to be done even a year
and a half ago when when various
controversy started over what this
license was about and what it wasn't
about the reason i say this as a
platform is because you know to start
out the discussion here is because every
technology such as MPEG 4 which is an
open standard is subject to technology
that is owned by many many different
patent holders and in the old days i say
the old days the days before standards
were widely implemented before digital
video and digital audio and other
digital technologies were implemented
users were pretty much on their own when
it came to clearing rights under
relevant patents for the use of a
technology picture the situation where
for example you as a user or other
implementers of the technology go
forward with the technology or Apple for
that matter goes forward with the
technology and does not have the
availability of a license such as the
one we present
that provides access to many different
patents owned by many different patent
holders in one place the consequence of
that unfortunately is that the
implementer the user the promoter is
subject to potential infringement by 20
25 30 different parties that may own
essential patent rights so they go out
with the technology and obviously
there's a possibility of litigation or
infringement allegations and so forth
and that's what MPEG LA tries to clear
up that is the entire purpose of our
being which is tried to try to bring as
much of this essential intellectual
property rights under one license as
possible so that when a user goes to
market they don't have to have 20
negotiations or 25 or 30 negotiations
with individual patent holders it
doesn't take a brain scientist to
understand that a technology that has to
go through that many negotiations is
frankly dead on arrival so we try to try
to do is bring the 20 or 25 or 30 patent
holders together under one license so
that users and implementers and
promoters can get the rights they need
in one place with one negotiation and
move forward from there without fear of
having infringement claims hoisted upon
them by the patent owners now some of
what I've said may may seem kind of
cloudy to you so let me take it step by
step give you a little background about
MPEG LA and then let's talk specifically
about the mpeg-4 visual license I did
want to just set that up as background
though for the general role that MPEG LA
plays in this technology
we all know that a lot has been said a
lot has been written I myself was a
recipient of probably six thousand
emails some of you in this room i'm
hoping i actually communicated with we
tried to respond to all of them and by
the way they were very helpful they made
a tangible change in the licensing terms
as a result of what you wrote and what
you expressed and the heartfelt feelings
that you had about the ease of
implementation that you faced or the
difficulty of the implementation you
faced when the terms first came out as
you may know they were revised about six
months later reflecting many of your
views obviously not everyone is always
happy with licensing terms but we went a
long way we think to correcting some of
the deficiencies in the original license
that's what we're going to discuss and
as I said first I'd like to provide some
background on MPEG LA MPEG LA is not a
patent holder MPEG LA is not a user of
any technology in terms of promoting it
or being a licensee shall i say of one
of our own licensing programs we are an
independent company whose sole purpose
is to try to bring order out of the
market chaos the market chaos is what I
referred to earlier the situation where
a standard that everyone likes many
people want to use has one single
problem that holds it back from
implementation and that single problem
is how can we get it out there and get
it widely used by the biggest number of
users without facing multiple
infringement actions or essential patent
claims so where we began was in 1997 as
a company we began licensing the mpeg-2
video compression standard that was our
beginning the single biggest challenge
to MPEG tues adoption was dealing with
the essential intellectual property
MPEG as you know stands for moving
pictures expert group with a group of
engineers from all over the world who
still meet to discuss international
standards they are the authors of the
mpeg-4 standard they were the authors of
the mpeg-2 standard the standard was
developed in the early 90s to the
mid-90s it was an answer to where to
begin with a high-quality digital
compression for real-time video in the
broadband sense in the broadcast sense
by satellite by cable and by DVD player
and as I said it was well known going
into this process that the technology
which the MPEG group had put together as
a single specification to be made
available widely to the world had one
barrier to implementation one
significant barrier to implementation I
think it's obvious to all of you in this
room what the benefits of
interoperability are which is what the
purpose of these standards is so the
mpeg-2 standard sitting here on a
voluminous amount of paper was no better
than the paper was written on unless it
could be implemented and many companies
throughout the industry had a
significant interest in seeing its
implementation because obviously that
answered the problem to interoperability
but many patents owned by many patent
owners cause potential for confusion
conflict spelled litigation and cost
spelled multiple negotiations and
possibly endless negotiations and
possibly negotiations that were
inaccessible to the normal normally
sized company you know maybe large
companies maybe companies small
companies with significant technology
would see the inside of the door of a
particular patent holder who wanted to
cross license for that particular
technology but in general in order to
foster the widest possible use of this
standard there had to be a different way
of doing things so the MPEG group set in
motion an intellectual property rights
working group it was headed by Baron
Foote
who is the current CEO of MPEG LA they
worked for a number of years on coming
up with a blueprint for overcoming this
problem the result of that deliberation
was the creation of MPEG LA of course
MPEG LA used that blueprint but as a
private company had to sell patent
holders on or shall I say convinced
patent holders to include their
intellectual property under one license
in a model that had never been tried
before this was unprecedented the
venture which became the mpeg-2 patent
portfolio license went before a
six-month review before the Department
of Justice as a matter of caution and
common sense because it was new and
unprecedented and the Department of
Justice in its review found the business
plan of MPEG LA for mpeg-2 to be comfy
pro-competitive it was designed with
many elements in mind to achieve
fairness reasonableness and
non-discrimination fairness and
non-discrimination and reasonableness
particularly important elements you'll
probably hear me refer to them later
today they're big words they don't mean
much by themselves but we hope that our
licenses and the acceptance of those
licenses in the market helps to define
what is fair reasonable and
non-discriminatory in the marketplace
obviously a license that is widely
accepted can be viewed as fair and
reasonable we administer them to be
non-discriminatory what does that mean
non-discriminatory means that a patent
holder a license or as we call them who
happens also to be a licensee a user of
the technology and there are many will
be treated the same as any other
licensee they receive no favorable
treatment over a licensee who does not
have patents themselves very important
principle
so not to pick on a particular company
but if you go on our website you will
see that there are currently 22 patent
holders in the mpeg-2 patent portfolio
license they include names such as Sony
and matsuda and Columbia University it's
a wide spectrum of patent owners and
Columbia of course is not a licensee
because they don't use the technology in
the conventional sense but a phony for
example pays the same royalty rates that
any other user pays obviously as a
patent holder they get a piece of the
revenue that comes as a result of any
royalties that are collected for the use
of this technology but the technology
was not developed for free it was not
developed at no cost this is their way
of getting a return a reasonable return
on their investment so that they like
other patent holders can continue to
develop new technologies that fuel the
marketplace our sole business is based
on what we call one-stop patent licenses
once again MPEG LA itself is not a
patent holder we aggregate essential
patents owned by many parties under one
license and then we have the right to
sub-license those to the marketplace on
the same fair reasonable
non-discriminatory terms to everyone
will get into that more in a minute I
apologize if we spend this much time on
the background of MPEG LA but I think
it's important to try to understand
where we're coming from what we're
trying to achieve and I think it'll be
easier to understand the mpeg-4 license
once we begin that discussion
momentarily this is the problem that
MPEG la set out to solve I won't review
it all but suffice it to say that in the
last 10 years companies individuals have
understood like they never have before
the value of intellectual property there
is rapid patenting the luminous
applications before the US Patent Office
unprecedented in history in terms of the
number of patents that are entering the
office and are being reviewed I don't
have the figures at hand but I
understand that it's probably doubled
over the last ten year period it means
that people are patenting anything that
they believed to be patentable something
that is an invention which was not
subject any prior publication and which
they are the first to discover what
happens is that there's growing
interdependence among patents when you
put out a standard such as mpeg-2 or
mpeg-4 it isn't just one invention like
the telephone and Alexander Graham Bell
or the other poor guy who has a real
patent on that but it is a situation
where the standard that is established
is subject to many patents covering many
elements of the compression standard the
decoding the encoding the transport and
all kinds of elements surrounding that
whether the spatial redundancy or
temporal redundancy or whatever so there
are many patents to deal with and it's
not getting less it's getting more it's
been referred to as the patent thicket
and the result is that licensing
transaction costs for companies who
engage in mpeg2 or mpeg-4 or other such
technologies are extraordinarily
burdensome the possibility that a
technology may do nothing except
gathered dust on the paper on which it
is written is greater than ever there
needs to be a bridge and the bridge is
to try to set up a one-stop license as a
transition to the marketplace that can
allow people to have non-discriminatory
access to the technology with one
negotiation one-on-one licensing
arrangements ruled the day before MPEG
LA that's the way people operate
they negotiated one-on-one and they
still negotiate one-on-one MPEG LA does
not replace one-on-one licensing
negotiations it works with those that
are necessary in the market it's one
more element that technology users have
to choose from in determining how they
want to deal with their intellectual
property rights and I know I'm talking
to a group of knowledgeable people who
do a lot of development but basically
the the the laws of most countries
worldwide virtually all recognize the
right of an inventor to have the fruits
of its invention and what that basically
means is I always try to draw it like a
like a boundary line of a piece of real
estate that basically means that you
carve out the four walls to four corners
the four boundary lines of a patent and
if a user trespasses on that property
then what the law says is that the
patent holder has the right to exclude
that user from using that technology on
which they trespass and that is the
nature of a patent so they're out there
they have to be dealt with MPEG la
didn't make them obviously we're glad
they're there because it is MPEG la
business I can't apologize for that but
we take the marketplace as we found it
and we're trying to make it easier for
users to deal with that issue rather
than have to go through individual
negotiations with each one so this is
the way we do it we put them in one
license we offer them on the same terms
and the result for example in mpeg2 has
been quite remarkable mpeg-2 licensing
as i said earlier began july 1997
following the Department of Justice's
Business Review actually I see a
misspelling there it should be licensed
ORS with a no but will work still means
the same thing to everybody we started
with eight patent holders eight patent
holders to become a part of the program
it's not your pedigree that counts it's
whether or not you have an essential pet
an essential patent is one that cannot
be avoided in the implementation of a
technology if it cannot be avoided in
the implementation of a technology than
it's essential if there are other ways
to perform that same technology that is
in the patent it is not essential it's
as simple as that and rather than make
those decisions ourselves or rely upon
our patent holders to make those
decisions the patent holders submit the
patent holders who want to participate
in this program submit their patents for
evaluation by independent patent experts
that we hire and we have independent
patent experts in the US Korea Japan and
Europe who review these patents on a
regular basis and if found essential and
if the patent holder is willing to agree
to the terms of license that all the
other patent holders agree to they are
included in the portfolio so the license
grows and it grows quite phenomenally we
started with eight license oars as I
said and we now have 22 and mpeg-2 why
14 in the six years of this program has
been licensed why those additions well
in some cases it was a matter of
expediency to get the license going
because the market needed it fast in
1997 so line had to be drawn there were
already a few patent holders waiting to
get in but we started with the original
eight immediately after it began some
more were immediately added as for the
others they fall into two categories
some had patent applications that had
not issued as patents yet when the
program began and this program deals
only with issued patents doesn't deal
with patent applications which by the
way are not even licensable in the
United States they are licensable in
Europe it's my understanding but not
enforceable in Europe so we focus on
issued patents because issued patents
have the mark of validity that is
basically the result of their review
process by the Patent Office in the
applicable country so many of them had
patents that issued after the program
started they came in and yes there were
a number of patent holders who didn't
want to be a part of the mpeg-2 joint
licensing program at all but they
subsequently came in too once they saw
that it would be successful they were
not early risk takers they wanted to do
it themselves but they came in certainly
we're glad to have them because our
objective is to include as much
essential intellectual property in one
license as possible for the benefit of
the user and in fairness to the user
when we grew with this phenomenal growth
which by the way began with 25 patent
families approximately 100 patents
worldwide and now has grown to a hundred
and twenty-three patent families
representing more than 575 patents in 56
countries the royalty rate never
increased it never increased our promise
to you the user is of the royalty rates
remain the same during the current term
of the license now mpeg-2 have gone
through multiple terms but it didn't go
down even when it when it renewed for a
new term in fact in January of 2002 the
market saw a forty percent reduction in
the royalty rates charged for decoders
and end coders the patent holders and
MPEG la were able to do that one because
frankly they saw the nature of the
marketplace and the declining prices of
product and they wanted the royalty to
fit comfortably with what people were
charging for their products going out
the door whether it be a set-top box a
DVD player a PC equipped with DVD
playback or whatever second under the
old rate we were very we had very high
compliance in most market sectors but
not all
with the reduction to 250 we are now
able to boast that we include north of
eighty-five percent compliance in every
major market sector that is using a
mpeg-2 technology so it was a very
significant thing to reduce the royalty
and increase the compliance by many
market sectors and in this age of
convergence that is no small thing you
may I'm sure you all realize given the
convergence but we heard from set-top
box makers who were upset that up that a
PC maker was not paying royalties and we
have once again this may sound strange
but this is a licensing product and we
love our customers very much and we want
to keep faith with them and if we sense
that something is off balance we try to
correct it we try to go to the patent
holders who make the ultimate decisions
and try to talk out with them what we
see of our view of the marketplace that
may require a change in order to respond
to a marketplace condition at the time
January 2002 we thought it was
appropriate to reduce the royalties we
now have more than 570 licensees in
mpeg2 we license now for other programs
using this same template this mpeg-2
template so successful in seeing the
widespread implementation of mpeg-2
across the marketplace resulting in the
inclusion of as much essential
intellectual property in one license
that saves users valuable negotiating
time and creates a level playing field
so that what they're paying others are
paying in other market sectors as well
as their own the program has caught on
to be popular with helping to foster
other technologies one quite familiar to
you as developers is 1394 under mostly
known under the apple trademark firewire
it's been a very successful licensing
program it was organized in November
1999 to cover the 1394 standard
including
a portion of the IEC standard that dealt
with the peripherals that are attached
to the network it has eight patent
holders license oars and now has more
than 220 licensees and i'm proud to say
of course apple is a patent holder in
that program and of course I think it's
not unfair to say that Apple if you look
at our list of patents which was posted
on our website this one on 1394 la com
and if you look at our list of licensees
which are also posted you'll certainly
see that Apple is a major player in the
intellectual property that was developed
for this technology along with others
but certainly Apple has the has a large
maybe the largest volume of patents
among all patent holders that are
represented our third licensing program
was for the implementation of the dvb-t
standard dvb-t being the terrestrial
broadcast standard used in Europe and
Asia and other parts of the world I
think all except for the US and canada
which have chosen the ATSC standard for
digital broadcast transmissions we are
licensing that program as well and we
have a London office to try to work in
the European market where that
technology is getting its commencement
point and most recently we began
licensing mpeg-4 visual I know it's
still the topic today and the mpeg-4
systems license and I just note for the
record the mpeg-4 systems license also
includes Apple's intellectual property
that is essential to that standard in
the form of the mp4 file format
click turn to the topic mpeg-4 visual
license that's the background that what
I just said really is the our operating
procedure for all of our licenses they
deal with essential patents the issue on
a fair reasonable non-discriminatory
basis they go through patent reviews by
independent patent experts so that there
is some sense of credibility and
reliability that people aren't just
sitting in a smoke-filled room and
saying i'll give you i'll let you
include your patent if you include mine
that is not what happens there's no
horse trading going on here a patent can
only be included if it meets the
essentiality standard has applied by the
independent patent examiner every
license first to understand it you must
lay out what it covers what do you get
for this license now we don't ever say
that we have all patents because we
don't know that we do you who deal with
intellectual property may know there are
a lot of what they call submarine
patents out there or likely to be it's a
possibility of submarine pens second
even if we were to know about other
essential patents this is a voluntary
exercise for the benefit of the market a
way of marketing the technology it's a
way of marketing the patents it's a way
of providing a service to users who want
to use the technology but we have no way
to compel an essential patent holder to
include their technology we can only
hope that by the way we do business and
the way we present the license to the
market and buy the acceptance of the
royalty rates and other terms that
patent holders will want to be a part of
the license they will have the incentive
to be a part of the license because they
believe one it's the best service they
can perform for the market to make them
available and to that it's actually the
best way to market their patents for
this technology so what does it cover a
lot of words here I'm not going to go
over with them with you but mpeg-4
visual standard refers to part two of
the mk4 standard there is a part 10
which has been the subject of much
discussion and we
take some questions on it later if you
like which is often referred to as h.264
or ABC but the mpeg-4 visual standard is
divided into profiles and the profiles
accomplish different results of
different complexity and different
quality and you more technical than I
probably know them far better than I so
I hope to avoid that today for myself
but the objective of this license
initially when we started this license
and this was actually before your your
QuickTime conference we were only
focused on two of the profiles which
were cold called simple and core and
when we went back to the drawing board
we thought it made more sense to include
all of the profiles in part 2 we want to
set up a situation where a user starts
to get married to the technology decides
to migrate along its path to a higher
complexity and then only to find that
the next shoe drops when the patent
holders and say all that'll be another
that will be another license feat thank
you so we decided to throw all the
profiles under one license so that users
didn't for themselves have to decipher
one whether they were using one profile
versus another in some cases that's not
so easy we leave the complexity on the
inside for us to figure out in terms of
dividing the royalties and then second
we didn't want them to have to as I said
come back for another license we wanted
this license to be evergreen for any use
of em take for part two so it covers all
those profiles and this happens to be
the official reference to where those
profiles and this standard can be found
and not to confuse you anymore with that
but it is the basis by the way on which
the independent patent examiner makes
their evaluations okay so how is how is
this done I just went over to coverage
it's the entire mpeg-4 visual part two
how does it accomplish this result okay
most of this you've already had but I'm
going to repeat myself again it's always
a good thing to do it in different
examples I'm told
so we rely upon patent submissions by
parties who believe that they have
essential intellectual property we ask
them to submit the essential
intellectual property for evaluation by
the patent examiner and if found to be
essential and prerequisite for their
submission is that they will agree to
the licensing terms they are admitted to
the license so that's the first thing
each patent in the license is essential
to the mpeg-4 visual standard second
evaluated by independent patent experts
third each patent holder promises to us
worldwide coverage what does that mean
obviously they can't provide worldwide
coverage where they don't have a patent
but it means that wherever they have an
essential patent in whatever country
worldwide they may have an essential
patent that patent under legal
obligation to MPEG LA must come into the
patent portfolio so a patent holder
can't say well this is great i'll i'll
give you the united states but i'm going
to hold japan to myself no no you as a
patent holder I'm sorry you as a user
must have the comfort to know that if a
patent holders name shows up on this
license if they have an essential patent
in another country other than what's
listed where those are listed that
eventually they're going to be included
that they can't come later and say to
you I have an essential patent and oh by
the way I didn't include it in the MPEG
LA license you have the right to believe
that they're not going to bother you for
any essential patents that they may own
some some companies patent in 50 60 70
countries worldwide they get very very
broad coverage and of course cost a lot
of money to do that others focus on only
a few countries so the patterns of where
these patents show up can vary
substantially from one company to
another and remember MPEG LA has nothing
to do with the prosecution of these
patents we only receive them once they
issue from a patent office and thereby
qualify for inclusion
this means of course that there's always
more intellectual property in the
pipeline in the evaluation pipeline
there's more coming our independent
patent experts are kept very very busy
between quarters when we announced the
new patents that go into the license
they are busily evaluating them and when
found essential they come in and a
question possibly on your mind is well
what about the dilution factor and the
answer is dilution factor to patent
holders and the answer is that's those
are the rules of the road that's what
patent holders understand and the fact
is like any growing emerging product the
more patents that come into a license
don't make it less valuable teach patent
holder they make it more valuable to
each patent holder because the product
the licensing product is that much more
acceptable to the market at large more
users more royalties more implementation
and therefore more success and when they
come in they are added at no additional
royalty during the current term of the
license mpeg4 license who owns these
creatures that we're talking about who
owns these patents that have been found
essential by an independent that an
expert this is the current list there
are others in the evaluation pipeline
I'm not at liberty to say whether they
own essential property or not the balls
and strikes as we call it are called by
an independent umpire that will
determine the extent to which other
patent owners are included but currently
there are 20 companies there are
promised MPEG LA and by implication to
you is that all of their essential
intellectual property will be included
that's the list and of course it's also
available on our website in this case
MPEG la calm and then go to the mpeg-4
button which appears below and pay for
visual button which appears below and
they will be arrayed there as well as
will the current portfolio of essential
patents that they own this problem this
program is new so just like in the MPEG
to program at the initial part the
numbers of patents are fewer but we have
every reason to believe that with this
many patent holders who are known
groaning patents worldwide that it will
increase substantially over the term of
the program we are still only in our
first eight months of offering the
license okay the license has been called
variously complex I try to trying to
prove that that is not so this is what
you need to know about the license on
one slide and by the way let me speak to
the complexity before we go to this what
is perceived as complexity well first of
all licensing is a tends to be a
one-on-one discussion and education it's
our business and I don't mean it's our
business like you can't get into it I
mean it's our business to deal with our
customers on a daily basis which we do
we probably respond to you know I
haven't taken a recent estimate but
could be as many as a thousand emails a
week asking particular questions about
this license and our other licenses and
people share with us information about
their specific implementations and their
specific business models and we work
with them to understand how the license
will apply to them in some cases there
may be some quirks and we try to work
with them to make the license fit within
the limits of our authority when we get
a situation where we believe and by the
way we're we're fairly inflexible in
terms of because the whole key here is
to have a non-discriminatory license so
we don't make separate deals with
anybody we have to assure ourselves that
the same license will be applied on a
non-discriminatory basis to everyone so
when we answer these quirky
implementation questions were very
careful to stick to the absolute
principles of the license and we're very
mindful not to do anything for one that
we wouldn't do
everybody so what we'll do for one we
would do for everybody and these
questions sometimes tax that consistency
we have to be very careful and we take
it very we take that as a very strong
Creed for us that we must be very
careful and we are if we see though that
there's something developing in the
marketplace that is not just a one one
of that is widespread and that is really
bothering users it's something often
that we will take the patent holders and
discuss as a possibility for a need to
change the license mpeg2 we made a
significant change early on actually
took us a couple years to accommodate
the DVD disc market when we went out we
found that the royalties which the
patent holders had determined we're
frankly not ready for prime time when it
came to enlisting discs replicators to
the license and we work with some major
disc replicators to understand their
business model more thoroughly
recommended a change to the patent
holders which was approved and then made
those changes available to the market at
large and now today we have what we
estimate to be eighty-five percent
compliance by the replication industry
so we are not adverse to change but on
the other hand licences like this have
to be administered in a fairly and it
will absolutely non-discriminatory
manner and it is the only product we
offer we're not going to make different
licenses for different parties so long
way of saying what about this complexity
issue well complexity came from a very
well-intentioned thing which was to try
to accommodate different business models
in this license where the patent holders
thought and still believe there are
significant differences in the way
people do business so it does have
different gradations different models
for internet and mobile and what we call
unique use which refers to cable and
satellite and for what we call scored
video which refers to packaged media
electronic transmissions of what I would
call DVD equivalent videos and we work
with some content providers to try to
understand their business models before
issuing the license in order to make
that happen now this isn't in all cases
ready-to-wear material as they say not
ready off the shelf go out to the market
we've taken it off the shelf and the
good news is that people talk to us they
tell us their business models and we
work with them very carefully recently
once again I don't know if you've seen
this but there's been news of concern
among Japanese broadcasters who wish to
do a mobile broadcast service mobile
service and there's been some concern
among mobile content providers and we
are working with them very carefully and
we are finding that in many cases the
the distance between us was really to
edge to be educated on the terms of the
license and how they would apply to
their business model and we believe that
those objections will be overcome not
unlike any sales business you have to
meet the user and overcome the
objections that's the test here one size
fits all but it may not answer all
questions but if it's done right it can
be adjusted for change or it can be
worked to work with individual business
models alright the summary here's the
way the licence works generally in
patent rights you have what are called a
right to make a right to sell on a right
to use and I'm sure people can divide
them in other ways but I'm just keeping
it simple make selling use so the way
the license is constructed for mpeg-4
visual is that manufacturers pay
royalties for the right to make and sell
decoders and end coders that
responsibility falls upon them who is
the manufacturer manufacturer would be
the end supplier of a product a
manufacturer of a DVD player the one
whose brand name appears on it in the
internet and PC area it would be the
fully functioning the manufacturer of
the fully functioning product
it would be someone who provides the
fully functioning software that then
gets downloaded for example to a PC for
further use they pay right they pay a
royalty for the right to make and sell
the decoders and end coders now what's
included in that right to make and sell
beyond the right to just simply
manufacture it and sell it is that the
decoder an encoder may be used for
personal use no limitation and also it
may be used for what we call end-user to
end-user communications those are all
covered as part of the manufacturers
license so if an encoder and decoder
appear in a handset cell phone mobile
phone the encoders and decoders may be
used for people to send video to each
other and to communicate with each other
on a personal private level no royalty
no additional royalties included for
doing that is required for doing that
that is part of the manufacturers
license similarly on a PC whether it
doesn't have to be mobile it could be on
a PC and user to end-user communications
are included people are I aming itch I
videos personal videos family videos
whatever it might be they're making some
video creation that's included in the
license that the manufacturer pays even
though a mobile provider may collect
money on a minute-by-minute basis for
the time that the end users spend online
while they make their end user to end
user personal communications that is
still covered under this manufacturers
license no additional royalty that's not
considered the remuneration which we're
going to talk about in a moment video
providers third bullet do not pay
royalties unless mpeg-4 visual material
is provided for remuneration what does
that mean basically all use is okay the
point where you are remunerated as a
video provider for offering the video
then an additional royalty is
aid the remuneration may be direct or
indirect it can be subscriber
subscription it could be a per minute
charge for video that's offered
generally to the public it could be
advertising supported but it does not
include self advertising and promotion
so Apple puts them take for video on its
website in order to promote its self
image and its products and draw use the
website with items of value they're not
paid for including that video they just
offer it as a service to you and as
entertainment for you that's part of
self advertising and promotion not
remuneration no royalty even though it
may sell their own products if the only
remuneration is that from selling their
own products that's okay that's included
let me put it this way that gets a no
technicality there is no additional
royalty required and the patent holders
are not looking to bring legal actions
against people who engage in that
activity fourth bullet if n pay for
visual material is provided for
enumeration then video providers pay
royalties for the right to use the
decoders and end coders so this is the
only case where a youth right number
make sell and use and the make and sell
is included in the manufacturers royalty
use is included in the manufacturers
royalty for certain limited purposes
including personal use and end-user 10
user communications but where the video
provider goes off and offers its video
for remuneration then there is a
separate use right required and that's
where the video provider pays that's the
license in a nutshell manufacturers pay
in the model royalties for the right to
make and sell it includes certain uses
if a video provider uses the encoders
and decoders for remuneration additional
royalties are paid otherwise no okay why
is it structured this way what does this
have to do with the
real world flow of Commerce why is it
different from other licenses that
patent holders have engaged in over the
years and it is different in some
respects certainly as you can see this
reflects the attempt by the patent
holders to align with what we call the
real world flow of mpeg-4 commerce it
was their beliefs as they put too heavy
of a royalty on the manufacturer more of
an anomaly on the manufacturer that it
would chill the market and would not
allow the promoters of this technology
to offer the technology widely so they
did not want to put it all there and in
many cases especially with mpeg-4 which
of course is in QuickTime the technology
is such the decoders and encoders will
often be given away for free too often
be given out widely in order to get the
most massive distribution for the
technology so the patent holders wanted
to assess the royalties mostly where
value is received in other words those
who can afford to pay should pay as the
manufacturer is not realizing the bulk
of the revenue here the entire burden
should not be on them it should be
assessed where a video provider who is
making money can afford to build the
royalty charge into their business model
that's the concept so in this case
royalty files revenue royalty files
regeneration in terms of the additional
royalty that's required over and above
what I think is a very nominal and
reasonable royalty in the marketplace
for the manufacturer also the license
has an objective as I said earlier and
this is the source of some of the
complexity which people perceive that it
is to be used across different business
models and in certain cases different
business models require different
royalty formations for example in the
case of what we call unique use which is
a cable or satellite traditional cable
or satellite can
sionally access communication there is a
youth royalty that has paid one time up
front it's equivalent to about five
years worth of royalties that would be
paid by an internet or mobile provider
over the course of five years but it's a
one-time upfront payment of a dollar
twenty-five cents we'll get to those
particulars in a minute as a result of
the market discussion that took place
following the QuickTime conference the
patent holders also understood the need
to provide caps that in some cases there
was not a direct connection between the
amount of usage and the revenue realized
in fact there might be a great
disconnect between the two so they said
okay we should provide cap so that the
there's a limitation on any royalty
burden that may attach to a video
provider and so when we look further at
the details here we'll see that there
are caps built into this model similarly
the patent holders understood that MPEG
LA is direction that often the biggest
development in this area starts with
early-stage adopters not unlike yourself
who use this technology in ingenious
ways in clever creative ways that would
not be possible frankly in the halls of
a big company some of you may be from
big companies my apologies but often the
best way to get a technology to be
widely used and widely implemented and
and to foster many creativity many
creative solutions is to get into the
hands of many users and have them
develop and show the way so into this
license are built threshold levels below
which no royalties are payable at all in
the manufacturers case for example there
are no royalties for the first 50,000
decoders and first 50,000 encoders each
year in the video provider case if
someone has a service that goes out to
50,000 or fewer subscribers in a year
there is no royalty charged so even
though you may be remunerated for the
first 50,000 subscribers any
remuneration you receive is not charged
a royalty
this was built into this also and the
hope of course is that small users
become large users but initially we
should minimize the impact so that the
market can build and finally you'll see
in the in the detail that there are some
alternative royalty options some
requiring no royalty reports at all
again to minimize the burden on users
from having to fill out very difficult
forms all actually they're not very
difficult but to have to even report and
record usage when their usage is at a
very low level and in some cases for big
companies instead of having to catch all
that data they have the option of a lump
sum payment so they don't have to
actually record things on a
minute-by-minute basis ok let's look at
the manufacturers part of the license
first in some down to the detail level
now I said that a manufacturer pays
royalties for the right to make and sell
a decoder and encoder it's the end
product in most cases it's the fully
functioning product in the internet and
PC case we talked about the fact that
there are different business models that
are encompassed by the license which may
be the source of some people's feeling
that there's some complexity that is
difficult to swallow this is an example
of where a decoder or encoder software
is provided for a computer the
manufacturer who would pay the royalty
here would be the company that provides
the software the fully functioning
software that is downloaded to the
computer just because I show a computer
there was difficult for me to to make a
picture of software so I use the
computer instead which is utilizing this
this software and indicated are several
four out of the five business models
covered by this license and they're
indicated to show one thing if the
decoder and encoder is usable across all
four of those business models or three
or two for one and all of them are
sublicense in one decoder the
manufacturer does not pay the royalty
four times manufacturer pays the royalty
once so for a single licensed products
there is only one royalty and that
royalty on a decoder is 25 cents and
that royalty on an end coder is 25 cents
and the one product as I just said can
be licensed across one or more of the
sublicense categories which address
different business models once again
it's to encourage manufacturers to make
this stuff not get into too much
complication when it comes to
limitations on the use potential use of
their decoders and encoders the decoder
royalties that 25 cents per unit and the
encoders royalties at 25 cents per unit
are each subject to a 1 million dollar
annual limitation so a company making p
coders and n coders would never pay more
than 2 million dollars annually for the
right to produce these decoders and n
coders the first 50,000 units of
decoders there is no royalty at all and
the first 50,000 units of n coders there
is no royalty at all that's available by
the way just to be clear for for the
record that's available to one legal
entity in an enterprise so we don't let
if there's a conglomerate and there's
more than there's multiple legal
entities the thresholds available only
wants to one legal entity each year but
for most people this will cover the
issue because the manufacturing is
generally done in a central place or
under only one legal entity and when
that's done the first 50,000 units both
of decoders and end coders are exempt
from royalty manufacturers still signs
the license but they report 0 royalty on
the first 50,000 units of each test
manufacturer just to show you the
manufacturer in a handset setting and
once again the market is changing
rapidly
PCs and handsets and pda's all start to
merge but for sake of understanding it's
the same result a handset might receive
internet video it might receive mobile
video the decoder that's in there is
used for both so only one royalty
applies to the decoder only one royalty
applies to the end coder twenty-five
cents each again the million dollar caps
for decoder million dollar caps for end
coders annually apply and the 50,000
unit thresholds also apply below which
no royalties are payable this
illustration also shows that the right
captures end-user to end-user
communications for that same payment no
additional royalty required if you're an
end-user communicating among end users
or with end users it's covered similarly
it's also covered in the prior model for
computer manufacturers let's look at the
video providers situation now remember
this is only a situation where somebody
is making money offering the mpeg-4
video otherwise no royalties are payable
under this license so this license this
illustration excuse me shows different
examples different sources of video
being provided to a computer and in each
case it is the provider of that video if
they are charging remuneration they are
being remunerated who would pay the
royalties there are three choices for
them they can pay 25 cents per
subscriber per year so if they have a
subscriber for one day or if they have a
subscriber for one year 25 cents for the
subscriber it doesn't matter how little
or much they used service in a period of
a year one subscriber is charged one
royalty to the video provider
alternatively they mean may meter it
based upon actual usage and this long
set of numbers comes out to about 2
cents an hour for each use and the third
alternative if they want to avoid all
reporting and they know they're going to
have enormous usage and enormous
remuneration they can choose a lump sum
option
which is the 1 million dollar annual fee
for their video providers service /
legal entity again this is subject to a
50,000 annual subscriber threshold below
which no royalties are paid and you see
the same example played out in the
handset situation it does not differ
whether it's mobile or Internet the
consequences are the same they may have
mentioned earlier unique use cable
satellite is subject to a paid-up amount
per decoder and n coder which allows use
in that connection and a dollar
twenty-five cents per unit stored video
is a separate category stored video when
we're talking stored video we're
normally talking a DVD disc or DV disc
like I should say physical media with
data on it or an electronics download or
electronic streaming of something that
is stored or storable or usable for a
minimum of 20 plays and 365 days
something that is really permanent to
the user and resides on its desktop and
it's sold important sold on a title by
tidal basis so it's not sold on the
title by tidal basis then it's not
subject to the stored video rates and
the idea here is simply that where it is
made available sold on a title by title
basis the transaction the sale of that
stored video is able to carry the
royalty in that transaction because it
stands on its own and it's basically
economically independent as a unit of
Commerce but it must meet those
qualifications to be considered stored
video otherwise it's part of the
internet and mobile video coverage
finally as we've said before everybody
pays the same royalty rates so a big
company is not treated better than a
small company a patent holder is not
treated better than a non patent holder
user everybody's treated the same
licensee data is protected as
confidential this is important it may
not be so important to the users in this
room but it's important to people like
Apple and others who do not want I think
in most cases their sales information
shared with the patent holders in this
program we don't do that we maintain the
confidentiality of that information when
royalties are paid out to them it is
paid out in the aggregate it is not
broken down by user by licensee and so
they do not know the specific sales
information of particular licensees and
finally there's a what we call grant
back provision it's not a grant back to
us it's a grant back for the benefit of
any licensee it would be unfair if a
licensee took advantage of this license
but itself held an essential patent got
all the rights than this license and
then itself held an essential patent
which is denied to every other licensee
or every other licensed or who had made
its intellectual property available in
this arrangement so what the license
requires is that if you take this
license then you must also licensed any
essential essential intellectual
property that you own to all other
licensees and licensors on fair and
reasonable terms so it forces the
marketplace to collectively look and
take advantage of and be able to use any
essential intellectual property which
may be out there I wouldn't know to one
of the things in order to spur early
adoption the license is also provided
for a grace period so no royalties would
be payable on products through the end
of this year December 31 2003 give
people a chance to get used to it get
people a chance to understand the
license terms and how they apply and
gear up for reporting and so forth and
that's an important element as well hi