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Is the Alliance for Open Media Taking a Risk in Codec Creation?

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Black Stone IP is an investment bank that advises operating companies on trading intellectual property and technology assets. The formation of the Alliance for Open Media raised many intellectual property (IP) and business-related questions, so we enlisted Black Stone’s CEO Elvir Causevic (top right), and IP Strategist Ed Fish (lower right) to answer them. Both Causevic and Fish have multiple patents to their name, and have worked with and around patents and IP rights as inventors, licensors, and entrepreneurs.

Streaming Media: What’s your assessment of the patent risk undertaken by the Alliance for Open Media?

Black Stone IP: As the Alliance noted in its announcement, this is about the “next” codec—after HEVC—and presumably not commercially developed for several years. With so little specified, assessing patent risk is pretty conjectural.

That said, and given our work at Black Stone IP with companies across the media spectrum (hardware, software, streaming services, mobile providers, etc.), we have a perspective on the issue. The essential point is that a lot of inventive work went into core technologies that underlie HEVC, such as novel quad tree structures, sophisticated tiling, hardware optimization, and scalability. One would have to assume that at least some of these core innovations would be used or extended in the codec the Alliance is proposing, and therefore patents relating to that functionality would continue to apply. And at the same time, reverse compatibility is important, meaning that then existing patents would likely continue to apply to at least some functionality.

Also, if one uses history as a guide, a whole host of companies beyond those in the Alliance are starting fundamental R&D on next generation standards as the current version is being implemented. Most of those other companies have a history of patent filing and patent licensing.

Streaming Media: Why would the Alliance undertake this risk?

Black Stone IP: There are a host of possible reasons having to do with technology strategies, business strategies and several other factors. And it goes almost without saying that many of these companies have meaningful pre-existing portfolios and cross licenses with a very large set of companies throughout the industry. In practice we’ve found that potential patent risk isn’t the primary driver during the “startup” phase of most technology alliances (and hasn’t historically been the modus operandi of some of the companies participating in the Alliance either).

Streaming Media: Why hasn’t anyone not party to the MPEG LA/Google agreement sued Google on VP8/9 (other than Nokia which appears to have lost)?

Black Stone IP:
That’s a good question and it probably turns more on business relationships than it does on patent issues. Nokia became a more assertive technology licensor post its deal with Microsoft on handsets, and that may have had some impact, as well. Also, and at least historically, there has not been wider industry adoption of VP8/9. As concerns VP9/VP10, while one might expect wider adoption than VP8/VP9, it is not clear that third-party licenses such as were made available for VP8 in previous years would be readily available again now, nor that relevant patents would be available on FRAND terms for proprietary implementations.

Streaming Media: We’ve heard lots of talk about a third HEVC patent group. How likely is that and who would be in it?

Black Stone IP: It’s not clear to us at this juncture how to handicap that. We do know that a variety of licensors voiced dissatisfaction with the MPEG LA licensing scheme for HEVC, and understand that licensors that are also licensees may have had obvious strong incentives to keep royalties rates very low. Companies that are primarily licensors and have a large amount of fundamental IP would, understandably, be driven more by ROI on the IP. We also know that a number of parties that were very involved in the HEVC standardization process and are part of the H264 (AVC) pool are not yet “in” a pool. In addition, hardware and SOC providers such as Broadcom, MediaTek, Qualcomm, and others, and more industry-focused firms like VIXS and Magnum, may have significant portfolios of relevance.

One danger to the media ecosystem we see would be if pools become too fractured or if recent press kept companies “on the sidelines” in favor of bilateral deals rather than pooling. From the point of the thicket of relevant IP, the prospect of complexity of large number of bi-lateral deals would almost certainly hinder adoption.

Streaming Media: Why don’t standards bodies like the ITA and MPEG require those who participate in a standard to agree in advance to join a single pool?

Black Stone IP: There are a host of reasons for this, in our experience, both practical and legal. Among these are that most companies need flexibility—for example, the ability to execute bi-lateral licenses of their own patents (even while participating in a pool). This may be for patent cross-license, litigation settlement, or other reasons. Also, trying to “tie” someone in too early generally dampens early adoption efforts. That may not be a huge issue to a small holder or say a university, but it can be for companies with large, high-quality portfolios or significant product focus in the area. Because we’re not anti-trust attorneys, we’re leaving to one side whether any anti-trust issues would be raised from that sort of agreement “in advance.” Maybe that’s something on which your readers could shed light.

Streaming Media: What’s your assessment of the risk that Alliance codec poses to HEVC?

Black Stone IP: HEVC as a technology is well understood and literally dozens of leading companies have spent millions of dollars in developing and standardizing it for current deployment over many years. It’s a step change function over last generation technology, in our opinion, and not merely something incremental to AVC.

And, as the Alliance itself says, it is about the codec after HEVC. If you look at history of codecs (particularly video) as a guide, these kind of meaningful advances occur every ten years or so. It will be interesting to see what might get produced—as opposed to announced—by the Alliance. While some of the companies have a history of working together successfully, others make somewhat strange bedfellows. When one thinks about the possible motivation for and subtext of the Alliance announcement, however, we believe that the most likely outcome in the short- and medium-term will be a dialogue among HEVC Advance and leading IP holders and implementers to arrive at terms that meet the needs of all key parties in each industry segment. Clearer heads nearly always prevail when the technical value proposition is compelling, as it is with HEVC.

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