April 9, 2002 4:05 PM PDT
MPEG-4 rival raises antitrust specter
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New York-based On2 said Tuesday that it has sent letters to the Department of Justice and all state attorneys general, asking them to review the legality of a proposed MPEG-4 patent pool and to make a ruling as to whether it's anti-competitive. On2 offers a competing technology that it is pushing as an alternative video standard.
"MPEG-4 is trying to monopolize the substantially software-based interactive video compression industry, plain and simple," On2 wrote in its position paper to the Justice Department. "It is a move by a few very large companies to dominate a market and fix prices. Recent pricing policies by MPEG LA for MPEG-4 and the customer reaction to them are ample evidence of this."
MPEG-4 is the successor to MPEG-1 and MPEG-2, technologies behind the MP3 audio explosion. Like its predecessors, MPEG-4 comprises audio and video technologies that condense large digital files into smaller ones that can be easily transferred via the Web.
On2 and a raft of media companies have been arguing against a controversial licensing plan for MPEG-4 proposed by a licensing body called MPEG LA, which represents 18 patent holders. The plan would require licensees to pay 25 cents for each MPEG-4 product such as an encoder or decoder, with fees capped at $1 million a year. It also suggests charging a per-minute use fee equivalent to 2 cents for each hour encoded in the format, including content on DVDs.
On2's attack comes as the company seeks endorsements for its own competing format. Two months ago, the company proposed that the Internet Streaming Media Alliance (ISMA)--a standards body made up of tech heavyweights including Apple Computer and Cisco Systems--make its video-compression technology an alternative to MPEG-4.
On2 is "concerned that if MPEG-4 becomes a universally adopted format that might freeze (the company) out of the market," said Ross Rubin, senior analyst at Jupiter Media Metrix.
According to On2's paper to the Justice Department, the company is worried about the legal issues surrounding MPEG-4 rather than the technology itself. The company said it believes that for MPEG-4 to become a standard, MPEG LA will need approval by the Justice Department for its patent pool.
"The Justice Department has never granted MPEG-4 any right to pool patents, and therefore MPEG-LA has no legal right to charge licenses of this patent," said On2 Chief Executive Douglas McIntyre. "We are not saying the patents are invalid (or the companies that own the patents) shouldn't be able to license patents. We're just simply saying that (MPEG LA) shouldn't be able to do this as a group. It's fine if they want to license this stuff individually."
MPEG LA, however, disputes On2's claims, saying the company is "wrong on both the facts and the law." Larry Horn, vice president of licensing and business development at MPEG LA, said a licensing program has not been finalized and that the group is working with companies in the industry to develop it. Horn added that a business review letter is not required by the Justice Department.
"The (position) paper continues to demonstrate that On2 knows very little about what's happening with MPEG-4," Horn said. "It shows they know very little about the antitrust laws, and they are way off base."
The use of patented technology to create a standard has raised controversy in the past.
Last year, the World Wide Web Consortium (W3C)--a group mainly including technology companies, researchers and government organizations--introduced a proposal that would let companies enforce patents and charge royalties for technologies used in W3C standards. Web developers and supporters of open-source software development criticized the proposal, saying it would be an obstacle to innovation and would create legal challenges for developers.