Companies Should Reject Licensing Terms From HEVC Advance Patent Pool

Last month newly formed patent pool HEVC Advance announced their licensing terms for patents pertaining to HEVC video. [See: New Patent Pool Wants 0.5% Of Every Content Owner/Distributor’s Gross Revenue For Higher Quality Video] While the pool has yet to detail any of the actual patents in question, or make it clear exactly whom they feel is required to pay for licensing, they still plan to open up for licensing deals on October 1st. Each company has to do their own due diligence with regards to HEVC Advance, but my recommendation is not to agree to HEVC Advance’s licensing terms. There is no rational business case to agree to their terms, especially when there are no details on which patents will be included or what technologies they cover. And considering the patents are only just starting to be independently evaluated this month, there is no way to know the validity of any of the patents in the pool.

If the industry collectively refuses to pay the licensing terms HEVC Advance has put forth, the licensing group will be forced to change terms to make them fair and reasonable, disband, or the patent holders themselves will have to individually file suit against every broadcaster, OTT provider, CE manufacturer and everyone else they feel infringes. That’s going to be nearly impossible to do considering there are tens of thousands of companies that HEVC Advance wants royalties from. Patents holders “expected” to be in the pool including GE, Technicolor, Dolby, Philips, and Mitsubishi Electric would have to take companies to court and it would be a long, expensive and drawn-out process. The average patent case takes five years to resolve. Note that HEVC Advance won’t say who for certain is in the pool and keeps using the term “expected” because even they admitted to me that not all the companies mentioned have completed the paperwork to be in the pool. What a circus.

While some might think there is no way HEVC Advance would change terms or simply give up, content owners and broadcasters have forced this exact result in the past. If the approach HEVC Advance is taking sounds familiar, it’s because we’ve seen this before, with some of the same players. Some might remember a company called Via Licensing which including patent holders Dolby, Philips, and Technicolor. They came to the market with patents for DVB-MHP, targeting the broadcasters and set-top-box makers. The also had the same style of a secret essential patent list and vagueness and got nowhere with their patent pool. Via Licensing forced many to abandon further development of DVB-MHP, but the broadcasters and operators sought an alternative, and the zero royalty HbbTV technology was born. A reader also reminded me that the notion of going after content owners and distributors was also tried with MPEG-4 Part 2, the original MPEG-4 video compression which pre-dated AVC. It failed in large part because of this licensing tactic, which is why the H.264/AVC licenses were more sensible.

The companies in HEVC Advance should have learned from history. Broadcasters, content owners, and distributors have shown they will seek out alternatives when these kind of greedy patent pools come to the market. Companies could bypass HEVC all together and start using Google’s VP9. Another interesting development is that Cisco just announced a royalty free video codec called Thor, specifically to combat all the licensing terms around HEVC. So for the companies in HEVC Advance, you’re being put on notice that alternatives do exist. Your greed will be your downfall if you don’t listen to the market.

If the industry sticks together, I believe that HEVC Advance’s unfair and unreasonable royalty rates can be defeated. Companies like Dolby can’t afford to upset Hollywood and content owners, which is what they are starting to do. I’ve already heard from multiple major studios who said if Dolby want’s to try to enforce unfair royalty terms around HEVC, they will hit back and do everything they can not to licensing Dolby’s audio technology across the board. There are alternatives. Not to mention, Dolby is also telling these same studios that they will soon want royalty payments pertaining to HDR patents as well. Dolby is not making any friends right now and if they then try to sue content owners and CE manufactures that they currently have as partners, Dolby will face some serious trouble.

It should be noted that all of my inquires to Dolby, Technology and Philips to learn more about their involvement in HEVC Advance have gone ignored and HEVC Advance hasn’t made any patent holder available for the media to talk to, even though it’s been requested. The companies in the pool are making a big mistake by allowing GE Licensing to speak on their behalf. Patent attorneys don’t know technology, which is evident by the multiple calls I have had with HEVC Advance. When they can’t answer basic questions around the technology, or answer most questions by saying “we’ll work something out”, the pool loses the ability to create any creditability. If you feel your patents are strong and your terms fair, then communicate that. Because right now all you are doing is communicating that you’re in a disorganized pool that isn’t educated on the market or how the technologies even work. And no I’m not being harsh, it’s the truth.

To defeat HEVC Advance’s terms, all it will take is some major companies publicly coming out to say they don’t plan to pay, based on the current rates. If a few major companies do that everyone else will follow suit. Another alternative is for an industry association to have all their members agree to speak out against these unfair and unreasonable terms and that would stop HEVC Advance in their tracks. I am calling on the industry to do just that. Put aside your competitive offerings and be united – stand together. Let me know how I can help. I take it personally when any patent pool comes into the industry with unfair practices and licensing terms, which has the serious potential to stunt the growth of the market. Not to mention, a third patent pool around HEVC is already forming.

To the companies in the HEVC Advance patent pool, I challenge any of you to a debate on your patents, your rates, and your approach to the market. I’ll give you the stage at our next Streaming Media West show in November to state your case as to why anyone should license from the pool. The ball is in your court.

Updated 8:43pm: Technicolor replied to me to say that all communications requests are answered by HEVC Advance directly.

  • Jan Ozer

    Great points Dan. HEVC Advance is loudly saying “Show me the Money,” but when we ask “where’s the beef?”about who are the members and what IP do they own, HEVC Advance is completely silent. If they don’t make this critical information available before October 1, companies might be negligent if they do pay the royalty.

  • Ray Stantz

    I find it unsurprising that rent seekers are seeking more rent. I don’t see that there’s much point trying to form a union to force better terms. The more fundamental problem that needs to be solved is the reliance on royalty-bearing formats. Royalty-free formats avoid the issue of rent seeking by design.

    The best use of everyone’s time is to encourage all interested parties to contribute to the IETF’s Internet Video Codec working group. As you say, Cisco has contributed Thor. Mozilla and Xiph have contributed Daala. It’ll be great if Google contributes VP9 or even VP10.

    Working within the NetVC group it’s already the case that the Daala team has experimented with integrating features from Thor into Daala and integrating features from Daala into Thor. The final NetVC codec won’t be Thor or Daala but a codec built from the best features of both and any other contributions made to the working group.

    The web works best and with the least hassle using royalty-free formats. For the web video industry to mature it needs to follow the same proven path as the rest of the web and embrace royalty-free codecs. For audio, the codec of choice is a no brainer. For video, use VP9 today and bet on NetVC for tomorrow.

  • Kilroy Hughes

    It’s nice when people develop new codecs and promise not to charge for their IP. That doesn’t make them royalty free because there are a few billion other people that may have patents that read on the technology. VP8/VP9 are cases in point.
    Even though MPEG has standardized VP8 as “Web Video Coding”, WebVC is only royalty free if Google buys the patents or licenses their use for themselves and any other implementer.
    MPEG also developed an Internet Video Codec that IS very likely patent free because it used technologies from MPEG-1, MPEG-2, video, etc. where any patents have expired. There’s a tradeoff between cheap and state of the art.
    Codec competition works wonders on royalty rates. When I standardized VC-1 we were asking 10 cents a decoder with a cap. Some AVC patent holders wanted the MPEG-2 rate of $2.50 per decoder, uncapped, and deferred content fees because the still had unpleasant memories of the MPEG-4 video fail. There was also a second patent pool (VIA) with the usual suspects. The end result was a single pool at 25 cents a decoder, no charge for products sold in small numbers, and a cap. Just saying.

  • Boris Felts

    Isn’t there an obligation to respect “RAND” licensing when you contribute to MPEG? Assuming that that the patent holders belonging to this pool did contribute to MPEG, how can HEVC Advance now apply different rates based on geographies? Is this compatible with the RAND condition?