Thursday, 10 June 2010

Opinion: Nero MPEG-LA Antitrust Case

From: OSNews.com:
"Nero AG,  has filed an anti-trust lawsuit against the MPEG-LA. The German technology company claims the licensing body has abused its monopoly power, and that is has not honoured agreements made with the US Department of Justice."
Is this just another license fee dispute or brave stand against monopolistic abuse under the Sherman Act?

Nero's antitrust argument concerns a deal with the US Department of Justice which set conditions to the licensing of audio-visual codecs  to  avoid  any antitrust investigations:

1) MPEG-LA would engage with independent experts to ensure only essential patents would be placed in the MPEG-2 pool of 53 essential patents. The 'expert', however:
  • helped form the MPEG-LA,
  • helped in drafting the first MPEG-LA licensing agreements,
  • answers questions from licensees on behalf of the MPEG-LA, has attended business settlement meetings on behalf of the MPEG-LA,
  • has testified before US congress on behalf of the MPEG-LA.
  • is listed on the MPEG-LA website as "MPEG-LA's US patent counsel"
2) independent experts would "weed out non-essential patents" from the pool.
  • Nero also claims that the MPEG-LA has unlawfully extended its patent pools by adding non-essential patents to the MPEG-2 patent pool.
  • the non-independent expert added around 800 more patents to the pool, extending the duration of the patent pool, on expiry of the original 53.
  • its MPEG-4 Visual and AVC pools now contain more than 1000 and 1300 patents.
3) licensing terms would be "fair, reasonable, and nondiscriminatory." Nero claims that the MPEG-LA
  • has "formulated and imposed licensing terms that are unfair, unreasonable, and discriminatory", by charging different royalty rates from licensees for the same MPEG-2 license and by not making any downward adjustment in line with the "rapid and dramatic" decrease in costs of implementing the MPEG-2 standard.
  • collects royalties for the same device multiple times (internal hardware, software, monitor, etc.)
  • has failed to "communicate its policies equally to all licensees". For example, Trial Software (which Nero promotes heavily in its business) was outside licensing until MPEG-LA u-turned and demanded royalties in 2004 in defiance of existing licenses.
In consequence, Nero argues,  MPEG-LA has 100% market share, since every device or piece of media-related software needs a license. The value of MPEG-2 products  alone, according to the MPEG-LA itself, exceeded half a trillion dollars in 2006:
"In sum, MPEG-LA's predatory and abusive conduct has caused antitrust injury to innovation, competition, and consumers in the relevant technology markets."
MPEG-LA's legal counsel dismised this as a common license fee dispute with one licensee.

Significance
Underlying this case is the question of control of video on the web. MPEG-LA is being portrayed as the 'mafia enforcer' for the pro-Apple/H.264 lobby, which Nero is trying to prove stifles innovation and effectively extorts undue revenue through a monopoly position.

The Sherman Anti-Trust Act dates back to the 19th century and has a chequered history in court, largely because the alleged monopolists are always massive corporate entitities with expensive legal departments and deep pockets. The burden of proof has often overturned on legal technicalities. America's love of free-market capitalism has always weighed heavily on the justices, reluctant to be seen to crush entrepreneurial success, all the way to the Supreme Court.

Good try, Nero, but I'm not anticipating a swift, or profitable outcome.  RC

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