Prominent Patent Pooler Facing Department of Justice Inquiry?

It was only a matter of time before patent shops, patent poolers, patent holding companies faced antitrust scrutiny, though it’s difficult to assess why MPEG-LA executives should be losing any sleep this early in the game.

MPEG-LA collects patents in the video sharing space and licenses those patents back to Apple, Microsoft, Adobe, etc. It is reported that pool contains some 200 patents. With YouTube and Android, Google is a major player in video sharing, and they want to avoid the MPEG-LA toll booth. The key royalty-burdened software is H.264. Google has an alternative, VP8, which they feel is royalty free. Last year Google overspent (we thought) on a company called On2 ($150M, which is what happens to IP value when there is a strategic buyer), but it turns out that company claimed it had patent-free video sharing software, subsequently named WebM by Google, and offered up to the Open Source community for development. (Google needs developers to embrace this technology, because now it simply doesn’t measure up quality-wise to the H.264 standard, use of which, again, triggers a royalty to guess who.)

In what is being positioned as “The fight for video on the net” by Fortune, MPEG-LA did not take kindly to this threat to their business model (I am resisting saying Google is On2 something) and is now scouring for patents that WebM may be infringing.  According to the Wall Street Journal, the MPEG-LA activity has attracted the Department of Justice.

It’s not the first antitrust probe against MPEG-LA. In May of 2010, Nero, a global computer software company located in Karlsbad, Germany (here is their suite of products), filed an antitrust suit against MPEG-LA, claiming it monopolistically added “non-essential patents to the MPEG-2 patent pool."

This story is bigger than the “fight for video on the net.” It’s about the very nature of patent pools, the MPEG-LA business model.  MPEG-LA has 8 different patent pools in the video sharing space.

However, patent pools are planned for these industries:

       Molecular Diagnostics


       Consumer Electronics





       Healthcare and Biotechnology

       Manufacturing and Materials

       Transportation and

       Wireless Technology

In effect, MPEG-LA adds value to an owner’s IP.  Much as Copyright Clearing Center managed the IP of many, making each more valuable to the owner by distributing royalty income where likely none would be derived otherwise, MPEG-LA brings resources to managing and protecting IP rights, and strength by packaging individual parts to make a viable whole.  In other words, as work-arounds must be difficult and expensive to engineer when you keep running into another patent, the Gestalt of the model is that the whole is greater than the sum of its parts.

This is not to say the toll-paying is not expensive and intrusive, or that the motives of the patent pool parlayer are all noble. For the valuator and the inventor, there is yet another way to realize the value of IP.