On2 raises antitrust concerns about MPEG-4 patent pool

Streaming video technology developer On2 Technologies is seeking a government review of MPEG-4 licensing plans, which it argues may violate antitrust law.

On2 sent a white paper Tuesday to the U.S. Department of Justice (DOJ), all 50 state attorneys general and several U.S. Congress members outlining its concerns about MPEG-4 and the patent pool by which a license for the technology is being created.

The MPEG-4 (Visual) Patent Portfolio License is a package comprising patents from more than a dozen companies, each of which owns intellectual property deemed to be essential in complying with the proposed MPEG-4 digital compression standard. The package is administrated by MPEG LA LLC, a Denver company that oversees licenses for the MPEG-2 multimedia compression standard, a predecessor to MPEG-4.

The DOJ in 1997 approved MPEG LA's plans to gather nine organizations' MPEG-2-related patents and offer a batch license to all of the patents necessary to comply with the standard, with the license proceeds shared among the patent holders. MPEG LA voluntarily sought the DOJ business review, a process that includes a statement of the DOJ's antitrust enforcement intentions.

MPEG LA's licensing program for MPEG-2 appeared to address the needs of the industry while minimizing the risk of competitive harm, then-Acting Assistant Attorney General Joel Klein said at the time.

MPEG LA did not seek a DOJ green light on its plans for a similar MPEG-4 patent pool, a decision MPEG LA Vice President of Licensing and Business Development Larry Horn said was a "judgment call."

The non-compulsory nature of the review process and the DOJ's approval of a similar arrangement for MPEG-2 were factors in the decision, Horn said.

On2 first contacted politicians and government overseers several weeks ago with questions about the legality of MPEG LA's MPEG-4 patent pool. The white paper sent Tuesday is a follow-up to those initial queries, said President and Chief Executive Officer Douglas A. McIntyre.

"We keep asking the same question: Is it all right? Barring us finding out something we don't know right now, our feeling is the companies in the patent pool should be licensing their patents individually, just like everybody else in the world," McIntyre said.

On2 offers its own video compression technology, VP5, which competes with MPEG-4.

"MPEG-4 is trying to monopolize the substantially software based interactive video compression industry, plain and simple. It is a move by a few very large companies to dominate a market and fix prices," On2 wrote in its white paper.

On2 isn't the first company to object to MPEG LA's MPEG-4 plans. Licensing terms proposed by the company in January drew harsh criticism from others in the industry, who charged that the group is seeking exorbitant royalty rates. Drawing particular fire is MPEG LA's suggested US$0.02 hourly charge for every stream or download of MPEG-4 video data for which the provider is paid, either directly by the end user or indirectly through advertisers. MPEG LA also proposed a fee of $0.25 per software or hardware encoder or decoder for MPEG-4 video data.

Apple Computer Inc. delayed release of its QuickTime 6 software because it objected to MPEG LA's licensing terms.

The MPEG-4 licensing terms are far from a done deal, Horn said, noting that MPEG LA is continuing discussions with industry vendors and hopes to establish final terms within the next few months.

"We're trying to understand their concerns," he said. "The fees are certainly subject to change."

On2's next step is to pursue conversations with government representatives and others in the industry about MPEG-4, McIntyre said. Next week, the company is meeting with a member of the U.S. Senate, and it has heard from "two or three" state attorneys general who have assigned staff to investigate On2's complaint, he said.

On2's white paper is available at http://www.on2.com/news_position_paper.php3.

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Stacy Cowley

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