There is much contention in the CUT FATT filings as to how much royalties are claimed on the US and other DTV systems, and what significance the differences may have in the framework of “RAND” (Reasonable and Nondiscriminatory) standards policies and government oversight.
The debated amount for royalties on the US DTV system is $23 dollars, with some debated lower amount for other systems (actually, many components are available royalty-free, see here, for example about how Japan courted Brazil to the ISDB system: “A memorandum on the digital standard signed earlier this year between the Brazil and Japan called for Japanese firms to train local staff and allow Brazilian companies to use the technology without paying royalties”).
So hold this thought: $23 dollars as the contented royalties per set top for the US DTV system versus a Japanese government official’s assertion last month that ISDB set tops would be available for $30 in the Philippines.
Some context. The advent of modern patent pools after a century of policy skepticism is often traced to the 1997 US Department of Justice business review letter that indicated the DOJ would not prosecute on Antitrust grounds a pool license for the MPEG-2 video codec and associated transport stream.
In subsequent years, selective readings of terms of that 1997 letter have become common sport in patent pooling circles. Can a contractor paid to determine essentiality of a patent really be independent from their employer? No increase of royalties by more than 25%, “most-favored-nation” clause for licensees? Does making the list of patents available require posting the list to a web site? What about the potential for hold-up after a standard becomes popular?
Now a particularly interesting assertion is made in the filing by Mitsubishi Electric (emphasis added):
“patent policies cannot become retroactively anticompetitive because of changes in market conditions, such as the prices charged by comparable technology standards.”
Department of Justice takes the position that the patent policies of a standards development organization (“SDO”) are to be analyzed ex ante for potential anticompetitive effects.
In other words, the DOJ’s antitrust analysis focuses on the state of the world when the SDO’s patent policies are established.
To paraphrase, it appears that Mitsubishi Electric reasons something like that patent pools can charge whatever they think is fair, because there is no objective way to determine what is unfair. What an interesting interpretation of the policy underpinnings of the Department of Justice authorization of ex ante procedures in standards organizations, and one that RAND-based organizations will want to take a note of.
What a far distance this is from the original DOJ business review letter authorizing the MPEG patent pool in 1997 on specific, narrow terms, which contemplated that because royalty rates would be “a tiny fraction” of product prices, collusion or downstream price coordination was highly unlikely:
“Further, since the contemplated royalty rates are likely to constitute a tiny fraction of MPEG-2 products’ prices, at least in the near term, it appears highly unlikely that the royalty rate could be used during that period as a device to coordinate the prices of downstream products. “
So there you have it: in just 12 years from a proscriptive assumption of royalties being a “tiny fraction” to assure no downstream collusion to a claim of “cannot become retroactively anticompetitive” even if royalties are over fifty percent of total product price. Attorneys for Moore’s law should take note.
“Even if one were to assume the accuracy of this unsubstantiated report and the unstated methodology underlying it….[t]his falls far short of showing a systemic breakdown in licensing essential DTV patents…there are legitimate reasons for differences in royalty rates between U.S. and foreign pools” (Philips / Qualcomm)
“For purposes of these Comments, it can be assumed that the royalty rates alleged in the petition are accurate. However, it is noted that the petition errantly describes the royalty for ISDB as 100 yen per unit, even though the actual royalty for ISDB is 200 yen per unit. See <http://www.uldage.com/en/indexe.html>. ” (Mitsubishi Electric)
“misleading at best … categorically false … not credible …differences in the patent acquisition and enforcement systems around the world and the fact that the ATSC standard is different from those used for DTV elsewhere in the world … “NAFTA Digital Television” patent license … very reasonable royalty terms” (Thomson)