The Communication Workflow

 Last update: 2005/03/08

After talking about one scourge of the hacker community - software licensing, it is now time to say more about another scourge - patent licensing. Instead of discussing the merits or demerits of patent licensing forms, I would like to make some considerations on the entire workflow that underpins the creation of new communication forms. 

Inventions start - of course - from people's inventiveness. Most PAs understand that, today more than ever, inventions are key ingredients of the wealth of nations and try to play a role in the creation of environments conducive to inventions. Their typical actions are investments in education and dissemination of information. A good example is the mechanism, emulated by other countries and adapted to their culture, that the US government set up with the Bell Labs, where ATT had to divert a fixed proportion of its revenues to fund research. The effects of this policy were outstanding: besides creating what used to be the best telephony system in the world, an endless string of major inventions was created that benefited the well being and further development of the entire country.

While in the past it used to be individuals who created inventions, today it is more common that companies hire capable individuals and assign them the task of improving or innovating communication forms. Companies tend to become closed ecosystems - not a good recipe to foster inventiveness - but this inward-looking tendency is compensated by the centrifugal action of professional and scientific societies which play the role of creating neutral environments where individuals can exchange opinions and experiences, possibly leading to new ideas or new inventions. In Europe this role of professional societies is somehow offset, or maybe compensated, by funded R&D projects. In these environments participants are freer to exchange ideas because those project are regulated by contracts with specific IPR clauses.

As a rule, inventions are turned into patents. Patents are obviously the starting point for a company to innovate its communication products or services. At this point the traditional behaviour of industries used to depart. 

The traditional IT and CE approach was to leverage on these patents and make new proprietary products or services. This approach used to work well because new communication devices were largely "stand alone": People could buy a Betamax recorder and have a large selection of movies in that format as much as users of VHS had a comparable range of titles to choose from. The problem only arose when a cassette with the daughter's birthday recorded in Betamax was sent to auntie with a VHS recorder. After a more or less long period of time, with more or less hassle created to users, the eventual "industry standard" would be settled and, possibly, would get a formal standard "stamp" from ISO or IEC.  The telecommunication and broadcasting industries went through incredible birth pains in their early years and this convinced government that the exploitation of inventions in these domains had to go through a formal standardisation process. For good measure, the specifications of the resulting service, technology included, was even converted into law. 

In either case the SDO requested that the company holding patent rights would license the patents at RAND conditions. Everybody could then start manufacturing the new device or offering the new service and the rights holder would manage the licensing. If there were more than one company holding patent rights, usually one of the companies would act as licensing authority on behalf of the others. 

This modus operandi no longer suits the industries concerned. Even if a company has some smart invention, it is now hard to convert it into a successful product because of the need to get the involvement of too many technologies from too many companies from too many industries, not to mention the fact that a proprietary device has still a hard time to get accepted, unless the company has a virtual monopoly in a particular field. A simple example - DVD - shows that this model is no longer sufficient. Philips and Sony had a technically very good solution but the other camp had enrolled the support of a range of movie companies and they won the day. This is one of the reasons behind the trend to build huge conglomerates where most if not all the technology and content components required for launching new products or services are in house. It then follows as a corollary that these conglomerates tend to create walled gardens to keep users in. 

The MPEG process provides a different approach to this problem. Again we start from companies investing in R&D and making inventions that are patented. In the technical area covered by MPEG, however, you need in general a large number of components to make complete solutions. Assembling these would require, in general, teaming up with other business players, because we are no longer in the simple "stand-alone solution" case. MPEG designs the pieces of communication systems - actually only the interfaces and the protocols that are required to achieve interoperability between subsystems - providing solutions that achieve a previously agreed goal. In addition MPEG performs some other "technology integration services" because its standards can be used in pieces but also as complete solution, i.e. as the sum of their parts. 

In other words MPEG offers a place where R&D results, in general still at an unrefined stage, i.e. not yet transformed into products, are fed to a standardisation process and can become, if they satisfy fitness and technical excellence criteria assessed by peer review and decided by consensus, part of the technology portfolio needed to create new communication forms.  

From what has been said before it should be clear that, far from stifling innovation, the MPEG standardisation process is the source of a virtuous circle where companies invest in innovation in the hope of a return both from the existence of new products and services shared with all other companies and industries, and from patent royalties. This works well in principle, but the practice may be different. An MPEG standard usually requires a considerable amount of IPR for its implementation. This is because, for whatever choice MPEG has to make, there are usually a number of solutions, some of which are likely to be affected by IPR. Getting agreement from all rights holders for reasonable licensing terms may not be easy. 

In MPEG-2 times the North American CATV industry was kind enough to provide the kick start of the creation of the patent pool, but in the MPEG-4 case there was no industry or trade association that would be available to play a similar role. Commending words must not be spared to those who engaged in the daunting task of working out licensing terms for a standard that could be used in such diverse cases as mobile and CE devices, for personal and streaming applications, in hardware and software-based solutions.

The licensing scheme has been recently published but I happen to have some comments on the actual terms of the license. I am not sure the licensing terms have the right balance that some people think the MP3 license has. A superficial observation is that charging for both receivers and content makes two major players unhappy. Another is that there is a perception that the component of "licensing fees now and from anything" prevailed over the creation of a business out of which much bigger revenues for the licensors could have been obtained. 

To work fully, the MPEG model of standard development requires a body (in the case of MPEG-4, actually two more bodies, the industry forum and the licensing entity). The last body is the one attempting to create a single-stop shop for patent licensing according to well-identified licensing schemes.

Recursively, there are calls made to MPEG from certain quarters to adopt a more "modern" patent policy and produce standards unencumbered by patent rights. The first obstacle is procedural. It is virtually impossible to implement such a policy because of the constraints of the ISO/IEC directives mandating that decisions should only be made on purely technical terms. Then there is the fact that MPEG, with no funds of its own, has no means of becoming aware of patents required to implement its standards. Lastly, as mentioned before, the audio-visual coding field is literally covered with patents. This is the case of the AVC standard. Started with the idea to produce a royalty-free baseline, the goal, at least as far as MPEG was concerned, had to be abandoned when some companies started suggesting that what appeared in the AVC WD did not qualify. This of course does not mean that a royalty-free baseline will never be agreed. Simply this will, if ever, happen in the marketplace. 

The alternative would be to try and design a patent-free codec. However, this would mean to produce a standard that is likely of little practical value because of their very poor performance, compared to state-of-the-art algorithms. 

Then the objection is usually made that MPEG standards will soon become irrelevant because there are so many solutions out there that are patent free. It is true that there are competing proprietary solutions. However, most likely these solutions already use patents and, if MPEG standards are any guide, the number of these patents is probably also large. Second, patent rights holders have not made statements like they have made for an MPEG standard, and it is not guaranteed that rights holders will license their patents to another combination of technologies, and if they do, not necessarily at RAND terms. Therefore these companies offering proprietary solutions are taking on board risks of unknown proportions. 

There is of course the case of proprietary technologies that are developed and marketed using apparently attractive business models, of the kind: take my player for free, take my back office at a cost. This model is being successfully employed these days. People think they are avoiding the second critical point, but do they realise that they are entrusting the future of their business to a third party? I say this because having associated one's business to a particular communication technology is not like making a deal with a supplier of nuts and bolts that one can change at will.  

It is important to note that there are bodies that make it a point of pride to develop interoperability points that are patent free. While this is certainly a laudable goal, I do not think that being able to provide an industry-specific piece of technology that is patent free is of much help when in any case the technology has to be integrated with other industry-specific pieces of technology that are not. Additionally this must also take into consideration the fact that, in developing the interoperability point, one may be forced to adopt an inferior technology and the fact that one is never sure that a technology is really patent free. This does not mean that a technology standardised by MPEG is guaranteed that there is no blocking patent for which license can be obtained. 

Let me now consider the management of patent pools. These are typically for-profit companies with the following tasks: identification of the rights holders, assembling of rights holders, helping work out licensing terms, giving licenses, collecting licensing fees and distributing the collected fees to rights holders (of course, its own profits subtracted). Is this the only model? Probably not, as an example suggested by Olivier Avaro shows. This is not a firm proposal, as there certainly are legal considerations that must be resolved before it can be practically considered.

A for-profit company could have the task to identify the need for a standard, searching for patents that can be used in the standard, assembling experts (paid up or working for free) to develop the standard avoiding the identified patents, checking continuously that IPR used in the standard has not been filed as a patent just before disclosure, filing for all patents, publishing the standard. The company then would develop licensing terms, identifies users of the standard and applies a levy to such users. 

Another model is the one adopted by SC 24 "Computer graphics and image processing". They let an external organisation, such as VRML (now Web3D) develop the standard. Their role is to take over the technical work carried out by the external organisation and follow the formal ballot procedure to convert the external specification into an International Standard.

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