InterDigital announces arbitration agreement with Samsung, renewal with Panasonic, video codec license deal with LG

This morning, publicly-traded patent licensing firm InterDigital (NASDAQ:IDCC) announced license agreements with three major East Asian companies:

• The most important one of those press releases involves consumer electronics giant Samsung--a company whose licensing department is known to be tough, but definitely effective. It was no secret that the previous license agreement was set to expire on December 31. Ten years ago, InterDigital brought infringement lawsuits against Samsung. This time around, it's a renewal with final terms to be decided by binding arbitration. InterDigital CEO Liren Chen commented on this suboptimal but apparently acceptable solution:

  "While we always prefer to conclude our license agreements through amicable good faith negotiation, independent binding arbitration provides an effective mechanism for resolving licensing disputes. I welcome Samsung’s willingness to enter into a new license with us and their commitment to work through the remaining issues in arbitration."

  An InterDigital filing with the Securities and Exchange Commission is more specific, though it still doesn't answer my most important questions:

  "On January 1, 2023, InterDigital, Inc. (the 'Company') and Samsung Electronics Co. Ltd. ('Samsung') agreed to have a panel of arbitrators establish the royalties to be paid by Samsung for a worldwide license to certain of the Company’s patents from and after January 1, 2023, as well as any other terms to a patent license agreement on which the parties are unable to agree. The determination by the panel will be in the form of a patent license agreement and will be final, binding and non-appealable, subject to certain limited exceptions. The parties have agreed to conduct the arbitration in a diligent manner. The Company expects the arbitration to conclude within approximately 18 months.

  "Each of the parties has also agreed not to initiate certain claims against the other party during the arbitration. Any licenses under our joint licensing program with Sony relating to digital televisions and standalone computer display monitors will not be included in the scope of the arbitration."

  Arbitration is inherently opaque. We'll likely never find out what parameters the parties gave the arbitrators. What we may be able to deduce from InterDigital's quarterly financial reports is whether Samsung continues to make some payments in the meantime. It's possible that the parties agreed on a certain amount that Samsung will pay per quarter while still reserving its rights to take the position in arbitration that the royalty rate should actually be lower.

  Ten years ago, Samsung also agreed with Nokia on arbitration to determine the royalty amount, though it was unclear what subset of patents was subject to arbitration. Third parties who believe to know the terms of the deal mostly suspect that the arbitration result fell short of Nokia's expectations--but again, this depends on the parameters, which can favor one side or the other, or provide a level playing field.

  At some point some news of a Nokia-Samsung renewal or, failing that, infringement litigation should also surface, but I don't know when that agreement expires.

• Panasonic renewed its DTV and HEVC patent licenses with InterDigital. Unlike the scope of the InterDigital-Samsung arbitration, the Panasonic deals also involve some Sony patents, as InterDigital's Chief Licensing Officer Eeva Hakoranta said that the DTV deal was signed under a "joint digital TV licensing program which continues to deliver considerable value to InterDigital, [its] partner Sony, and to [its] licensees."

• The announcement of InterDigital's HEVC and VVC video codec patent license agreements with LG Electronics sounds like a new license (covering LG's TVs and PCs) rather than a renewal, but this may be due to the fact that the Korean company exited the smartphone business, which according to a February 2018 press release had a license to InterDigital's patents. It could be that the only reason the new deal is not called a "renewal" is that it no longer involves cellular SEPs.

In the summer, InterDigital announced a license agreement with Amazon, and in early October a renewal (by seven years) of its license deal with Apple. InterDigital is, however, embroiled in litigation with a couple of companies. The more important one of them is OPPO, which fights hard when sued but prefers to reach license agreements on reasonable terms, such as very recently with Huawei. InterDigital is now also waiting for a UK court ruling in its SEP dispute with Lenovo.

Share|

MPEG LA announcement of VVC patent pool: major patent holders still undecided, fragmentation of licensing landscape potential impediment to adoption

I've recently written about Access Advance's High Efficiency Video Coding (HEVC, H.265) pool (one post discussing the logic of the recent Dusseldorf ruling against Access Advance, and another on how the problem appears to persist).

Today there's an announcement (PDF) by a more reputable pool administrator, MPEG LA, of a Versatile Video Coding (VVC, H.266) pool. So let's look at VVC, but start with Access Advance, which was first to announce its initial group of licensors.

On its homepage, Access Advance says about its VVC Advance Licensing Program that its terms are FRAND, "providing rates that balance both Licensor and Licensee interests and complying with worldwide laws applicable to patent pools." (emphasis added) The highlighted part of that quote is "rich." I mean, either they haven't read their own website in a while or they still haven't read the writing on the Dusseldorf court's wall.

The only patent pool administrator (to the best of my knowledge) to license patents (HEVC in that case) on terms that a court even thought entitled unlicensed implementers to damages is not in a great position to assist the rest of the world with FRAND compliance. It happened to them in a court in which MPEG LA had dozens of successes, and still has a clean white shirt when it comes to FRAND.

At this early stage, Access Advance's VVC pool (named VVC Advance) has support from 28 licensors (listed in a January 11, 2022 press release) vs. MPEG LA's initial 11 (b<>com; British Broadcasting Corporation; Digital Insights Inc.; FG Innovation Company Limited; Hanwha Techwin Co., Ltd.; Koninklijke KPN N.V.; Nippon Hoso Kyokai; Orange; Siemens Corp.; Tagivan II LLC; Vidyo, Inc.).

While IPlytics explained how hard it is to estimate the strength of VVC-essential portfolios at this stage, they nevertheless presented a slide last summer that listed 21 major VVC patent holders. Some of them are on Access Advance's list of licensors (Dolby, SK Telecom, Toshiba). But the other 18 out of the 21 listed by IPlytics are either companies who rarely join pools (like InterDigital) or, which is quite telling, they are in the HEVC Advance pool but not--or not yet--VVC Advance licensors, such as Samsung, Google, Microsoft, Huawei, Canon, and LG.

It would take only a few major VVC SEP holders who join MPEG LA's pool, and they'd take the lead. That's why it's too early to call the game. Access Advance is in a difficult position now, and can't explain away the Dusseldorf disaster. Maybe even some of its initial 28 licensors would have made a different decision if the Dusseldorf rulings in the Vestel cases had come down a month or two earlier (before the internal decisions on which pool to join were made).

Implementers will be concerned about the fragmented licensing landscape. There are now two pools, lots of undecided major portfolio owners, and I've heard from industry players that a third pool is being formed.

MPEG LA's AVC/H.264 pool was a huge success, and it made the AVC standard successful. With HEVC, things didn't work out, mostly due to patent licensing issues. What will happen to VVC? Will it ultimately be less popular than some alternatives? Will there be a lot of litigation (by Access Advance licensors more so than anybody else)? It's too early to tell.

One year ago, MPEG LA announced the development of a VVC pool license. Today, they reached the next milestone and listed the first 11 licensors, one of which (Digital Insights) is--quite interestingly--an HEVC Advance licensor.

While VVC Advance--by virtue of being early and not having to poach MPEG LA licensors--may be able to avoid some of Access Advance's HEVC-related FRAND problems, my concerns are still structural. The unfair refund terms are not the root cause of their problems. The fundamental issue is that Access Advance optimizes all of its terms for the purposes of its four owners, only one of which (Dolby) appears on IPlytics's list of 21 major VVC patent holders. If they operated their pools more independently and transparently, they could also have acted more constructively with respect to refunds. But the cut taken by Access Advance and those special deals with companies who are both licensors and major implementers (like Samsung) complicated everything. In some other way, shape or form, that root cause may lead to problems--if not for Access Advance, then at least for the standard in question.

It's a rhetorical question which of these two patent pool administrators has always understood (and which one still doesn't seem to realize) that if licensing terms are reasonable, a standard is more likely to be adopted by many implementers, which in turn makes the licensing revenue cake bigger for patentees than a scenario of high fees and low adoption.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

Access Advance pool doesn't really intend to solve duplicate-royalty problem: video codec implementers remain victims of unfair licensing scheme

This is a follow-up to 'Access Advance' patent pool can rename itself 'Suffer Setback' after Dusseldorf court ruling: flagrant FRAND abuse concerning video codec patents. In the previous post I discussed the logic of the Dusseldorf Regional Court's holding that certain Access Advance licensors owe Vestel damages for FRAND abuse, and cannot obtain injunctive relief against the Turkish TV manufacturer.

Weeks before I commented on this, Access Advance already sent an email to its existing and prospective partners, claiming that the outcome of the Dusseldorf cases was largely a win (as all of the asserted patents were deemed essential to the HEVC standard), and the denial of injunctive relief was disappointing but based on a narrow holding, which according to Access Advance wouldn't even have come down if a recent change to its Duplicate Royalty Policy had been made before--not after--trial. I disagree in at least three respects:

1. Access Advance can't explain away the significance of a denial of injunctive relief by a German court on unprecedented grounds. Dusseldorf is a video codec patent enforcement hotspot, and MPEG LA's licensors never faced any such issue.

2. While the court considered it dispositive that implementers who already had an MPEG LA license (such as Vestel) didn't enjoy legal certainty with respect to the avoidance or recovery of duplicate royalties when taking an HEVC Advance license, the court did express some skepticism concerning other aspects of the Access Advance business model--it just didn't have to analyze them to the full extent.

3. The duplicate royalty policy of the HEVC Advance pool is publicly available, and it doesn't withstand scrutiny. The problem is structural. The inadequacy of that duplicate royalty policy is crystal clear if one takes into consideration the way the Access Advance pool optimized its dealings with third parties (licensors as well as licensees) for just the needs of its four owners (General Electric, Philips, Dolby, and Mitsubishi). That conflict of interest is only going to exacerbate, as those four companies own a much smaller piece of the VVC patent cake than the one for HEVC.

It's high time that someone told the story of what's wrong with the Access Advance scheme. The more I've looked into this, the more I consider Access Advance a liability not only for HEVC but even more so with a view to the industry's transition to VVC (H.266).

"Unprecedented" would be an understatement for Access Advance's Dusseldorf disaster

In Germany, patent enforcement is all about injunctive relief. Damages don't matter unless you're asserting an expired patent. Access Advance's defeat is all the more shocking when compared to other video codec judgments in the same jurisdiction. I've been able to research 32 video codec enforcement campaigns (27 over MPEG-2, 5 over AVC) that started in Dusseldorf and were in each case brought by multiple MPEG LA licensors against partly large and sophisticated defendants (even including Huawei). 32 is a rounding error compared to more than 7,000 license agreements concluded by MPEG LA without litigation, but in absolute terms it's a large enough sample to serve as a point of reference here.

In at least six of those disputes, injunctions came down. Time and time again, MPEG LA's terms were considered FRAND, from the Dusseldorf Regional Court (where all those cases were filed) all the way up to the Federal Court of Justice. Is it just because MPEG LA's lawyers are better? Well, Krieger Mes's Axel Verhauwen and patent attorney Gottfried Schuell ("Schüll" in German) of Cohausz & Florack are extremely well-respected in the German patent litigation community. But I believe even they could not have defended Access Advance's duplicate royalty policy--a type of issue that never once came up in an MPEG LA case.

Access Advance's scheme to attract patent holders who are large-scale implementers

The duplicate-royalty issue facing those who previously took an MPEG LA (or direct) license cannot be fully understood without looking into how Access Advance entices a certain category of patent holders to join its pool as licensors. Not the only but by far the most important patent holder of this kind is Samsung, which holds far more HEVC patents than any other Access Advance member (arguably, Samsung alone accounts for about 40% of the pool)--but which is also an ultra-large-scale implementer with its phones, tablets, and TVs.

For a long time, during which the focus was almost exclusively on AVC/H.264, companies like that were actually happy to work with MPEG LA. They had an interest in encouraging widespread adoption of those standards, but due to their high-volume implementations of video codec standards they wanted to limit their spend on license fees.

So what was Access Advance able to offer an organization like Samsung--other than impeding the adoption of a standard and driving up licensing costs, none of which would normally be too appealing?

The story was that the likes of Samsung could still license all of MPEG LA's patents at the usual rate, but by joining HEVC Advance they also got the other patents in that (normally very expensive) pool at an extremely low cost in exchange for getting only a small payout from Access Advance relative to the actual size of their portfolios. If Samsung got its fair share of HEVC Advance's royalty distribution, it would get--like I said--about 40%. But it would drive up its royalty costs as an implementer, as Access Advance is like four times as expensive as MPEG LA. The oversimplified version is that Access Advance invited them to join the pool and the primary incentive was to save costs as an implementer, not to generate much of a license fee income as a patent holder--though the latter is what Access Advance's owners (GE, Dolby, Philips, Mitsubishi) very much care about.

Intuitively, one may ask: "What's wrong with that? Shouldn't patent holders who are also implementers be free to optimize their bottom line?"

Of course they can do that. The problem with the Advance scheme is just that its key success factor is not a more reasonable royalty rate--it's that others must be treated unfairly in order for Access Advance's owners to maximize their revenues and for certain patent holders who are large-scale implementers (first and foremost, Samsung) to optimize their bottom line.

And that takes us full circle back to the problem with duplicate royalties.

Access Advance's duplicate-royalty economics

Access Advance is not merely about double-dipping, such as if a patent holder licensed a supplier and had actually exhausted its patent rights, but tried to get paid again somewhere downstream. The problem is more fundamental than that:

• By the time HEVC Advance started, and especially by the time some other major patent holders defected from MPEG LA as a result of the type of deal I outlined in the previous section, wide swaths of the implementer landscape had already taken an MPEG LA license, and therefore remain licensed to some companies' patents even after those patent holders left MPEG LA. But Advance is all about "let's charge several times more." Its business model critically depends on extracting higher royalties from some who already have a license to many of those patents.

• It would seem logical that if a licensee can get a cheap license to a set of patents or an expensive one, the licensee will prefer the less expensive option. Alternatively, some might argue that the principled approach is that the first license you take is a done deal and must be respected, so any pool licenses you take subsequently must factor out the patents to which you are already licensed. Whether one agrees with the first approach (let the customer choose) or the second (earlier-concluded license shall remain in force), there is just no principled--FRAND--basis on which the second pool can tell licensees they should pay for another (and more expensive) license to patents they've already licensed, and should then seek a refund from the first pool when the second pool is way more expensive than the first. But that's what Advance has been trying for a while, and what it's still trying, though the Dusseldorf court has just complicated--if not thwarted--that scheme.

• Advance's economics just wouldn't work if they had to do the right thing, which is to reduce the royalty rate if a licensee is already licensed to many of the patents in the pool. That's because large parts of the portfolio come from patent holders like Samsung, who don't actually get much money out of the pool (because they joined with their interests as net implementers in mind). If, say, a licensee had to pay $100 million, 40% of which would be distributed to Samsung (minus management fees, which I'll talk about in a moment), and the licensee already had a license to Samsung's patents, then the royalty payment could be reduced to, say, $60 million. But here, while Samsung's patents would be used by the Advance pool in order to inflate the portfolio value when a court has to evaluate or determine a royalty rate, Samsung wouldn't get $40 million anyway, so there isn't really anything that Access Advance can deduct without its owners losing money on the deal.

• What makes all of this even more complicated is that Access Advance is known to charge very high management fees. In the aggregate of multiple types of fees and charges, Access Advance keeps roughly 40% of the royalty income, which is several times more than MPEG LA's cut according to what people in the industry say about it. The higher the management fee, the more of an incentive the pool administrator has to avoid any reductions (no matter how reasonable in light of prior licenses), and the harder it is to make an adjustment work economically for all parties involved.

For the reasons I've just explained, it is essential to the Advance scheme that implementers are forced to take a license at a far higher rate than the MPEG LA rate.

Access Advance's duplicate-royalty policy is fundamentally flawed and deficient

Having laid the foundation in the previous passages, let's now look at HEVC Advance's Duplicate Royalty Policy. That one is a joke.

The first glaring deficiency is that it talks only about patents that are "also included in the patent list of another patent licensing pool, or joint licensing program," without addressing the scenario in which someone took a direct (bilateral) license, which is not at all uncommon in this industry. Bilateral licenses can result from license agreements or even from patent exhaustion. The Access Advance folks know that, and it must be attributed to bad faith that their Duplicate Royalty Policy fails to address that problem.

Even with respect to pools and joint licensing programs, that policy is merely reflective of the problem and does not provide a workable solution. In a duplicate-license sceario, Access Advance does nothing for licensees other than to "refer the request to the applicable Licensor(s)" (footnote 3), which falls far short of what the Dusseldorf court wanted, which was legal certainty for licensees. Unless a licensor and a licensee reach an agreement (in which case one doesn't need a policy anyway because they're on the same page), each licensor then gets to choose the lesser of two refund amounts:

• the net distribution the Licensor received from Access Advance, or

• the net distribution the Licensor received from another pool or joint licensing program.

Footnote 5 clarifies that net distribution "expressly exclude[s] all fees and other allocations/deductions made by Access Advance prior to apportionment and distribution of net royalty collections to all Licensors based on their respective patent portfolios." One of the problems is that Access Advance takes a huge cut, which the policy declares immune from a refund. With a much more reasonable pool management fee, even licensees might accept not getting that part refunded, but in the case of Access Advance, it's a major economic issue.

Furthermore, Access Advance is so intransparent and asymmetrical that you can't just look at the percentage of the patents you've licensed and you know what refund you'll get: a Samsung may contribute lots of patents but not actually get much (if any) money out of the pool.

Another problem with "net distribution" is that if Samsung makes products and obtains a cheaper license for them by contributing its patents to the pool, why should--to use the current Dusseldorf examples as examples--Vestel and Xiaomi (who compete with Samsung) indirectly pay for that by Samsung's true benefits from is membership in the Access Advance pool not being taken into consideration in the refund context? It's so unfair and unreasonable.

There will be some licensors who get a lot of money out of Access Advance (especially its founders). They're obviously going to elect the more profitable option for them: they'll refer implementers to MPEG LA for a refund. Someone like Samsung, however, could argue--based on Access Advance's policy--that they don't really get much money out of that pool, so there's pretty much nothing they can offer as a refund.

Access Advance should not become the fox in charge of the VVC hen house

The root cause of all of the problems outlined in here (and I don't even claim that this is an exhaustive list of issues) is that Access Advance serves the interests of its four founders, then does asymmetrical deals with patent holders who are major implementers, and in the end tries to let the Vestels and Xiaomis of the world pay the bill, which in turn impedes the widespread adoption of the standard.

The exorbitant pool management fees I mentioned in the previous section are just an example of a construct that is just meant to make GE, Philips, Dolby, and Mitsubishi more money. The implications of asymmetrical terms (with some getting a lot of money out of Access Advance, while others are just interested in reducing their own licensing costs) for refunds are another example. And now that the industry is transitioning to VVC, there's another problem to bear in mind: the collective share in HEVC patents belonging to Access Advance's founders is far greater than their positions in VVC. IPlytics held an "Unpacking VVC SEPs and standards contribution data" webinar last summer. IPlytics explained how difficult it is to analyze who owns how much of VVC, but they gave it a try, and one can see that some companies who held no AVC or HEVC patents are now pretty big significant contributors to VVC (TikTok operator Bytedance, for instance), while GE, Philips and Mitsubishi don't seem to play a major role in VVC. Dolby is still somewhat significant, but not a leading VVC contributor either.

For Access Advance's founders, HEVC is therefore more lucrative than VVC. That's why it makes economic sense for Access Advance to offer a combined VVC-HEVC license with a certain discount: its founders own a larger share of a combined VVC-HEVC pool than a VVC-only pool.

With respect to VVC, Access Advance is an early entrant and may be able to avoid the problem that licensees got a less expensive license through another pool before Access Advance came to them and wanted them to pay even more for a license they already had. But the root cause of the Dusseldorf disaster is deep and structural. It's that Access Advance games the SEP licensing system to the benefit of a small group of companies. It's not a transparent pool administrator who treats everyone at arm's length regardless of whether a patent holder is a shareholder in the pool firm or not. Instead, Access Advance is a scheme that makes its founders money, makes NPEs money, saves patent holders who are major implementers money by giving them terms that are fundamentally different from the terms offered to founders and other net licensors, and then has to prey on other implementers in order to make money.

This is not the right way forward for the industry.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|

'Access Advance' patent pool can rename itself 'Suffer Setback' after Dusseldorf court ruling: flagrant FRAND abuse concerning video codec patents

The most recent IAM Sunday Digest mentioned the Access Advance pool firm's VVC Advance announcement as well as the Dusseldorf Regional Court's conclusion that the HEVC Advance pool's terms are non-FRAND. I had mentioned the latter in a recent post on a wireless SEP dispute. While I haven't been able (yet) to obtain a copy of the Dusseldorf decision, I have meanwhile seen reports by IAM (as I mentioned) and Juve Patent, and would like to add some observations.

This is not going to be my last post on that set of cases and the underlying conduct, which I find egregious. A few organizations' greed threatens to bring the very concept of patent pools into disrepute unless we all make the proper distinction between the vast majority of pools that serve their purpose--and an abusive outlier like Access Advance. It is equally important to understand that just because a company joined that pool as a licensor doesn't necessarily mean that it has unclean hands. They aren't all wrongdoers, but the Dusseldorf disaster should give the more reasonable ones among those Access Advance licensors pause, above all with a view to the latest and greatest in video codec standards: VVC.

There's a certain complexity and some specialized terminology, so let's get an overview first.

From AVC (H.264) to HEVC (H.265) to VVC (H.266)

Wikipedia describes Advanced Video Coding (AVC), also known as H.264, as "by far the most commonly used format for the recording, compression, and distribution of video content, used by 91% of video industry developers as of September 2019." Since 2010 this blog has repeatedly mentioned patent pool administrator MPEG LA's AVC/H.264 Patent Portfolio License, which many regard as a key enabler of H.264's widespread adoption.

It's a huge problem that almost two decades after H.264's adoption as a standard, its successor--H.265 or High Efficiency Video Coding (HEVC)--is nowhere near as popular, despite its technical merits. I attribute that disappointing fact largely to patent licensing issues, as do others (for example, the Eagle Eye Networks blog says "adoption is slow" and "[t]he primary reason for this[] is that unlike [H].264 which has 1 patent pool, [H].265 has 3 patent pools with different pricing structures and terms & conditions." As a result, "many content providers have stuck with [H].264 because at least they know it will always play."

The next big thing could and should be Versatile Video Coding (VVC, H.266). It's roughly twice as efficient as HEVC.

Theoretically, you can encode videos with an 8K resolution even in H.264. But as a rule of thumb it makes sense to use at least HEVC (H.265) for 4K videos, and for 8K what you really want is VVC (H.266)--unless you don't give a damn about efficiency, of course. But with video accounting for the largest part of global data traffic (a large part of which is consumed on mobile devices), we should care.

"HEVC Advance"

I've never heard anyone complain about the terms of MPEG LA's HEVC pool license, but have repeatedly (!) been told by industry players and their counsel that they took issue with the "HEVC Advance" license. The pool administrator originally had the same name, and later renamed itself "Access Advance" so as not to be identified with a single standard. I put both names in quotes because to me "advance" means "progress"--a misnomer as that organization has actually impeded the adoption of HEVC, but I'll omit the quotes from here on out./p>

On its website, Access Advance doesn't say anything about ownership. For what I know, that entity is not the "independent licensing administrator company" it claims to be. It appears to be owned by four patent holders: General Electric (GE), Philips, Dolby, and Mitsubishi. They set up this entity in 2015 because they thought they could extract far higher royalties by not participating in MPEG LA's HEVC pool. They went on to persuade some of MPEG LA's HEVC licensors to join the HEVC Advance pool, on a basis that created all sorts of problems culminating in last month's Dusseldorf holding that the pool's terms are not FRAND.

Current Dusseldorf plaintiffs: GE, Philips, Dolby, IP Bridge

As a pool administrator, Access Advance does not hold patents, so its licensors have to enforce their IP if someone declines to take a license. In the current round of Dusseldorf cases (see this Juve Patent article), the plaintiffs are GE, Dolby, Philips, and Japan's IP Bridge (a non-practicing entity that is a public-private partnership involving the Japanese government).

Current Dusseldorf defendants: Vestel and Xiaomi

After getting a medium-sized (if not small) German company named MAS Elektronik to take an HEVC Advance license, those patent holders decided to take on Xiaomi and Vestel. The former needs no introduction, and the latter is a reasonably successful Turkish company that makes (inter alia) TV sets, though it is small compared to Xiaomi.

Overview of cases adjudicated in December

The Xiaomi cases will go to trial this spring. Six Vestel cases were adjudicated last month by the Dusseldorf Regiona Court's 4c Civil Chamber under Presiding Judge Sabine Klepsch (who in 2020 famously referred Nokia v. Daimler to the European Court of Justice, which never got to hear the case due to a settlement).

Two patents asserted by GE and two asserted by Dolby were deemed essential (and not considered very likely to be invalid). One IP Bridge and one Philips case were stayed as the patents-in-suit appeared fairly likely to be invalid.

Vestel had not only defended itself against the infringement allegations but had also counterclaimed, alleging that the electronics maker suffered damages as a result of the HEVC Advance pool terms being out of compliance with the FRAND licensing obligations of its licensors. In the cases in which GE and Dolby prevailed on the purely technical merits, the court furthermore had to reach the FRAND defense to injunctive relief--which largely overlaps with the FRAND counterclaim.

Vestel deemed willing licensee

The court applied the German Sisvel v. Haier standard, starting with an amalgamated perspective on whether the defendant was a willing licensee. The three-judge panel concluded that Vestel was a willing licensee. (We will see what happens in the Xiaomi cases, but that company does enjoy a good reputation in the licensing community.)

The hurdle for being deemed a willing licensee may be higher in Munich and Mannheim than in Dusseldorf, which is why I recently raised the question of when those courts would finally consider an implementer of a standard to be a willing licensee.

GE's and Dolby's bilateral offers disregarded

Only if and when the implementer is a willing licensee do German courts--under Sisvel v. Haier--take a closer look at the patentee's licensing offer(s).

Here, each plaintiff made a bilateral offer (i.e., a direct license that bypasses the pool) and pointed to the HEVC Advance pool license as another licensing offer. As a matter of policy, I actually believe courts should encourage that SEP holders make--wherever it is warranted--alternative offers. The more offers are on the table, the more likely it is that the implementer regards one of them as palatable. However, in Dusseldorf they have a different attitude: at least some of the judges there consider it necessary for every single one of a plurality of licensing offers to be FRAND. I believe reasonable people can disagree on this question, but in the Vestel cases the court decided not to analyze GE's and Dolby's bilateral licensing offers in detail: the court contented itself with identifying a FRAND breach just based on the HEVC Advance pool rate.

Should an appeals court (theoretically this could go up to the Federal Court of Justice) or another German court (if any cases were brought there) agree with me, it still wouldn't solve the problem for Access Advance. Its members might then win some cases (unless their bilateral royalty demands are insanely prohibitive, as may very well be the case here), but HEVC Advance would remain stigmatized regardless.

Dispositive part of FRAND analysis: HEVC Advance terms

I've seen cases (such as Microsoft v. Motorola) where pool rates served as important points of reference aiding judges as they were making a FRAND determination, but to the best of my knowledge, it's unprecedented for a court to find a patent pool's terms non-FRAND. It's a result that will live in infamy--to quote FDR. (For Vestel and its counsel, Gruenecker's Dr. Ulrich Blumenroeder, it's a remarkable success though.)

So why did it happen in this set of cases?

There's a problem of (a) double-dipping and (b) reneging on a prior FRAND licensing commitment. Vestel already had an MPEG LA HEVC license, and was therefore licensed to the portfolios owned by those former MPEG LA licensors who succumbed to Access Advance's lure of easy money. So, just as a rough estimate, Vestel was already licensed to about half of the patents in the HEVC Advance pool--and at a far more reasonable rate than the HEVC Advance rate, that is.

The court easily figured out what the HEVC Advance scheme is about. The pool charges what in my estimate is about four times the MPEG LA rate (relative to the patents in the pool). Some thought it was a simple way to make more money. But implementers who already have an MPEG LA license obviously take the position that they shouldn't have to pay again for patents they had licensed before--and especially not a far higher rate.

The court touch on multiple issues in its ruling, but needed to reach a definitive conclusion on only one in order to decide the cases in Vestel's favor. Once I've obtained a copy of the ruling, I'll go into more detail on that--and later this week or early next week I'll talk some more about why HEVC Advance is doing what it is doing. For now, suffice it to explain the following problem:

HEVC Advance refuses to lower its rate for those who have already licensed many of those patents through MPEG LA. Instead, HEVC Advance tells them to go to MPEG LA and seek a refund. What HEVC Advance should do is apply a credit. Maybe it would also be acceptable if HEVC Advance's licensors offered a refund on FRAND terms--though I have serious doubts about whether that would be the appropriate vehicle under any circumstances.

The key lesson from the Dusseldorf Vestel decisions is that you can't just join a first pool, make your patents available on one set of terms, and later join a second pool, ask for several times more money, but refuse to take into consideration that some implementers already got a less expensive license. It's a scheme to renege on a prior FRAND licensing commitment.

There are reasons for which HEVC Advance and its licensors don't treat licensees fairly. Those reasons have a lot to do with its owners' conflict of interests (with a few licensors owning and controlling the pool administrator), and with the deal structures they apparently offered to companies like Samsung and possibly also Microsoft (which just became an HEVC Advance licensor recently, so its patents were not at issue in the Dusseldorf Vestel cases) in order to get them to join. I've done some research on that, I'm still working on it, and I'll talk about this topic again in a matter of days. Stay tuned. The story must be told. While Access Advance will avoid the double-dipping problem through the terms of its new VVC pool (which will not allow licensors to participate in other pools at the same time), the root causes of the Dusseldorf disaster still pose a serious risk to the adoption of VVC.

Follow @FOSSpatents

Share with other professionals via LinkedIn:

Share|