How next-generation patent pools can encourage adoption of new streaming tech

With the recent release of the VVC standard and the technology’s availability in the marketplace fast approaching, I am often asked what video codec licensing will, and should, look like in the future. More specifically, how should the next video patent pool be formed? How can it achieve maximum efficiency for licensees and licensors? What features should it include (or not include) to accelerate adoption? And how can it be designed to allow new video codecs to be seamlessly added in the future, while preventing the stacking of one video codec royalty on top of another? 

Let’s start with the question of how patent pools should be formed. The role of the pool administrator in pool formation is two-fold. First, establish a baseline programme structure for patent owners’ consideration based on experience, market insight, data and analysis. Second, bring together patent owners that represent all sizes and all sides of the equation in an inclusive and interactive process to find a middle ground and agree on a programme that is fair and reasonable to all. The pool administrator should aim for royalty rates and a structure that recognise the value of the SEPs, and encourage patent owners to make their SEPs available for license through the pool, but that are not too high, or structured with too much complexity, so as to discourage adoption by implementers and the taking of a pool licence.

Next, how can we structure pools to achieve maximum efficiency for licensees and licensors? Pool efficiency is largely a function of two factors, the first being the number (and percentage) of all SEPs able to be consolidated. The second is whether the pool provides efficient administration and support, which means adopting an approach to licensing as a ‘sales’ activity rather than a ‘legal’ activity for those implementers acting in good faith. Broad and deep patent coverage will facilitate licensing the vast majority of implementers through negotiation. To achieve this, implementers should not seek to drive to the lowest royalty rate; that will reduce the number of SEP owners who are willing to license through the pool and make the pool less valuable to its licensees. Nor should patent owners strive to obtain the highest royalty rate, as that will discourage implementers from making deals willingly, greatly increasing the cost of licensing to the pool contributors. Both tactics will result in failure – history has proven this time and again. 

Nor is an overly simplistic royalty structure the answer. Video codec technology does not bring the same value to each market segment. A single worldwide rate will almost certainly under-compensate patent owners, while an overly complex structure will discourage implementers from taking the pool licence. A balanced royalty rate structure, along with effective incentives for early participation, will attract the most patent owners and the most implementers, thus providing the greatest benefit to the marketplace.

Next, how can we structure pools to move from their primary focus of providing licence coverage to a broader focus that includes driving adoption of the technology? Probably the most important step toward promoting widespread adoption of VVC is avoiding the siren song of fees on content distribution. Content providers need to make enormous up-front investments when they adopt a new video codec, often needing to completely upgrade their production facilities and transcode a large library of existing content. Proportionally, these costs are often at a scale far exceeding that of device manufacturers adding an additional video codec to existing products. In these circumstances, royalty fees on content distribution, or even uncertainty about whether such royalty fees will be sought, can become a negative factor when content providers evaluate whether (and when) to adopt a new video codec.

From time to time, observers bring up the idea of charging a royalty for content distribution, as if it is part of achieving the perfect solution for video codec licensing. These observers ignore the fact that this is not a new idea, nor is it one that has been shown to work. Just as with past standards, efforts to charge royalties for VVC content distribution will discourage adoption and prove counter-productive.

Finally, how can we design a pool that can seamlessly add newer video codec technologies, and at the same time make the combined royalty costs manageable for a multi-codec ecosystem? First, there are practical realities that need to be addressed. Not all companies use multiple video codecs. So a pool administrator should provide a separate licence option for each video codec it licenses. On the other hand, the reality is that most implementers do use multiple video codecs for backward compatibility and other reasons. For these implementers, there will be significant appeal in a programme that combines different technologies in a way that allows them to realise royalty discounts when licensing multiple video codecs and enjoy other administrative efficiencies, such as a single royalty report. From talking with many implementers, the ‘holy grail’ in terms of video codec pool structure would be one that provides for separate licences for each video codec as well as a multi-codec option where the royalties for each video codec could be discounted, providing a lower ‘bundled’ rate.

So the future of video codec pool licensing should be more inclusive, more efficient, have a broader focus and be structured for today’s ever evolving multi-codec ecosystem. In fact, the market demands it now with the coming of VVC. Fortunately, many influential companies across the ecosystem are already working together to create a better future for video codec licensing. Thanks to their efforts, the future is now.

Pete Moller is CEO of Access Advance LLC, the patent pool administrator for the HEVC (H.265) Advance patent pool and the recently launched VVC (H.266) Advance patent pool and Multi-Codec Bridging Program.