p2pnet.net News View:- If you were Sony or Philips and you found that Microsoft had been not just using technology that you invented to invade your markets, but had been giving it away, would you want to sue or negotiate?

That appears to be the decision that confronts these and other Consumer Electronics giants, as they weigh up the information that the video codec in Microsoft’s Windows Media player rests on their own patents.

If there is a legal action this time it will set the entire US trade effort at the throats of the rest of the world, chilling US-Japanese trade relations and potentially leading to Microsoft being unceremoniously ejected from the world of digital media.

Faultline has consistently pointed out that the bundling of Media Player, in order to force it as a standard, first on the PC world and subsequently the consumer electronics sector, was always in breach of the principles of antitrust law. But if it turns out that the bulk of the technology is stolen and not even attributed to its owners, then the crime goes up in magnitude by several notches.

A few weeks back Faultline revealed that the MPEG Licensing Authority was handling claims from 12 separate companies that the technology underlying the Society of Motion Pictures and Television Engineers’ (SMPTE) standard, VC 1, relied on their technology, despite the fact that the underlying standard was being pushed only by Microsoft. The MPEG LA put a brave face on this and implied that a negotiation was continuing, to create a “fair” license for all concerned. At the time the MPEG LA would not reveal the names of the parties – other than Microsoft – that were claiming the technology.

Faultline, at the time, made some educated guesses based on looking at the overlap in organizations that have contributed to previous MPEG codecs.

We reckoned that it was likely that the 11 companies might be the industrial offshoot of Columbia University, France Télécom, Fujitsu, Matsushita, Philips, Robert Bosch, Samsung, Sharp, Sony, Toshiba, and Victor Company of Japan, which all have patents in both of the prior MPEG video codecs. But that’s only our guesswork.

Now sources close to the parties say that more than one of these companies, with Sony and Philips the two most likely, are seriously considering going the litigation, rather than negotiation, route. Neither Sony nor Philips have chosen to comment on this to date, but we thought it would be a nice exercise to “think through” what must be going through their minds as they decide whether or not to go legal.

Sony and Philips are no strangers to legal action against Microsoft, and in April last year won $440 million in an out-of-court settlement over a patent infringement claim for use of core Digital Rights Management concepts. These DRM ideas came from start-up Intertrust, which had been forced into selling itself off and is now owned jointly by Sony and Philips.

No statement, then or since, has given the details of that settlement and whether it includes a license for future use of the Intertrust technology or provides for royalties at some future point in time. It is possible that the payment may have been just for past infringements.

Microsoft had been in settlement talks with Intertrust since July 2003, when the judge in the trial gave the two sides a month to settle their differences. The talks lasted nine months and the results were only announced in April 2004.

During that time, Microsoft signed deals with Disney and Time Warner to use its Windows Media software, including both the DRM and the codec, which gives an idea of how much momentum it had already built in the marketplace.

Another source told us recently that they had had the codec explained to them, and confirmed that it did “pretty much” the same as H.264, the authorized standard codec that came out of MPEG recently.

So what factors would Philips and Sony take into account to help them decide whether or not to take legal action?

Well, one of the first considerations must be the fact that the codec patents are well known and there are several places where they can be looked up and referenced, such as MPEG LA, and yet Microsoft still decided to launch its own VC 9 (the Windows Media 9 version of the Video Codec 1) without attributing the technology to anyone other than itself. Its web site has consistently described the technology as “Microsoft’s”.

There is no public record of any licenses being negotiated between Microsoft and any of the companies we have suggested might own title to the codec technology.

All of this speaks badly about the outcome for Microsoft were the case to go to court, and were the court to decide that the patented technology had indeed been infringed. It would make it look as though Microsoft had deliberately made little attempt to establish to whom it should pay licenses for the technology and that would make the case all the more open and shut, as it would imply “intent”.

Perhaps there were behind the scenes discussions with CE firms and perhaps Microsoft genuinely feels its technology was sufficiently different to all previous codec research as not to warrant a license.

One way Microsoft could have got around this would have been to have taken out its own patents and, during the period of search by the patent office, established the differences between its own work and that of others.

There’s no contesting that Microsoft has employed R&D staff, over at least a decade, to carry out research work in codecs and to file patents. It has over 100 patents relating to issues of codec design, video streaming and digital controls for such services filed between 1996 and 2004.

But taking a deeper look at some of these, they seem remarkably similar in wording to descriptions of existing MPEG techniques.

For instance, its wording on motion estimation in patent number 5,692,063 could be used to describe the techniques in H.264 just as easily.

This refers to the technique whereby a processor can predict which pixels will be covered in the next few frames by an object that is moving.

It’s not for us to decide whether Microsoft invented any of these techniques first, or whether Philips and Sony will actually file suits, but making the assumption, for now, that both of these events come to pass, we can look at how the future of digital media might pan out.

Questions need to be asked such as: “Did Microsoft have access to this technology? Would interference suits against Microsoft filings mean that many of its inventions reverted to other companies? How might a court allocate damages? What other remedies would a court impose if it found Microsoft guilty of patent infringement?” This last could include a consent decree to keep out of digital media and the withdrawal of Media Play from the market.

The worst situation would be if a judge were to find that Microsoft “is” infringing on other company’s patents, that it “knew” that it was doing so and that it deliberately “gave” the technology away so as to undermine the competitors that owned the technology.

Did Microsoft have access to MPEG technology? It wrote one of the early software references implementations for MPEG2, so yes.

Damages might be estimated in two layers – one based on how much benefit Microsoft has got out of giving the media player away, and the other on how much loss of business the $200 billion-a-year Consumer Electronics market has suffered because of this.

Assuming that 400 million devices carry the codec now and tha,t over the past decade or so, the total number of devices that have carried it, including obsolete and discarded ones, was close to 1 billion, then that might be the multiplier for the first set of damages. An MPEG 2 license costs $2.50 per copy, so assuming a similar licensing regime, that could mean that this act should have cost Microsoft $2.5 billion in licensing fees.

If perhaps the same amount again was lost by the collective CE firms in missed sales (not to mention what putting a free codec on a PC has done for piracy) then perhaps this doubles the fee to $5 billion. Apply triple damages….

There are some fines that are so big that even Microsoft couldn’t survive them with its share price intact. And what restrictions might be placed on future activity? Certainly all new copies of Media Player would have to incur some form of license fee, and that would mean it would “have” to be unbundled globally. Perhaps it would mean that Microsoft would withdraw from the digital market entirely, a move that would suppress its future growth fantastically.

The only question that might be raised is why didn’t the CE firms that claim essential patents for VC1 not take legal action sooner? The answer, of course, would be that without source code, there is no way of knowing how a codec works, and it has only been the standardization process that has isolated how VC 1 works.

In the end only those companies considering issuing a suit know for sure whether they have a case, and given that Microsoft has 100 or more patents, it would be likely to be a pretty complicated case to prove.

The would-be plaintiffs will have to weigh how much evidence they have, and where the suit might be heard (it would have to be the US). If they feel they have Microsoft in their sights, they will negotiate hard and ask Microsoft to call their bluff. If they feel they have a less powerful case, then perhaps little will change.

In the end it is more likely that a settlement will be quietly reached, a license issued from the MPEG LA and a cover laid over the proceedings, after a ruthless, no holds barred negotiation. We’ll see.

Peter White – Faultline, UK

This entry was posted on Sunday, February 27th, 2005 at 3:33 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

HOME

Viewed 5317 times