Antitrust won't help Google's codec fight

Nowadays, Google is normally considered the next monopolist on the losing end of antitrust scrutiny. This month, Google is getting help from antitrust authorities in its uphill efforts to get VP8 video codec (and its WebM project) established against the dominant H.264 codec.

In January, Google announced plans to drop support for H.264 in its Chrome browser, nominally because of the H.264 patent royalties. Meanwhile, Google licenses VP8 and its associated patents with the claim that it’s royalty free:

Please explain how WebM is "royalty-free."

Some video codecs require content distributors and manufacturers to pay patent royalties to use the intellectual property within the codec. WebM and the codecs it supports (VP8 video and Vorbis audio) require no royalty payments of any kind. You can do whatever you want with the WebM code without owing money to anybody. For more information, see the License page.

However, all Google can promise is that it won’t charge royalties on VP8. It can’t promise that its source codec doesn’t infringe the patents of others: that’s up to the patent holders to allege and (ultimately) for a court to decide. (Its policy is that people can’t use WebM without licensing their own patents to WebM users.) The only way around third party patents would be for Google to indemnify users against these claims.

Since MPEG LA is in the business of managing and licensing patent pools, including a pool of some 800 patents that read on H.264 (including 273 US patents and 469 Japanese patents) it has long expected that many of these patents could also be essential for implementation of VP8. So last month it asked all parties (both current and other licensors) to submit their patents for review. Needless to say, this brought squawking by Google and the usual anti-software patent crowd.

Now, the Wall Street Journal reported that the US Justice Department is looking to help Google in its efforts to resist MPEG LA patents:

Antitrust enforcers are investigating whether MPEG LA, or its members, are trying to cripple an alternative format called VP8 that Google released last year--by creating legal uncertainty over whether users might violate patents by employing that technology, these people added.

The Justice Department and Federal Trade Commission start many more antitrust investigations than they bring to court. There is no per se legal problem if patent holders want to charge royalties to VP8 users, as long as they are on comparable terms to those charged to H.264 users. As the FTC antitrust website states:

Restraints in the supply chain are tested for their reasonableness, by analyzing the market in detail and balancing any harmful competitive effects against offsetting benefits. In general, the law views most vertical arrangements as beneficial overall because they reduce costs and promote efficient distribution of products. A vertical arrangement may violate the antitrust laws, however, if it reduces competition among firms at the same level (say among retailers or among wholesalers) or prevents new firms from entering the market.

So the only problem is that MPEG LA wants to run the licensing business for both H.264 and VP8. Normally in competing standards (think Blu-ray vs. HD DVD) competing organizations run the patent pools. So while the DoJ will not find anything wrong with charging patent royalties for VP8, it might force MPEG LA to exercise greater transparency in royalties or even to spin off the VP8 pool efforts.

The research has clearly shown that patent pools increase the efficiency of patent collection for both licensors and licensees. (The only downside is that licensees might hope that without pools that would-be licensors might not bother to enforce royalties.)

If MPEG LA comes under pressure, I think it could easily solve the transparency problem by separating royalties into three piles: patents that apply both H.264 and VP8 (or WebM), those that apply to H.264 and those specific to VP8. If the terms for the first pile are the same for either standard, VP8 supporters would be hard-pressed to show any anti-competitive effects of the patent policy — other than their fantasy of releasing a patent-free codec.

All this kerfuffle over MPEG LA royalties ignores three other factors:

• the effect of the annual royalty cap (as with H.264) in making MPEG LA royalties negligible for large firms like Apple, Google or Microsoft
• as with any other standard, the existence of other patents that are not “essential” to the standard but may be commercially necessary
• Google’s ability to use its own patent leverage (including those it acquired when it bought the WebM developer) to force a cross-license or non-assertion agreement by key patent holders