MPEG LA today
announced its first DRM-related patent license offering. The license,
which is still tentative as the individual IP holders involved finalize their
agreement, is intended to cover implementations of OMA DRM 1.0 for mobile
devices and content services. Royalty terms have been made public and set at US
$1.00 per mobile device and one percent of any revenue that a service provider
makes from a content-related transaction.
This is the first substantive result of the arduous process that MPEG LA
(along with its patent evaluator, Proskauer Rose, a New York-based law firm with
strong media industry ties) has undertaken to create a way out of the mess that
is growing around DRM-related intellectual property. MPEG LA created a
series of DRM
reference models and then decided to start its patent pools around OMA DRM
1.0 implementations, presumably because of their newness and popularity.
It expects to add OMA DRM 2.0-related IP to its offerings soon.
(MPEG LA -- where "LA" stands for "Licensing Authority" rather than a city in
California -- is a separate organization from the MPEG standards body; it began
life as a licensor of IP connected with MPEG compression algorithms. Yet
we can't help but notice the irony that an organization whose name derives from
MPEG has chosen to work with OMA standards instead of the MPEG DRM standards
that they compete with.)
At the heart of this announcement is an effective rapprochement between the
two most important "pure play" DRM IP holders, InterTrust and ContentGuard --
the two primary participants in the patent pool. Taken together, they
represent their collective owners: Microsoft, Time Warner, and Thomson (owners
of ContentGuard), and Sony and Philips (owners of InterTrust and also
participants in the pool). Matsushita is the other initial patent pool
participant.
This is an important announcement, to be sure, but we cannot overemphasize
that it is only a first step in solving a very large problem. We are aware
of DRM-related IP litigation (actual and contemplated) that has nothing to do
with OMA standards, as well as potentially significant IP holders who are not
participating in the patent pool so far.
MPEG LA has a successful track record of building critical mass around its
patent pools, so that the majority of relevant IP holders decide to participate.
This is crucial, because the main reason why a company would want to take a
license like the one that MPEG LA is offering now is as a way of reducing
litigation risk associated with a technology that the company wants to bring to
market. If an important IP holder chooses not to play along -- figuring,
for example, that it can get better royalty terms or litigation outcomes on its own than as
a member of the pool -- then the pool risks irrelevance.
Pure-play IP holders like ContentGuard and InterTrust are far more likely to
assert their IP than, for example, large technology companies like Microsoft and
Sun Microsystems, both of which have DRM-related IP but not
histories of aggressive IP assertion. Therefore the presence of both
ContentGuard and InterTrust in the pool should build confidence, although they
are not the only ones in that category: Macrovision and Digimarc also come to
mind, although it is possible that neither company has IP that is relevant to
OMA DRM 1.0 implementations.
As for the financial terms of the license: the entities being asked to take
the license are mobile device makers and content service providers -- not makers
of OMA-compliant server software (e.g., CoreMedia or DMDSecure), and not content
owners. From a pragmatic standpoint, it is easiest to charge the two types
of entities that MPEG LA plans to charge, but it remains to be seen how
acceptable the market will find this. Will service providers be willing to
sacrifice an additional 1% of the often thin margins they make on online music
sales, or will they feel that actual implementors of the technology -- the
server software vendors -- should pay? We also feel compelled to point out
that this is yet another instance of content owners, who have the most incentive
to pay for DRM, getting away without doing so.
As for the $1 device fee, this amounts to a maximum of roughly 1% of the
current retail price of a device that can use an OMA-compliant music service
(for example, the Motorola V980 is the lowest-priced phone that can be used on
the Vodafone Live! 3G service in the UK; it sells for GBP 50, which is about US
$94). As a percentage of device unit cost, this number will surely grow
over time as the unit costs of OMA-compliant and media-capable devices
inevitably drop. Imposing a unit cost of this magnitude on device makers who
worry about shaving unit costs by much less than that is also risky. But
then, this entire initiative is about risk management, akin to paying a premium
on a litigation-avoidance insurance policy.
We have said time and again that the DRM-related patent scene is a train
wreck waiting to happen. We applaud MPEG LA's aggressive, proactive
efforts and hope they succeed. We just note again that this announcement
is merely a first step, and there is a long road to travel before the
opportunities and risks around DRM patents are truly in hand.
MPEG LA made its announcement today at the CES consumer electronics show in
Las Vegas. We will report on other DRM-related announcements from CES in
next week's issue of DRM Watch.
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